Don’t Sell Your Gold !
Gold prices plunged more than 9% on Monday, falling to $1357, the sharpest decline for the precious metal in recent history. Today, gold sits at a two-year low, 27% below its September 2011 high of $1920. But now is not the time to panic and sell into weakness.The hype coming from Main Street investors, many of whom are claiming we've reached "the end of the gold era," is actually creating an opportunity as investors jump out of gold for all the wrong reasons.
Gold, despite its asset-class mischaracterization, has never been a commodity. You can’t eat it, you can’t plant it and you can’t build with it. It does nothing that commodities are known for. The only benefit it provides is protecting your lifestyle against central bankers running amok.
And for that reason, gold is not a sell. Even as Main Street investors and weak-willed money managers with quarterly performance to worry about dump the metal, gold’s true purpose remains unchanged: It’s lifestyle insurance.
State law requires you buy auto insurance. Mortgage companies force you to purchase homeowners insurance. And if you have a young family, you’ve probably bought life insurance to protect their future against your untimely demise.
But what about your lifestyle itself?
Despite the dollar’s current period of relative strength, the past 30-plus years have seen our U.S. dollar in a near-constant decline against a basket of global currencies. Most Americans never pay much attention to that, if they pay attention at all. They never stop to consider that Japanese-made Subaru cars, all the Chinese clothes for sale at Wal-Mart and the Chilean grapes at the local supermarket were all originally priced in a foreign currency.
That’s your lifestyle.
Though you are spending dollars, your true costs are in yen, yuan, pesos, baht, and whatnot. And if you don’t insure against the whims of misguided fiscal policy in Congress and make-it-up-as-you-go-along monetary policy at the Federal Reserve, then you will find one day that an ever-weaker dollar has eroded your discretionary spending power.
The dollar must go down long term. There is no other honest choice. Both the Fed and Congress need the dollar to weaken over time if they have any hopes of navigating America through the minefield that is $123 trillion in on- and off-balance sheet debt. To put that into perspective, the entire world generates a global GDP of between $75 trillion and $80 trillion a year. Our government debt as a nation is 50% larger than that.
The Fed’s fundamental aim at this point is to inflate away as much of that debt as possible … and then allow some future Congress to default on the rest quietly and in a way that makes it seem like the U.S. did nothing of the sort.
As that happens, your spending power erodes because your cost-of-living increases. You need, in your portfolio, a currency that protects you against the fate of the dollar – yet one that is not held hostage by political and monetary deception.
Protection Against Government ManipulationBut let’s assume for a moment that your cost-of-living never changes. You still face a monumental risk in the policies of Congress and the Fed.
I have shown time and again that, directionally, the U.S. dollar always takes its cue from America’s broader fiscal situation. In times when America’s finances are strong or improving – the early-80s after Volker killed inflation, and the mid-90s when the Clinton administration was talking up potential budgets surpluses and did away with the 30-year bond as unnecessary – the dollar rallied strongly.
But in periods of fundamental fiscal disorder, like we experienced in the late-80s and early-90s, and as we’ve been experiencing for more than a decade now, the dollar sinks.
Raise your hand if you can honestly see a clear end to America's $123 trillion fiscal horror show?
I don’t see many hands …
So, what if the Fed is wrong in its approach to dealing with this debt? What if interest-rates get away from the Federal Reserve Open Markets Committee? What if Congress makes a monumental mistake in its handling of the economy and the growing pressures it feels to raise taxes to fund a never-end litany of social-engineering, wealth-redistribution and welfare-expansion plans?
Are you willing to risk your lifestyle at the hands of people – federal lawmakers and Federal Reserve officials – who have a history of proving their incompetence?
Still the Best Lifestyle InsuranceMain Street has lost its head over gold in the last few days.
All sorts of possible reasons exist. From my perspective, what we’re seeing is a long-overdue unwind. Gold has been in a bull market for a dozen years. No asset keeps going up like that.
We reached a point recently where concerns about U.S. inflation have tempered. And then China came out with GDP growth of 7.7% on Monday that didn’t live up to the 8% expectations. Gold buying in India has slowed. And all the news together finally gave investors the rationale they’ve been looking for … and they bailed out.
But you would be crazy to look upon the current events in the gold market and presume the golden age is over.
It won’t end until America has a credible plan for dealing honestly with our country’s debt and Washington’s financial diarrhea. That isn’t likely for many more years yet.
As I told attendees at the Global Currency Expo earlier this month, I don’t care if gold goes to $2,000 or $500, I don’t sell.
I don’t cancel my homeowners insurance just because I don’t expect a fire at my house this year. Why would I cancel my lifestyle insurance just because some investors are bailing on gold?
Until next time, stay Sovereign …
Jeff D. Opdyke