The Screaming Fundamentals For Owning Gold [iShares Gold Trust, SPDR Gold Trust (ETF), iShares Silver Trust, ETFS Gold Trust, ProShares UltraShort Gold (ETF)]

india-gold-etfChris Martenson: This report lays out the investment thesis for gold. Silver is mentioned only where necessary, as a separate report of equal scope will be forthcoming on that topic. Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. Timing and logic for both entering and finally exiting gold as an investment are laid out in the full report.

The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Introduction

In 2001, as the painful end of the long stock bull market finally seeped into my consciousness, I began to grow quite concerned about my traditional stock and bond holdings. Other than a house with 27 years left on a 30 year mortgage, these paper holdings represented 100% of my investing portfolio. So I dug into the economic data to discover what the future likely held. What I found shocked me.

By 2002, I had investigated enough about our monetary, economic, and political systems that I came to the conclusion that holding gold and silver would be a very good idea. So I poured 50% of my liquid net worth into precious metals, and sat back and waited.

So far so good.  But the best is yet to come… unfortunately.  I say ‘unfortunately’ because the forces that are going to drive gold higher in current dollar terms are the very same trends that are going to leave most people, and the planet, much worse off than they are now.

Part 1: Why Own Gold?

The reasons to hold gold (and silver), and I mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:

  1. To protect against monetary recklessness
  2. As insulation against fiscal foolishness
  3. As insurance against the possibility of a major calamity in the banking/financial system
  4. For the embedded ‘option value’ that will pay out handsomely if gold is re-monetized

Monetary Risk

By ‘monetary recklessness,’ I mean the creation of money out of thin air and the application of more liquidity than the productive economy actually needs. The central banks of the world have been doing this for decades, not just since the onset of the 2008 financial crisis. In gold terms, the supply of above-ground gold is growing at  1.7 % per year, while the money supply has been growing at more than three times that yearly rate since 1960:

Over time, that more than 5% growth differential has created an enormous gap due to the exponential ‘miracle’ of compounding.

Now this is admittedly an unfair view, because the economy has been growing, too. But money and credit growth has still handily outpaced the growth of our artificially and upwardly-distorted GDP measurements by a wide margin.  Even as the economy stagnates under this too-large debt load, the credit system continues to expand as if perpetual growth were possible.  Given this dynamic, we continue to expect all the resulting extra dollars, debts and other assorted claims on real wealth to eventually show up in prices of goods and services.

And since we live in a system where money is loaned into existence, we also have to look at the growth in credit, as well.  Since 1970 the US has been compounding its total credit market debts at the astounding rate of nearly 8% per annum:

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