Today we hear again from J.S. Kim on why, contrary to what you may hear in the mainstream, gold is not in a bubble and that if you haven’t bought any yet you will indeed regret it 5 years from now.
Last month J.S. wrote a brilliant article especially for us on The Current Stage of the New Zealand Real Estate Market, which if you haven’t yet read you must check out now. Todays article is taken from seeking alpha where he also posts articles regularly…
Yes, there is no typo in the headline of this article. Today there is still an unbelievable opportunity to invest in gold that will disappear over the next several years as this monetary crisis deepens. Despite the general widespread sentiment of Western financial advisers that they have missed the run-up in gold and now it is too late to buy, this is not true at all. In fact, to illustrate how little people understand about the reasons to buy gold, of all my friends that I urged to buy physical gold more than six years ago when gold was less than half of its current price, I only know of one that has bought any gold, and it still took five years of my prodding, four times a year, for this single person to purchase gold.
This is how incredibly misunderstood an asset gold remains today despite its enormous run higher in the past 8 years. This brief anecdote aptly illustrates the bias against gold and the foolish belief that gold is a bubble that persists today due to the massive propaganda and disinformation campaigns waged by bankers against gold. It is ironic today that public mistrust of bankers can be at such a high level at the same time that the public is still enormously willing to follow all of the bankers’ propaganda about gold. This great twist of irony illustrates just how powerful the bankers’ century long misinformation campaign about money and gold has been. Few people even understand how money is created let alone why gold is a protector of people’s rights.
Even if gold continues to correct this week, and the bullion banks, the US Treasury, the US Federal Reserve and the Bank of England are able to engineer a further decline in gold prices in the futures markets, this event will not be the bursting of the gold bubble as it will be, and always has been, described by many Western media sources. Even if gold loses another $120+ an ounce from its current price, this event would not mark the bursting of the gold bubble. The incorrect description of corrections in the gold markets, or downright meddling of Central Banks into the suppression of gold prices, as the bursting of a bubble is just as erroneous as the recent descriptions of rising stock markets as signs of economic recoveries. And this is the legacy bankers have created – confusing the masses to believe the exact opposite of what is true.
Though I’m not going to tell you the price point at which I believe gold will start rising again, it is not impossible to time markets as investment charlatans will lead you to believe as well. In fact, at the very beginning of this month, we told all subscribers of my Crisis Investment Opportunities investment newsletter to sell out of their precious metal stocks right before this steep correction in gold and silver occurred to lock in their profits and we’ll tell them to re-enter (or have told them to re-enter) when we feel that a low-risk, high-reward time to reposition our assets has materialized once again.
By understanding the rigging game in gold and silver markets and in stock markets, we’ve more than tripled the returns of the S&P 500 this year. In all honesty, however, bankers have filled most investors’ heads over the years with so many lies about gold that for the majority of investors, it would be a futile effort to try to time the market anyway. Most would be better off just understanding the fundamentals behind why they need to own gold and to buy and hold on through the dips and rises until it reaches the mania stage.
Being able to predict the recent steep correction in gold and silver in advance of its occurrence merely requires understanding the manipulation and rigging game in these markets. Understand the rigging game behind gold and it is quite possible to repeatedly time the gold markets with a fair amount of accuracy.
Even if you refuse to acknowledge the indisputable signs that the gold market is, and has been rigged for decades, you only need realize one thing – that despite the best efforts of the US Federal Reserve, the US Treasury and the Bank of England to suppress the price of gold, gold’s long term trend since 2001 when it bottomed at about $250 an ounce, has been up. And if you are astute enough to realize that the gold markets have been, and still are rigged, then observing gold’s rise from $250 an ounce eight years ago to more than $1200 an ounce just a week ago should give you the utmost confidence, that despite the best efforts of bankers to wreck gold’s price, its long-term trend will remain higher for quite some years to come.
Still, no matter what side of the “gold is rigged” debate you stand on (and there is lots of evidence to believe the “gold is rigged” side of the debate thanks to the tireless work of GATA.org), the public’s stated reasons for not owning gold are not only absent of logic but they are downright foolish. Two of the most frequently given reasons I’ve heard from Westerners as to why they will not buy gold are parroted banking propaganda that make absolutely no sense. The first reason people often give as to why they are reluctant to buy gold is that gold pays no interest. People would realize how foolish this stated reason was if they only realized that all paper money is issued as debt. If there were no debts in the system, there could be no money, yet people gladly accept an instrument that is issued as a debt and believe that it is a pure asset.
