Grumpy & the Gold Mine

How high can Gold go now everyone from Tampa strippers to Chinese consumers is facing inflation...

INFLATION IN THE PRICE OF STUFF has now affected Americans to a new, material degree, writes the Mogambo Guru for The Daily Reckoning.

   We are gambling less, we are driving less, we are eating in restaurants less, and we are (in general) suffering a falling standard of living because we can't buy as much stuff. Most especially, we can't afford to buy as much pleasurable stuff anymore, and believe me when I tell you that nobody is grumpier about it than I.

   One reason I'm grumpy is made manifest when we note that this includes, according to the Associated Press, the Association of Club Executives – "a group that represents adult entertainment clubs" and whose spokesperson Angelina Spencer says she "fields calls every day from strip club owners feeling the pinch of a bad economy."

   An adult-club owner named Joe Redner in Tampa says that although business is down 25%, "the economy does have one upside for the business – it's bringing out more women willing to give pole dancing a try."

   Now, if you are a man, I know what you are thinking. You are saying to yourself, "Hey! I could use some extra money, too! I'm willing to give pole dancing a try..."

   To that I say, "Hold it right there, my darling impetuous one." I can save you a lot of trouble and heartache when I reveal to you that even if you finally, finally, finally succeed in convincing the club owner to let you give pole dancing a try, your dreams will inevitably turn to ashes. Because the audience always turns out to be a bunch of no-class jerks who have nothing but hooting and criticism for my prima ballerina a la pole, disdain for my tiara ("He's covering his bald spot with it!"), my performance (don't try pole dancing while eating a burrito), ridiculing my darling pink ballerina outfit, my moustache and every damned little picky, picky little detail.

   Details such as "at least shave your legs and your chest, for crying out loud! Jeez...Gross!"

   You will run home, crying, and lock yourself in your backyard bunker where you arm yourself to the teeth with large-caliber weapons and vow to kill the first person who asks, "How did it go?"

   But inflation is ugly, and it is getting ugly all around the world, and to cite one example to support that contention, I heard a Chinese newscast the other day, and although I do not speak Chinese, I instinctively knew by the tone of their voices that they were talking about the roaring inflation in consumer prices and how they are pretty cheesed off about the whole thing.

   The bored look on the face of Adrian Ash of BullionVault tells me that he denies ever hearing anything about such a Chinese broadcast, and he obviously doesn't believe me when I tell him about it just because I lie about everything else to try to make myself look important and smart.

   Ash says only that he believes Stephen Platt at Archer Financial Services when he claims "there really is no other place to hide. Gold's about the only real currency out there that might hold value."

   "Might" hold value? Hahahaha! Mr. Platt is this week's winner of the Mogambo Award For Understatement (MAFU)! Hahaha!

   I could tell that Mr. Ash is suddenly envious of Mr. Platt getting the coveted MAFU, and decides to go for the Mogambo Award For Surprising Statistics (MAFSS) using gold as his example – obviously, to get on my good side and try and influence the judges giving out the award, namely me.

   So how high can Gold go? My usual answer is to first demand an estimate of, "How low can the Dollar can go?", which is the same as asking "How low WILL the Dollar go?", which is the easiest question on the whole mid-term exam; the answer is that it can, and will, go to zero.

   How do I know that the Dollar will go to zero value? Because it is a fiat currency, and all of the other thousands of fiat currencies tried by different countries over the millennia have ALL gone to zero! All!

   So the height to which Gold can go, in dollars, is infinity! And "infinity" is the answer to another question on the mid-term exam, namely, "How much is the market price of Gold in dollars if the Dollar is worth zero?"

   Mr. Ash shows no interest in my stupid mid-term exam, but seemingly agrees with me when he says, "Even after trebling in price from the low of eight years ago, there may be plenty of room for gold to rise from here."

   I was pretty unimpressed at such an unsubstantiated estimate until he quoted Peter Bernstein in his classic book, The Power of Gold, who wrote, "In 1959, the amount invested in gold was about one-fifth of the market value of all US common stocks. In 1980, the $1.6 trillion invested in gold exceeded the market value of $1.4 trillion in US stocks."

   Wow! The fact that Gold went from 20% to more than 100% of market value of financial assets is a very interesting precedent, reached when gold reached the pinnacle of its previous high of $850 per ounce.

   In fact, it's all even MORE unbalanced today, as Ash goes on, "The sum total of gold investment lags far behind the value of stock and bond markets today. Indeed, a 2005 study from Tocqueville Asset Management noted that, if taken altogether, 'the market cap of all above-ground gold – including central bank reserves – [now] equals about 1.4% of global financial assets.'"

   Once gold held for investment was worth more than the US stock market, and now total gold is less than 1.4% of financial assets? Wow!

   The inescapable conclusion is that there is a lot of room for Gold to go higher and higher and higher, just like history predicts it will! The historical record of monetary policies as regards fiat money sure makes investing easy, as it does not even involve using a calculator, working, or even thinking!

   Buy Gold, silver and oil! Whee!

The Mogambo sez: So I say to the bartender, "If you are not Buying Gold, silver and oil to protect yourself against the fall in the purchasing power of the Dollar caused by the Federal Reserve creating so much money and credit, then you are an idiot!"

   And to let him know that I am a very discerning kind of guy who knows what he is talking about, I add, "And I can also see that you were probably not too bad-looking when you were younger, but now you are kind of old and repulsive, and can only get skanky, ugly chicks to go out with you."

   Then, instead of thanking me for the information and rushing out to Buy Gold, silver and oil, he made me go home! This shows you the stupidity of your average American bartender. Don't make the same mistake.