In recent a panel on metals and mining, I said—as I often do—that I speculate on gold and silver stocks, but that bullion is quite different. It’s the world’s most liquid financial asset that one can be long without any counterparty being short. It’s how I realize long-term savings.
Another panelist said that was a bad idea, as I would have lost money following this “strategy” from 1980 to 2000. I replied that I wouldn’t have lost anything. If I’d bought an ounce of gold in 1980, by 2000, I’d have… an ounce of gold. That an ounce of gold happened to sell for fewer US dollars in 2000 than 1980 would only matter if I was forced to liquidate. By 2010, the same circumstance would have produced a very different outcome… or if I’d bought in 1970.
It’s not conducive to the discovery of truth to cherry pick the data to make one’s case.
That said, I have to admit that the guy’s worst-case scenario is close to what actually happened to me. I’ve already told the story of how I was forced to liquidate the coin collection I’d started as a boy (acquired before and after the 1980 peak) during a financial crisis I had in 1999.
I knew at the time that I was selling at a loss—probably even on an inflation-adjusted basis.
It didn’t matter; I had a family to feed.
That I did, and that’s what matters most.
The ultimate financial refuge was there for me when I needed it.
I mention this only because I wouldn’t want to appear to deny or obscure facts that seem to make the fellow’s case.
Because they don’t. If random life events had happened at different times, the gain or loss part of the story would have come out quite differently.
Oddly enough, a related criticism came up in response to a recent Kitco interview I did. David Lin wanted to dig into the possible bear cases for gold I’ve written about. One viewer commented (unedited):
“If gold was truly an inflation hedge, it was at $1000 in 1981. It should be worth $10000 now. Enough of the bullshit. I'm old enough that I've heard this for 40 years. DEFLATION is the problem going forward. Japan has been trying to get inflation for 30 years. We had prosperity in the 50's and 60's, inflation in the 70's, disinflation ever since, now deflation is coming with a debt collapse.”
Leaving aside the details (gold peaked around $855 in 1980), I do understand this person’s frustration. With all the money-printing, it sure seems that gold prices—or the gold-dollar exchange rate, as I see it—should be higher.
That said, if we accept the viewer’s premises, he’s answered his own question; if there’s been disinflation ever since the end of the 1970s, then the gold-dollar exchange rate is reflecting that (lack of) inflation.
But the fundamental answer is as in my previous example; arbitrarily picking a past peak gold-dollar exchange rate as a starting point doesn’t help us find truth in this matter.
A much more relevant starting point would be 1971, when gold was freed from the dollar; from then to today, we have an almost 50x increase in gold.
That sure looks like a measure of inflation to me.
And then there are thousands of years of history to consider. All fiat currencies of the past have gone to zero. Every single one of them. Ashes to ashes, dust to dust.
There is no valid reason for imagining that today’s fiat currencies will suffer a different fate—their stories have simply not ended yet.
Granted, this is of no interest to a short-term trader looking to profit from the next move in gold prices.
But that’s not what I’m interested in—and I wouldn’t recommend day-trading in any metals or commodities.
As a speculator in gold and silver stocks, the longer-term trends over the years do interest me. They help me see when prices are relatively low and give me a reason to bet on them rising.
As a person who saves in gold, the multi-decade—if not multi-century—big picture is the most important of all.
Even if the global financial system breaks down, or the US dollar goes the way of the dodo, or civilization itself collapses and there is no internet, I’ll still have liquid savings I should be able to exchange for things I need.
Hopefully, it never comes to that. But if one is able, I think it pays to prepare for the worst and hope for the best. One does not buy insurance hoping to use it.
Regardless, whatever type of investor you are, and whatever time frame you work in, beware of pundits and peddlers who cherry-pick the data to make their case.
Keeping the bigger picture in mind—on any subject—can help with this.
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