Gold: Ask Yourself "Why?"
What are you trying to defend against by Buying Gold today...?
"WHY SO HIGH...so fast?"
That was the question in our Daily Reckoning analyst meeting this morning, writes Bill Bonner in London.
"In the last big boom in gold – in the late '70s – gold followed inflation...and the central bank. Investors saw inflation increasing. And they saw the central bank failing to react fast enough. They began Buying Gold to protect themselves.
"But now...there is no inflation. And central banks are alert to the problem. They haven't raised rates...but they don't need to. There's no need to protect against a problem that doesn't exist.
"So what are investors trying to protect against?"
No one at the table had a good answer.
"They're just looking ahead to when all that money the feds put in the system finally shows up in inflation. If you believe there's a real recovery you might think it is coming soon..." said one analyst.
"They're worried about a crash of the Dollar...they're just Buying Gold because it's the anti-Dollar..." said another.
"Maybe the Chinese are switching their reserves to gold...just like they said they would. And maybe instead of buying at below $1,000 they're buying quietly below $1,100..." offered another.
"Gold is being re-monetized," says MoneyWeek editor Simone Wapler. "All the world's paper monies are losing value – and credibility. There's a race to the bottom as they try to devalue their currencies."
All countries are fighting for market share. In a price-sensitive world, they increase exports by cutting prices. And the fastest way to do that (sometimes, the only way) is by devaluing the currency. But when one nation devalues – say, by printing extra money – other nations must devalue too in order to stay competitive.
What can they all devalue against?
"Gold is rediscovering its old role," says Simone. "Once again, it is the way we preserve wealth and keep track of what things are worth."
Your editor had his say too.
"Maybe people are Buying Gold only because gold is going up. Maybe they realize that the world's financial system is in a period of crisis. They see the central banks are being derelict in their duty. Instead of protecting the value of their paper money the bankers are intentionally undermining it. They figure that if the central banks aren't doing their jobs – that is, if they aren't maintaining a reserve of real money – they'll have to do it themselves. Each person now needs to be his own central bank, with his own reserve of real wealth – Gold.
"Or maybe investors don't see that all. Maybe they just see the price going up and they want to hitch a ride. What else can they buy that has been going up for the last 10 years? Gold is up $150 – about 17% - in the last 6 months. It's up 27% in the last year. It's up 300% since 1999."
Gold is in a bull market. How far it will go and how long it takes it to get where it is going, no one knows. No one knows, either, how many scrapes and setbacks it will suffer before it finally reaches its destination.
But it is a bull market. And you don't ask questions in a bull market. You get on board and ride it to the end.
Then, you wished you had asked some questions.