I want to live, I want to give,
I’ve been a miner for a heart of gold.
It’s these expressions, I never give,
That keep me searching for a heart of gold,
And I’m getting old.
Neil Young 1972
My morning starts the same every day. Whatever time it is, it feels like 4:00 A.M. I reach over to my night table, grab my cell phone, and with eyes barely open check the price of gold. I do this every hour from that moment until when I go to bed, and sometimes every 5 minutes. It’s my beautiful obsession.
There's a reason for this. About 3 1/2 years ago I took every penny I had and invested it all in gold. By all I mean all. There was also a reason for this. I was drunk at the time (that's a joke). Actually, there were a lot of reasons that I decided to go all in like a hyper aggressive hold 'em player. In the next few blogs I'm going to discuss the reasons and a bunch of other things related to gold, including predictions for the future. Of course by the end I might have lost all my readers, but as we discussed here, I'm okay with that.
So far, the decision to go all in has worked out. As of today, gold has gone up about 80% since I bought it. Of course, I can't really pat myself on the back, because if I was really smart I would've bought it 11 years ago when it was selling for $250 an ounce (It's now about $1,600). So the first question is, why has it skyrocketed and gone up for 11 years in a row?
The first answer is inflation. As discussed here, inflation makes the price of everything go up, whether Coke or gold. The Obama administration and mainstream media try to avoid the topic, but prices have risen about 3 1/2% in the last year. In a related story, your savings are worth 3 1/2% less than they were last year. Congratulations. However this alone does not explain the rise of gold, which has gone up approximately 17% annually in those 11 years, far more than the CPI.
To understand why, we have to destroy a common myth. Inflation actually means the expansion of the money supply, not high prices. High prices are just the inevitable result of expanding the money supply. The US government has expanded the money supply by printing money, the most by far of any time in our history. Many people, including myself, expect this printing of money will ultimately lead to completely unsustainable levels of inflation. When that happens, that dollar in your pocket is going to lose value so fast it will make your head spin. Better to keep an ounce of gold there, which can’t be printed out of thin air like paper currency. So people have flocked to gold to avoid this dollar destruction.
The second reason is the lack of good alternative investments. For the first time in my life I can't think of anything besides gold that will make money in the near future. You can’t invest in CDs or treasuries, because they earn virtually nothing, far less than the inflation rate (this is called a negative real interest rate). This means that you are losing a lot of money any time you keep money in the bank or in a CD. Real estate? Please. You know what's happened to it. I may do a few blogs about real estate soon, but here's the short version: it's gotten killed and will continue to go down for at least the next 2 years. Sorry. I own a house too.
How about putting your money in stocks? The stock market has hardly moved in the last 10 years, which again means that because of inflation it's actually lost money (I really hope people understand this concept). If you're like me, and think that we are soon going into a deep recession, you can’t invest in stocks. Even if the upcoming close to hyperinflation causes the market to go up in nominal terms, that same inflation will cause it to go down in real terms (same concept).
The next blog will be about some myths about gold, and the last one or two will be about my predictions for the future.
Have a good night everyone.
JR
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