Secondly, they state, you can’t buy anything with gold. You can’t pay for many items with euros in many American stores or buy items with US dollars in many European stores either, but that doesn’t mean the euro is worthless to own if you live in America or that the dollar is worthless to own if you live in Europe. Both will still have some value in buying goods and services. Thus, to not own gold because “you can’t buy anything in stores with a gold coin or gold bar” is an answer devoid of any logic whatsoever.
Throughout history, gold has always been accepted as a form of money. In fact a gold coin in ancient Roman times would buy you about the same things today as it would have back then. With US dollars, you now need twice as many dollars to buy the same things today as you would have needed just 8 or 9 years ago. If a wealthy eccentric man walked into a Maybach auto dealership and insisted on paying for four custom made Maybachs with $2.4 million worth of gold bars, I guarantee you that the dealer would find a way to accept the gold bars and make the $2.4 million sale, knowing that he could choose to hold on to the gold or to convert it into Euros, Yen, Pounds or Dollars at a later point and time. Thus, there is no reason to believe that gold can not be used to purchase items. Gold may be an inconvenient form of money, but it will be much more inconvenient to watch your fiat money crash and burn and for much of your wealth to be wiped out when the second phase of this monetary crisis commences sometime in 2010 or 2011.
Secondly, psychology plays a huge role in the foolish bias of Westerners against gold. Were Westerners to live in China for just one year, where almost everyone knows multiple people that own physical gold, I guarantee you that their perception of gold, upon returning to America, would be drastically changed. They would be inclined to buy more gold just because of the sheep herd mentality that would make them much more comfortable purchasing physical gold after watching many of their friends and associates engaging in the behavior of buying gold for an entire year. Though in China, this herd behavior happens to be correct, just because everyone is doing the same thing, does not by default, make it the correct behavior. In fact, in investing, just the opposite is normally true. When everyone is doing (or not doing) the same thing, they almost always are wrong.
Think of US hedge fund manager John Paulson and his enormous coup of earning $4 billion of profit for himself in 2007. Paulson stood on the opposite side of the subprime mortgage bet from the rest of all of Wall Street. Regarding a recent book based entirely upon Paulson’s enormously successful bet to short the US housing market, one reader stated: “The most amazing thing is that no one seemed to believe [Paulson] until the market crashed and by then it was too late.” Though Paulson was a lone wolf among very few lone wolves that existed at the time regarding his beliefs that the subprime mortgage market would crash and burn, he ended up being right and all of Wall Street ended up being wrong. With buying physical gold, it will also pay to think like a lone wolf if you are a Westerner.
However, here’s the lesson most investors still refuse to learn about Paulson’s enormously successful investment play. The majority of investors never take the next crucial step of investigating the reasons why no one believed Paulson’s comments about the US housing market. If they did, they would discover that the reason nobody believed in Paulson’s enormous bet back then was due to the propaganda of bankers like Ben Bernanke and politicians that assured the American people that the housing market would be fine.
Many times the masses immediately accept a person’s statement as truth with no critical analysis of that statement just because that person is a public authority figure. But how naïve would you have to be to believe President Obama’s recent statement on the American TV show 60 Minutes that “[he] did not run for office to be helping out a bunch of fat cat bankers on Wall Street.” Goldman Sachs’s (GS) Political Action Committee was the second largest contributor to President Obama’s election campaign, so were it not for the money of “fat cat bankers”, Obama may very well not even have been elected as President in 2008. Knowing this, do you really believe that Obama has zero obligations to the second largest contributor to his political campaign?
Furthermore, were you to merely analyze President Obama’s financial decisions since he has taken office, the disingenuous nature of his above comment would be readily exposed. Almost every single financial policy decision of his administration has benefited “fat cat bankers” to the detriment of everyday US citizens. Again, those blinded by political or racial loyalties at the expense of logic will be sure to foolishly digest my statement as a politically-biased statement, though there is no evidence to support that conclusion.
Any reader can easily check my past history of public statements and discover that my criticisms against the foolish political policies of the Clinton and Bush Administrations are just as numerous as my criticisms levied against the Obama Administration. If you are serious about never wanting to be fooled or bamboozled by a politician again, then never look to a politician’s words, but only to his or her actions, to unearth a politician’s true character and nature. Only a fool would ever accept a politician’s words as an accurate representation of a politician’s intent.
Likewise, you would be very wise to apply the above maxim to bankers as well. Investors should look towards bankers’ actions and not their words when trying to decipher their intent. Bankers are responsible for the propaganda that gold is a barbarous relic. Bankers are responsible for the propaganda that gold is a cumbersome asset to own because it pays no interest. These are their words. Yet if you look toward their actions, Central Bankers all over the world were net buyers of gold this past year. Shouldn’t that alert you to the fact that bankers are a bunch of conniving liars in everything they tell the masses about gold?
