Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag: No Tarnish for Gold

By

Yellow metal unlikely to fall from current price.

PrintPRINT
Professor Lewis,

For the past 2 months, I've been building meaningful positions in gold (GLD) and miners (GDX) as a hedge against serious currency dislocation issues and inflationary pressures on the distant horizon. I can find plenty of evidence for said theses.

What I'm looking for are some thoughts about the other side of the trade. What could go wrong? What could cause gold to crater for a long time? I'm not too worried about being early, since I think getting in before the door slams shut is going to be hard to time.

Thanks,
Minyan Paul


MP,

What could cause gold to "crater for a long time" (I assume you mean in terms of its dollar denomination)?

1. DuPont could finally discover the secret of alchemy and make gold essentially worthless.

2. An asteroid could hit the planet and split the Earth into a thousand pieces, which would make gold irrelevant.

3. The entire planet could pledge their allegiance to the dollar "because it's pretty" and become willing slaves to the US because it's in their best interests.

4. Last, and my personal favorite, gold could blow off to $1 million per troy ounce, which would then most definitely set it up to potentially "crater" from that price for quite some time - probably.
There may be others, but those are the first things that come to mind.

There are only 2 choices for the US: Default or debase. Given those 2 choices, I honestly don't see a realistic scenario where gold could fall dramatically from its current price.

If asset liquidiation continues and inflation doesn't resume, then tax receipts will collapse and the US government wont' be able to service its debt. Government default would be inevitable, which would trigger a collapse in the dollar (very much like what we saw with Iceland a few months ago), and gold would soar.

On the other hand, should the Fed and other central banks continue to "print" and simply debase their currencies through inflating (which is the direction I believe we are going), then gold still soars. It's a "win, win" situation for gold bulls at this point in my opinion, just as it always has been if one was willing to take the long-term view and ignore the short-term volatility and noise.

Most may not realize it (because they're so focused on newspaper headlines about "deflation"), but even now, gold is just a few dollars away from going positive on the year, just as it already is positive by a wide margin in most other fiat currencies (gold even made a new high in British pounds just this week).

There aren't many assets that can say that they're even up YTD in 2008, let alone making new highs, as gold currently is many foreign currencies. Even US bonds were down on the year (in terms of dollars) up until a few weeks ago when the Fed indicated it might start monetizing the long end, which then precipitated a short squeeze.

-Lance
Positions in gold and gold stocks.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE