Tuesday, November 10, 2009
By Rusty Goe
Gold represents different things to different people. A girlfriend gets ecstatic when her boyfriend gives her a gold engagement ring. The CEO of a gold mining company sees rosy days ahead when his exploration team discovers a rich new vein. A numismatist gains satisfaction when he achieves his long-term goal of completing a set of rare gold coins. An unemployed person feels temporary relief when she cashes in her scrap gold jewelry so she can pay her bills. An elderly couple, fearing an apocalyptic future finds security in a tube of gold Krugerrands. Opponents of the American economic model view gold as a hedge against the collapse of the U. S. dollar. Gurus of the precious metals market search for new angles to use to serve up their daily predictions on the direction of the price of gold.
Do the gurus take their forecasting seriously? You bet they do. They read each other's analyses with religious fervor and glean nuggets of wisdom to incorporate into their own reports. Whenever whims of rumor cross the newswires, they latch onto them and paint them with their own puffspeak. The role of gold advisory gurus dates far back in time. From generation to generation and from one century to the next the principles of punditry have remained the same.
Tradition suggests that men began to track the price of gold regularly in the 13th century. From then until now, members of an unofficial friendship of forecasters have gazed into their crystal balls and foisted their prophetic projections on their fanciful followers. These literary alchemists have perfected the art of turning words into lucre; at least for their own benefit. Yet no law has ever held these gold market analysts accountable for their prognostications—At least in Old Testament times, they stoned men accused of making false prophecies.
Before the U. S. dollar served as the standard for measuring gold's worth, traders valued the metal in British pounds. Before that, market makers used other countries' currencies. Even livestock, real estate, food, and other commodities served as exchanges for the value of gold. In 2009, all eyes seem fixated on gold's value relative to the dollar. A weak dollar translates into higher gold prices, and a strong dollar triggers sell-offs in the yellow metal. Modern forecasters strive to keep abreast of even the slightest movements in the dollar's value. Yet even the most astute gurus don't know what goes on behind the doors at the Federal Reserve or at the White House.
Still, because of the fine predicament the U. S. government and the Federal Reserve allowed our nation to wind up in post-2007, the dollar's weakness and our political leaders' incompetence are easy targets for the gold guru crowd. Bumper stickers, which read "Impeach Everybody," appear often on cars all over the United States. In October 2009, a ray of light beamed down on these gurus' writing tablets, which enabled them to launch an all-out assault on the wilting United States and its pitifully weak dollar. Fueled by rumors of the oil-producing nations' plans to unlink oil from the dollar, a flurry of fresh predictions propelled the gold market into a euphoric frenzy. The forecasters felt vindicated when gold reached a new intraday record high price of $1,072.
Beaten and battered, the dollar wound up in the gutter of a 14-month low. The gold advocates had waited patiently for this moment for years. They could now witness the demise of the dollar, the United States's demotion to third world status, and the ascendancy of gold to its rightful throne above all the other mediums of exchange.
Just imagine, wrote some pundits, gold's value could reach $2,000 in six months, on its way to the $5,000-to-$6,000 range within a few years. It seemed odd however, that these predictions valued the future price of gold in doomed dollars. Did it not make more sense to devise a new standard by which to value this precious metal? Perhaps the Chinese yuan or maybe even bushels of grain will offer alternatives.
I like the idea of turning over the burden of responsibility of being the world's super power to the Chinese. Let the leaders of that country's government feel the pressure of all the other countries of the world despising them. Also, let the yuan see what it's like to at once be the world's standard currency and the scourge of the nations.
Furthermore, with a population of roughly 1.4 billion people, if every citizen in China bought an ounce of gold, that country would own nearly 30% of the world's supply. In 2009, the Chinese government only owns 1,055 metric tonnes of gold, which equates to less than 1/40 of an ounce per citizen. On the other hand, the U. S. government owns approximately 8,134 metric tonnes, or 261.5 million ounces, which equates to .86 ounces per citizen. China has some catching up to do if it wants to support gold's ascendancy to the status of premier currency of the world.
Experts know what is true, right? If they predict the dollar is doomed and that gold will rule, we must believe them, right? Or, do track records matter? How many chances should a forecaster get if his or her predictions don't come true before we place him or her on the don't-listen-to list? The Mad Money maven Jim Cramer predicted in summer 2008 that gold would go to $1,600. After it fell to below $800, Cramer revised his forecast and told his followers to get out of gold.