When Paulson first assumed his position shorting the subprime mortgage market, it was not only bankers, but also chief executives at large commercial investment firms that derided him, stating that the subprime mortgage market would be fine. I personally heard many of the same criticisms when I started telling people to buy physical gold six or seven years ago – that I was crazy for thinking that the US dollar would get into trouble and that the US dollar would be fine, that owning gold was a stupid and foolish investment. People actually laughed at me for buying gold.
A top investment strategist at Citigroup stated that gold was a bubble in 2005 when gold reached $500 an ounce. And even though the gold critics have been wrong now for eight years in a row, they still use every gold correction as an opportunity to deceive Americans into believing that gold is a bubble and about to collapse. And amazingly, Americans continue to look not towards bankers’ actions but to their words only. The overwhelming majority of Americans believe the bankers’ WORDS that the US dollar will be fine, and foolishly point out every bear rally in the US dollar as proof that the dollar will be fine.
Ninety-five percent of what I’ve heard financial advisers state about gold is wrong. Ninety-five percent of what I’ve read in the public domain about gold is wrong. Ninety-five percent of what I’ve read from the Western media about the US dollar is wrong. And ninety-five percent of the arguments I’ve read against owning gold, even when filled with supposed “facts”, are wrong.
Many of the arguments against gold sound convincing, even though they are deeply flawed because erroneous data are used to produce flawed conclusions. But this is the very definition of propaganda – arguments that use erroneous data presented as “facts” to draw convincing conclusions that are highly flawed, though to the undiscerning eye, they seem quite logical. The reason that bankers have always spread so much propaganda about gold is because gold is the kryptonite of bankers. Gold allows people to preserve their wealth against their fiat currency debasement schemes.
Hank Paulson, in testimony before Congress, stated that it was necessary to bail out Goldman Sachs through the bailout of AIG because the people, “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”
If Americans really wanted to expose the fraud of the entire financial system, all they would have to do is to put just a tiny part of their entire savings into physical gold. If all Americans put perhaps as little as 5% of their entire savings into physical gold, this would likely be more than adequate to expose the fraudulent basis of the financial system by which firms such as Goldman Sachs reap such ungodly profits year after year. What frightens the bankers the most is the possibility that people will fully understand the basis of the system, and this is why Western Central Bankers continually wage so many disinformation campaigns against gold.
Consider this story about HSBC and its retail gold clients that was reported last month:
“The British bank, which has sizeable vaults underneath its US headquarters overlooking Manhattan’s Bryant Park, has told retail customers – many of whom are middle-men and custodian services which store gold with HSBC on behalf of hundreds of their own clients – that all their gold must be out of its facility by July 2010. The decision has seen fleets of armoured cars laden with gold ferrying the precious metal out of New York. An HSBC spokesman declined to comment, but it is understood that the increased demand for physical storage of gold by corporate clients is behind the move to end the retail service, which HSBC inherited when it took over Republic Bank a decade ago.”
With banks, it’s never about doing what’s best for their clients. It’s always about doing what’s most profitable for their executives. For HSBC’s individual retail clients that were intelligent enough to own gold, HSBC most likely realized that larger, much more profitable relationships could be built with corporate clients that wanted to buy gold versus their retail clients. Thus, their retail clients got the axe despite the fact that HSBC knew that such a decision would be incredibly inconvenient for them.
Just as was the case with subprime mortgages when almost all of Wall Street got it wrong, the only reason anyone believes that gold is a bubble today is because people have forgotten how to think for themselves, foolishly believing that there are not hidden ulterior motives behind the beliefs spouted by Wall Street, and for some inexplicable reason, still internalizing and accepting all banker propaganda against gold while at the same time, they claim to distrust them. That’s why no matter how much further gold drops before this correction ends, if you don’t make the move to buy physical gold if you don’t own any, you will look back with regret five years from now and realize that you missed an unbelievable opportunity.
About the author:
J.S. Kim is the Managing Director & Chief Investment Strategist of SmartKnowledgeU™, a financial and research consulting company that offers hard-hitting investment guidance to help investors prosper during the ongoing and continuing global financial meltdown. His investment newsletter, the Crisis Investment Opportunities newsletter, has not suffered a single down year since its launch, returning +23.78% in just six months in 2007, +3.21% in 2008 and returning 37.54% YTD as of the end of September 2009. For more information, please visit http://smartknowledgeu.com