Fight the Fed by owning gold

Americans may finally be waking up to the realization that their best defense against more than 20 years of Fed mismanagement is a shiny yellow metal.

By Bill_Fleckenstein Sep 28, 2012 2:01PM

Gold bars © Stockbyte/SuperStockThese days there is no shortage of chatter about the Federal Reserve's latest round of quantitative easing (aka QE3), and I detect there is a small, yet growing, level of dissatisfaction with the Fed's policies. It seems that savers have finally begun to find their voice -- somewhat in light of the fact that their money is slowly being stolen by the Fed's money printing.


From the stock bubble of the late 1990s, to the even bigger and more devastating housing bubble, to its recent policy of guaranteeing inflation and offering little reward to savers, the Fed has eviscerated the middle class and made poor people poorer.


Though it could be argued that people with wealth have benefited, that is not something that they necessarily asked for (excluding the Wall Street banksters).  In sum, the Fed is a devastatingly powerful organization, and it is hellbent on a path of continued destruction.


What brings up this rant is that a reader of my daily column (at; subscription required) recently asked me, where is the outrage about all of the above, and other unintended consequences I haven't mentioned?


That is a very good question. As noted, there seems to be a little bit of backlash brewing, but given the damage that has been inflicted on this country and on other places where central (planning) bankers loom large, it is damn little.


Time to stop turning the other check

I was incensed with the policies of Alan Greenspan, beginning in the mid-1990s, as readers of my columns can attest, and I would say my anger crested with the 2008 mania, when I wrote my book, "Greenspan's Bubbles: the Age of Ignorance at the Federal Reserve."


I had expected after the stock market bubble that the Fed would be forced to behave, but that was naïve and incorrect. Still, I felt certain after the second debilitating, debt-laced bubble that folks would demand more of the Fed (though I did know how it would respond, with stimulus, which is why I closed my short-only fund in early 2009). Thus, it has been disappointing to me that there hasn't been more outrage on the part of the masses.


Granted, the Fed may seem like an obscure subject, but it really isn't that hard to figure out who the main culprit is. Many others besides myself have written about it for many years now.


This is not to say that we have a functioning Congress; we don't. But had the policies of the Fed not been what they were for the past 20 years, we could never have gotten this far off the rails, nor could so many promises have been made that will be broken regarding prospective health care and retirement benefits.


To thine own wealth be true

I must admit I have become somewhat desensitized to the Fed's views, because I reached the point of outrage early on and exorcised my own demons to some degree with my book. But nonetheless, that is no excuse for those people who are being harmed. Americans need to stand up and insist that the Fed desist from its insane policies and demand sound money. (Thursday's Wall Street Journal op-ed by Sean Fieler, "Easy Money Is Punishing the Middle Class," was a fine step in that direction.)


Is that likely to happen soon? Unfortunately, no, since it would also require members of Congress to care about the country instead of their own careers. So in the near term at least, this is probably also a naïve hope on my part.


Thus, until the world's bond markets or average Americans demand sanity, all we can do is protect ourselves from the policies of the irresponsible, incompetent and, to some degree, egotistical madmen by owning gold.


GLD to world: You have a new friend request

On that subject, I think it is worth pointing out that the idea of gold as a currency or portfolio diversification asset may be in the process of going mainstream, with the catalyst being European Central Bank President Mario Draghi's ongoing transformation into Fed Chairman Ben Bernanke, even as the Fed goes nuts with money printing.


When people like Ray Dalio, the founder of Bridgewater Associates and someone who is probably listened to by every vanilla pension fund manager on the planet -- is willing to be more vocal in suggesting that everyone should own gold, more people are going to ask, "Why don't we?" (For those who don't know, he said in a CNBC interview last week that he owns gold and that he knows of no "sensible reason not to own gold.")


More and more people are also going to answer, well, we ought to get started, and I believe that process is under way.


However, to put how early we are in the gold accumulation phase into perspective, last week I also saw a clip of Frank Holmes, the chief investment officer at U.S. Global Investors, noting that the value of the SPDR Gold Shares (GLD) ETF, at around $75 billion, is roughly equivalent to the amount of market capitalization that Facebook (FB) has lost as it plunged from its opening high to its recent low. For some reason, thinking about this potentially overhyped "New Economy" concept losing the entire value of GLD really struck a note with me.


Little number bad, big number good

As for the reason one needs to own gold (i.e., that central planning central banks have gone wild), I read that Narayana Kocherlakota, the president of the Minneapolis Fed, said in a speech last week, "As long as the FOMC satisfies its price stability mandate, it should keep the Fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5%."


Well, if that is what these guys really think, I have no idea what the inflation rate is going to be running at by the time that happens. But it's going to be well north of 5% for sure, and high enough that even the consumer price index might be able to capture some portion of it.


But don't expect high inflation to stop the Fed from trying to achieve its employment targets. It will initially view inflation as a sign that it is doing its job well. What is really going to matter is how the bond market reacts to all that, but that is a story we will just have to watch evolve.


At the time of publication, Bill Fleckenstein owned gold.

Sep 28, 2012 4:02PM
I own some of the gold etfs, miners,and oil stocks, mostly in cash.  At this point I am invested in a gun safe and neighbors in the Browning family.  At this point I don't trust the hype or the numbers coming out of Washington DC..  Lets see what the real numbers are after the election, It doesn't matter who wins.  The real numbers don't lie.  Next year is going to be a really down year for the stock market IMHO.

The only thing I see going up next year is desperate people doing desperate things.  aka, Crime. 
Oct 1, 2012 6:51AM
Silver and gold have been some of the best investments for the last decade. And they look to be some of the best investments of the next decade. I wish I had realized this sooner.

And Bill is right. The Federal Reserve is destroying the middle class and the savings of retirees. The Fed has got to go.

Oct 1, 2012 10:38AM

I recently talked with an x Wachovia branch manager of 20 years now with another firm. I asked him when he thought the Fed would tighten and increase the federal funds rate? So all of us who don't squander our cash  totally in the equities markets can make a buck again with bank deposits. His one word answer was ,"NEVER".  I also share in this opinion especially since the Fed has said no tightening until unemployment hits 5.5%,good luck with that! What they are doing is so wrong and borderline criminal it's sickening .And our goverment is so inept and corrupt it's debatable if we will ever see unemployment lower than 7%.They keep providing banks with free money from their overnight window and then the banks turn around and cleanup with it.There is also trillions parked in US banks and inturn they pay depositors basically zero. Pretty nice racket. End the Fed!


Sep 28, 2012 8:35PM
Bernanke should be put in prison and forced to do hard labor and not given anything to eat. The Fed is the biggest threat to working class people today.
Oct 1, 2012 10:48AM
The FED is illegal and should go along with federal crooks!
Sep 29, 2012 10:32PM


And the printing presses go round and will continue to go up, up, up!

Oct 1, 2012 2:13AM
I'm new to a lot of this so instead of pretending I know what I'm talking about what I'll do is offer an observation. The last time there was a mad dash investment opportunity it was via real estate. Every late night infomercial during that time was touting the benefits of owning real estate as a means of investing, building and/or preserving wealth. Once everybody was all in the market crashed and well we all know what happened next. The banks foreclosed on property owners and ended up owning millions and millions of dollars in property for pennies on the dollar. The banks did something similar during the gold rush era. They loaned money to the Comstock miners at low interest rates knowing the miners would not be able to repay their loans then foreclosed on them at the first opportunity snatching up their mining properties for pennies on the dollar and eventually owning every mine on the Comstock and as a result all the gold that was later discovered there. I see the same trends taking place in the current mad dash for gold investment opportunity that preceded the real estate market crash. I have a feeling that once everybody is all in (gold) they are going to crash the market by some means nobody expected or saw coming that  will allow the banks to buy up every ones gold for pennies on the dollar further consolidating the countries wealth into the hands of the few aka the banking cartels. Is there a reason this is not possible or likely to happen again?
Oct 1, 2012 7:30AM

JFK had the right idea. Maybe that's why he is gone?


Oct 1, 2012 9:37AM
When oil production declines, we will see "stagflation" accompany further money printing.
Oct 1, 2012 10:01AM
There claiming since the beginning of time , that Gold only lost less then 2% in physical inventory. Imagine how much Gold there are today if mankind has approx 98% of gold still here. That's alot of gold,so what bother me is why is gold so high? If we have almost all of the gold dug up since beginning ,it has to be HUGE AMOUNT somewhere on the earth.So I like gold but something's telling me SILVER is the BIG investment in the history of mankind. WHY? geologist claim that SILVER is running out because of high tech,solar panels,electronics,cellphones,computers,I pad,TV's and 7 billion people buying high tech etc. Because it's so cheap  and no on recycles it, it's a WINNER!!. By what I read ,by 2020,we almost will be out of SILVER in the world, which is something that we depend on every year to survive. So why is SILVER so cheap? I really think the bankers and the rich are trying to fools us into thinking GOLD is going to be HUGE,HMMM. It might go up depending if they did inventory of it ,then again it might go down because of the HUGE amount that wasn't counted for. BUT if they did a inventory on SILVER then the world will see there not much physical SILVER left and the mines are running out and it's one of the two true money is Silver and Gold. That means what happens is if one of the two true money is running out complete spells skyrocket prices until it catch up to GOLD,because both gold and silver are high conductors.. So buy Silver!! it's cheap!! ,it's used for almost everything,it's running out  according to geologists and it one of the two only true money in the world.
Oct 1, 2012 1:49PM

In the long run SILVER will be the very best thing to own. The day may com when silver will be over $500. an ounce.







