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Is gold still cheap? No, gold left bargain territory long ago [but] we remain
bullish on gold, not because we think gold is still cheap, but because we expect it to get a lot more expensive. [Why?] Because the world’s most important central banks and governments remain committed to a course that ends in catastrophe for their economies and currencies. [Let me explain further.] Words: 565
So says Steve Saville (www.speculative-investor.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Saville goes on to say, in part:
[To express it another way,] gold may well be expensive relative to the current economic backdrop but it is cheap relative to what the economic backdrop will be 5 years from now if the current policy course is maintained – and at this stage, there are no signs that the current policy course will not be maintained.Evidence that gold is no longer in the bargain basement is provided by the following long-term monthly chart of the gold/commodity ratio. Relative to commodities in general, gold hit a 50-year high (perhaps an all-time high] late last year…This tells us that the gold market has fully discounted the bad policies of the past several years…
Evidence that the gold market hasn’t yet discounted the effects of continuing along the current policy path is the general lack of understanding of the damage that these policies cause. Almost everyone in power, or in a position to influence those in power, believes that the economy can be helped by:
- the artificial lowering of interest rates,
- the creation of money out of nothing, and
- increased government spending.
In addition, almost everyone believes that the government is responsible for:
- creating jobs and
- managing the international trade balance.
This means that almost everyone is oblivious to the fact that:
- whenever the government intervenes in the economy it causes distortions that impede real economic progress [and that]
- as long [as] such beliefs are dominant, economic weakness will lead to counterproductive policy responses, which will lead to additional economic weakness, and so on.
The gold bull market is being driven by the vicious cycle whereby bad policy begets economic weakness, which provides the excuse for more bad policy. It won’t end until:
- there is an economic and monetary catastrophe or
- there is widespread understanding of the root of the problem,
because one or the other will have to happen before a major constructive political change will be possible. Hopefully the latter will happen first, because living through the former wouldn’t be fun even for those who had taken all the right protective measures.
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There would be many indicators [along the way telling us] that widespread understanding of the root of the problem was developing, and, therefore, that the gold bull market was in its final phase, namely:
- the Fed would be demonstrating the resolve to severely restrict growth in the money supply regardless of the short-term consequences for equity prices and GDP growth,
- politicians that were genuine advocates of small government (along Ron Paul lines) would be taken seriously by the mainstream media and would be frontrunners in elections, whereas advocates of Keynesian economic policies (along Paul Krugman lines) would not be taken seriously.
* http://www.safehaven.com/article/25170/is-gold-still-cheap (To access the article please copy the URL and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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