Related topics: gold, currencies, economy, investing strategy, Bill Fleckenstein
As the European Union gears up to deal with yet another of the PIIGS -- this time Portugal, with Spain not far behind (Ireland, Italy and Greece are the other members of this group), it's certainly fair to wonder where and when it will all end. Unfortunately, there is no way to know.
One thing we do know is that a big part of the reason the Western World is in so much trouble is that we have relied on the printing press for the past 20 years. This has set us on the path toward rendering the major currencies (i.e., the euro, dollar and yen) as ultimately worthless.
Thus, many of us have been forced to buy gold. Or should I say, some of us?
Minority report
The fact is, there are still a great many naysayers and haters of gold (and even more people, billions in fact, who may not hate it but continue to have confidence in paper and ink).
Bill Fleckenstein
I have remarked many times that I did not think there was very wide or deep participation in the gold market. On that subject, I thought Marc Faber's most recent Gloom Boom & Doom Report, headlined, "The end game has begun," was most interesting.
Marc started off by discussing this fact: As he does speaking engagements around the world in front of hundreds, if not thousands, of people at a time, when he asks how many own gold, just a few hands usually go up. I note this for the same reason he gives: "I'm asking myself -- and I have done so for the past few months -- why, 10 years into a bull market, the vast majority of people still don't own any gold."
I think the answer is that, for whatever reason, the great majority of people still have enormous confidence in paper money. On a related note, the fact that gold has risen as mightily as it has, with so little participation, may speak to the heart of the problem -- namely, that there is so much currency in the world, and so little gold, that it doesn't take much movement on the part of bank-note holders to affect the price of gold.
Two Olympic-size swimming pools could hold all the gold ever produced, and that's not much compared with the trillions and trillions of dollars' worth of paper currency and assets held the world over.
When gold bears talk down gold, they never (at least in the arguments I have seen) discuss the fundamental reason folks are forced to own gold: namely, that paper money is no good. In general, they claim that the price of gold is too high, or too many people own it, or some other ancillary argument.
One of my basic rules of investing is that the price of something does not have to go down just because you might happen to think it is too high; I believe gold is no exception. Nobody on the planet can know what the exact price of gold ought to be.
It is interesting to note that, while the gold bears feel strongly that the "fair value" of gold should by rights be lower than the current market price, the thoughtful gold bulls don't claim that it's even possible to know what the fair value is.