Oct 1, 2012 11:22AM
Don't go fool yourself...When gold hits 2000 an oz the fed will take it away from all of you.
Sep 28, 2012 8:53PM
I try to take a long view of the money situation VS gold. The view in itself will not protect you from the ravishes of a lack of money. For instance: Prior to and through WWII great sums of money was delivered to exact Victory in WWII. Most of the money and tresure was consumed. Barely a street existed in Europe without a shell hole in it and the whole continent of Europe was in shambles. European Nations existed in name but barely in structure. Along came the Marshall Plan and once again money appeared and an era of appreciation was born. I do admit great fiancial issues are present today as they have in the past. I sence the Western Nations will devise another Plan but not as grand as the Marshall Plan. My point being its really hard for the sky to fall. I hope this will get you to ponder the real relevance of money and its association with past emergencies such as WWII. The issue with Gold is is it going up or down. Buy it now if it is going UP or SELL it now if it is going down. 
Oct 1, 2012 2:14PM
I was told a long time ago that you never take free advice in the stock market.  Usually, they only have their best interests at stake. 
Oct 1, 2012 2:23PM
Metals have been good for me so far. Selling some more  right now. Going to hold only the older rare coins and a few of each year of the commons....

Silver did the best for me as I have been collecting coins for some time. I started small in gold at around 1100 an oz. I should have purchased more...

Collecting is not for everyone, a pretty good silver stock play is SLV. It tracks a dollar or so below spot.

Oct 2, 2012 3:04AM

America can't balance the budget, as a nation we raise and exceed the debt ceiling routinely, we pass and post-date legislation that is out-dated and becomes inappropriate by the time it is actually enacted, effecting cuts to spending and increasing taxes while unemployment remains at record highs, foreclosures soar, the sick are unable to get care and the hungry are unable to eat. We remain in political gridlock and borrow money to fight wars. We end social programs for the needy when they need them most. We cut health care to the elderly who require it the most. The housing bubble has burst and many towns across the nation remain deserted while foreclosures are at record highs and factories are shut down. Food and fuel prices are rising to absurd levels and there are even rumors that drinking water is in short supply. All of this against a back-drop of $17 trillion of national debt plus more than $3 trillion of quantitative easing. Where is all of this money going considering that average Americans are struggling to keep a few dollars in their pockets, to find and keep a job, to keep a roof over their head and to maintain their health.


Food, water, health, housing, money, global economy, politics and war, what's left: inflation. Iran hates Israel and has vowed to wipe the nation of Israel off of the face of the earth. Not many would disagree that Iran's nuclear program exists to do just that. When Israel attacks Iran to halt further development of a nuclear weapon the transportation of fuel will be brought to a halt from the middle east to the rest of the world. This will spark inflation of oil prices and be the impetus of further global inflation in food prices and everything else that is transported by fossil fuel burning vehicles. Will Israel really attack Iran setting these events into action, who knows. The point here is that with the world is such dire financial straights any black swan event is likely to tip the first domino setting off such a chain of events. What will the world do, it will print more money of course, creating more new debt. However, as in all Ponzi schemes, the printing can't last forever.

Buy physical gold (or silver) and take delivery of it. Gold is a store of wealth in that it doesn’t appreciate in value or pay interest, but rather, maintains a constant worth requiring more and more of a depreciating currency to purchase it.

Do the math and get on-board. The gold train departed the station in 2002 and is now picking-up more speed and preparing to head off the charts. Not only is $3,500 gold possible, it is probable, and, in the short term.

Sep 30, 2012 10:00AM

After a long time reading Bill's articles, this is my first post.  Bill talks about a funding crisis in his past articles, but something never adds up.  Can someone enlighten me?  I get that gold will likely head higher in the short-term; but if a 'funding crisis' comes to fruition, to me it means that the printing press will be taken aways from governments and interest rates will have to move higher.  The market would likely dictate higher interest rates for governments and central banks due to a lower credit rating.  How will this lead to a long-term gold appreciation?  As interest rates go higher, gold prices should decline.  Something is not adding up for me.

Oct 2, 2012 3:03AM

Unemployment has remained at over 8% in the US for the past 43 months and counting. The dollar is tanking and it currently takes $1.30USD to buy 1 euro while the continent of Europe sinks in the midst of total and utter financial chaos and teeters on the brink of failure and insolvency. In addition to the US printing new money, Europe is printing, the United Kingdom is printing, Japan is printing and China is getting ready to join the crowd. Lack of demand in Europe is wreaking havoc with China's exports and has slowed Asian financial growth to alarming levels. The Japanese and their failed attempts with negative interest rates led to the lost decade and Japan's central bank just expanded its monetary easing by 10 trillion yen ($126 billion) on Sep. 19, 2012. China owns the majority of US public debt while the sinking dollar, questionable fiscal policies and political inabilities to overcome partisanship continue to prevent the proper legislative decision making needed to fix the economy and foster a renewed confidence in the world's reserve currency. Things in Europe are even worse. Greece is on the brink of utter disaster and in need of a third bailout, Spain is on the verge of bankruptcy and default, Italy, Portugal and Ireland are broke and in dire need of cash injections through bailouts while those in charge scratch their heads and wonder what to do. Legislation has been passed and a plan devised but not activated. Germany stands by with clenched teeth and fists furiously wondering how they got stuck paying Europe's bills.

