Sprott / John Embry: 17 Reasons to Own Gold
Here is another good article (pretty quick read) of who gold is a good investment, if not the premier investment, for the current macro environment. Most of these I agree with, and some of them I don't. But it is a good article that I encourage you to read.
Here is the article: http://www.sprott.com/docs/Reports/reasons_to_own_gold.pdf
I am going to comment on my views of the points below for anybody who is interested:
1. GOLD IS RETURNING TO ITS TRUE HISTORIC ROLE AS MONEY
Completely agreed - The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure) - LINK and Why I hold Gold: Why I am a Long Term Optimist and consider holding gold and Optimistic Endeavor, and Why I think the Stagflationary Scenario is more likely Macroeconomically in the Intermediate term (next several years) - http://caps.fool.com/Blogs/why-i-hold-gold-why-i-am-a/402614
2. THE INEVITABILITY OF A COLLAPSE IN THE U.S. DOLLAR
This is a lot too strident / overreaching for my taste. I think a currency crisis is quite likely in the US Dollar, but not a collapse. I suppose it is only a difference in degree, but I don't expect the Dollar to become "worthless" in most of our lifetimes. But, could the Dollar be replaced as the reserve currency within our lifetimes? That is the far more interesting question and I think the odds on this outcome are not at all trivial
3. OTHER SIGNIFICANT WORLD CURRENCIES OFFER NO REFUGE
Completely agree. Some fiat currencies will do better than others (most will fare better than the Dollar) but all will pale in comparison to gold in terms of retaining value and purchasing power.
4. THE DESTRUCTION OF GOVERNMENT BALANCE SHEETS AND THE WIDESPREAD IMPLEMENTATION OF ZERO INTEREST RATE POLICIES MAY ULTIMATELY RESULT IN HYPERINFLATION
I agree with this up until the last word. ZIRP is a plague. The government thinks of all of us as consumers, not citizens, certainly in its policies and rhetoric. "We need to borrow and spend our way out of this recession!". This is why real interest rates are negative. Every policy by the Treasury and Fed are designed to get us to spend and not to save. That said, I do not think ZIRP and borrowing leads to hyperinflation. The problem is debt, and it is collapsing, in the presence of extreme monetary inflation. The problem I think we are far more likely to be facing is stagflation: More on Debt Saturation Equals Diminishing Growth, Employment, and Capacity Utilization… - http://caps.fool.com/Blogs/more-on-debt-saturation-equals/394221
5. THE TRUE IMPACT OF THE MALIGN SIDE OF DERIVATIVES HAS YET TO EXPRESS ITSELF
6. INVESTMENT DEMAND FOR GOLD IS RAPIDLY ACCELERATING BUT WE’RE ONLY IN THE EARLY STAGES OF THIS PHENOMENON
Completely agreed. Everybody is calling the top of the bubble, but only a fraction of investors actually hold gold. Homeownership as a percentage of the population was very small before the housing bubble, then with easy monetary policy and easy lending, a huge percentage of the population became homeowners (with homes they couldn't possibly afford for the long term) and nobody thought anything of it, save for a few people calling it a bubble. My point being is that people are very quick to call this a Gold Bubble that is about to burst even though there is very little widespread participation. When >50% of the public holds gold, then there might be a case. Until then, I am very happy to hold gold in the very early stages of this 'bubble'.
7. GROWING RECOGNITION THAT MANY PAPER GOLD PRODUCTS DO NOT HAVE THE GOLD BACKING THAT THEY PURPORT TO HAVE
Exactly. This is why I will never invest in GLD, and why my biggest holdings are CEF and PHYS.
8. MINE SUPPLY IS NOT ANTICIPATED TO RISE FOR SEVERAL YEARS, IF AT ALL
9. CENTRAL BANKS ARE NEARING AN INFLECTION POINT WHERE THEY WILL NO LONGER BE IN A POSITION TO SUPPLY THE GOLD NECESSARY TO KEEP THE MARKET IN EQUILIBRIUM
Again, a perfect comment. Western central banks have been net sellers for the last 10 years. This has kept the price of hold from rising as fast as it otherwise would. But consider the fact that gold has increased 500% during the last decade *despite* net selling (more supply coming on to the market) from the worlds largest gold holders. Both the Canandian and English Central Banks are out of gold ammunition, and the Federal Reserve and Treasury are in a similar position. .... and demand continues to increase.
The makes the IMF Gold Sale issue that much more important: Five Questions About Gold The IMF Refuses To Answer - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=384031
10. INCREASING LIKELIHOOD OF ACCELERATING PURCHASES OF GOLD BY EASTERN CENTRAL BANKS
I have talked about a possible avenue here: Gold - China's End Game? - http://caps.fool.com/Blogs/gold-chinas-end-game/338913
11. INCREASING SKEPTICISM ABOUT U.S. GOLD RESERVES
Agreed. See point #9 above.
12. LARGE SHORT POSITIONS
Completely agree. See Silver, Short Positions, and Potential Squeezes - http://caps.fool.com/Blogs/silver-short-positions-and/366926. Same thing applies to gold.
13. INCREASING RECOGNITION OF THE FACT THAT THE GOLD PRICE HAS BEEN SERIOUSLY SUPPRESSED
Agreed. I am sure gold bears label this statement as gold bug wing nut conspiracy theory talk. But GATA has amassed much evidence to support this claim.
14. THE SUPPRESSION IS EVIDENT IN THE CONTINUING EXTREME UNDERVALUATION OF GOLD
I agree. Altough as Bill Fleckenstein points out, gold is very difficult to value to begin with: Bill Fleckenstein Interview - http://caps.fool.com/Blogs/bill-fleckenstein-interview/401191. But I lay out a few ways in which gold can be (IMO) reasonably valued: Update on the Dow/Gold Ratio and a few more Gold Ratios and ContraryInvestor: The Many Faces Of Gold - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=400090
15. THE RELATIVELY SMALL SIZE OF THE GOLD MARKET
16. GOLD IS IN AN ESTABLISHED POWERFUL BULL MARKET
Completely agreed: binve's Gold Foil Hat Zone: More Thoughts on Gold's Massive Bull Market - http://caps.fool.com/Blogs/binves-gold-foil-hat-zone/403421
17. GOLD HAS ENDURED
Completely agree - The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure) - LINK