Arab Spring has resulted in revolutionary waves with rulers forced from power in Tunisia, Egypt, Libya and Yemen. Civil uprisings have erupted in Bahrain and Syria and major protests have broken out in Algeria, Iraq, Jordan, Kuwait, Morocco and Sudan. Minor protests have occurred in Lebanon, Mauritania, Oman, Saudi Arabia, Djibouti and Western Sahara.


Oct 2, 2012 2:58AM

On September 14, 2012 the Fed unleashed a third round of quantitative easing termed QE3. QE3 will increase the national debt by $40 billion each and every month through the purchase of mortgage backed securities. QE3 is different that previous rounds of QE1 and QE2 in that it is open ended, meaning money printing will continue indefinitely. QE3 is in addition to the existing and ongoing $45 billion of debt being shifted sideways by Operation Twist each month. New QE3 debt will be piled on top of QE1 debt that added $1.2 trillion of new national debt and QE2 that added another $600 billion of new national debt in addition to Operation Twist part 1 and part 2 that shifts a total of $667 billion of debt sideways out of short and into long term bonds. Also, figure in untold billions that are distributed hot off the press without public knowledge perhaps in the name of national security or black ops.


As far as putting these huge numbers into perspective, I have read that if you had a stack of thousand-dollar bills in your hand only 4 inches high, you’d be a millionaire. A trillion dollars would be a stack of thousand-dollar bills 67 miles high. It would take a person about 31.5 years to count that many $1,000 bills working non-stop 24 hours a day, stacking them 67 miles high is another problem altogether. Multiply this x 20 to arrive at the estimated national debt after QE3 to show it would take an individual and his surviving generations 630.9 years to count the equivalent of national debt in $1,000 bills. The largest Federal Reserve Note currently in print is the $100 bill, so, putting the US national debt into perspective using $100 bills, and assuming a $20 trillion national debt after QE3, it would take the equivalent of 5.36 stacks of $100 bills each as high as the moon to equal the national debt.


Point being is that we should all be much more appalled than we are, but the sheer magnitude of what is happening is incomprehensible. We have been fleeced to the nth degree and beyond and are unaware of what has taken place and how bad the situation really is. Out of curiosity I was going to research how many adult American citizens 18 years and older exist and divide the total national debt by that number to see how much that comes to per each American adult. Unfortunately my calculator does not go that high. Where is all of this money going? Perhaps we could all be living the life of Riley much like every citizen of the tiny oil rich nation of Quatar, the richest country in the world. The population of Quatar only totals 300,000 and each citizen is a member of the royal family, who, as the story is told, receives a palace; along with a Rolls Royce parked next to their Gulfstream jet; and all the rest of of life's material desires; hiring foreigners to perform their work, all of which is beneath the pampered royal citizens to perform themselves. Is it possible that America has borrowed and spent more money than it would take to provide each and every adult citizen a lifestyle similar to Quatar royalty? Okay, wake-up, no more day dreaming.


Oct 2, 2012 2:57AM

Currencies can and do depreciate in value, gold cannot and does not depreciate. The value of gold remains constant as it has over the past 5,000 years, thus requiring more of a depreciating currency to purchase it. The US Treasury will continue printing new money until the US Mint shuts down and hangs a 'closed for business' sign on the front door. In the not so distant future no one will be buying US securities but the Fed. The US presently owes a national debt totaling about $17 trillion that we will never be able to repay. America doesn't have enough money to pay the bills so we simply print more money, and create more debt in doing so. This is known as quantitative easing. The Fed expands the money supply by borrowing new money created out of thin air at the US Treasury (US Mint). The central banks then introduce this new money into the economy by purchasing mortgage backed securities from the banks. The new money is then multiplied through fractional reserve lending expanding the money supply globally and exponentially. This is a Ponzi scheme of the highest order. It is not unrealistic to estimate that the national debt will grow to $20 trillion before the printing ends. The problems with quantitative easing are: each time a new dollar is added to the system, it decreases the value of every existing dollar and it leads to inflation. Inflation is like a hidden tax on every dollar that has ever been earned. Nations around the globe are evaluating whether or not they want to continue to trade the dollar or use it as a reserve currency.


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Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



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