Back in 1973, with the price of gold hovering around $126 an ounce, noted currency analyst Dr. Franz Pick, predicted that it would rise soon to $420. He also predicted a total wipeout in the value of the dollar. Dr. Pick touted stronger currencies such as the Japanese yen, the German mark, the French franc, and the British pound as safe havens. "I wouldn't touch a [U. S.] savings account", said Pick. "Real estate is nothing. Bonds are certificates of confiscation. The stock market is sick." Times were tough, according to Dr. Pick. "We are bankrupt. Because of Watergate the government now has no power." Woe was we back in 1973.
The craziest thing happened though. The price of gold rose $4 an ounce after Dr. Pick pronounced the ill-fated future of the United States. But by late summer 1973, the price plunged from $130 to around $90. Suddenly, the dollar rebounded. Some analysts reversed their positions and proclaimed the dollar was undervalued and due for a recovery. To Dr. Pick's credit, the price of gold did rise above $400 an ounce, six years after his 1973 prediction.
The gold experts experienced a temporary revival beginning in 1979, which lasted for almost a year. They shouted hallelujah and puffed out their chests (the men gurus did anyway) as gold soared to an all-time high close of $850 on January 21, 1980. The U. S. economy cratered amid inflation fears. Wars and rumors of wars tormented the world. A weak U. S. president couldn't please anyone—except for members of his Sunday school class—and our nation once again lay on its deathbed.
Throughout the rest of 1980, it appeared as if no one knew the fate of the country. The sages in the gold and silver markets continued to write as if they knew what was happening—and what was going to happen. But they too, learned a valuable lesson: all good things must end. After revising their future price estimates for gold downward, first from $5,000 an ounce to $3,000, then from $3,000 to $1,500, most of them waved white flags of surrender. Writing investment newsletters that advised people to buy gold to insure against the coming collapse of the United States proved to be as unrewarding as playing scratched record albums repeatedly. Many of these gurus sought out other careers, such as used car sales, and managers at K-Marts. Some chose to write self-help books.
From 1981 through the fall of 2004, only diehard gold experts found much about which to crow. Sure, there was a brief resurgence in the safe-haven interests of gold in 1987 amid the stock market meltdown. Yet even the concern over Y2K fears in 1999 failed to resurrect much interest in gold's value as a hedge against tumultuous times.
Then, from late 2004 until today, the number of gold gurus increased exponentially. The United States has experienced severe growing pains (or possibly deterioration pains) during this period. We survived one president who personified ineptness, and now we're questioning if his successor is really on our side. With a sudden-storm effect similar to that of the 9/11 terrorist attacks, our economy melted down in 2008 because of recklessness on Wall Street. The foundation of the American way of life appears to be teetering between illusions of calmness and security and disturbing events that rattle our confidence. It seems now as if nothing that could happen would surprise us. It's getting tougher to know which leaders we can trust. This uncertain environment is a breeding ground for speculation on the price of gold, and the gurus are taking full advantage of it.
Just once, I would like to read one of these guru's predictions that comes across with authority. One in which the guru doesn't just rehash the same opinions all the other gurus are regurgitating.
And, I'm not keen on the gurus' promotion of gold at the expense of bashing the United States and its dollar. If the U. S. is such a crappy place to live, and its dollar is history, then to what does anyone in this country have to look forward? If the negative sentiments about the U. S. are true, the gurus need to stop concentrating on the mystical power of gold and start telling us about better countries to which we can move. We need to learn as much as we can about the next world super power, so we can prepare for what life will be like under its rule.
All the gold in the world and all the currencies from other countries won't help us if we have to give up the lifestyles to which we have become familiar in the good old USA. Gurus, please give us some alternatives.
To predict the future price of gold like a pro you need to answer some questions. First, what do the IMF, the World Bank, the Council on Foreign Relations and the major central banks plan to do about the relationship between gold and national currencies? Second, does the Federal Reserve have any tricks up its sleeve to bolster the strength of the dollar? Third, what does the Fed and the U. S. government plan to do about the trillions of dollars of debt accrued in recent times? Fourth, what are Russia, China, India, and the Eurozone, planning to do about buying or selling huge quantities of gold? Fifth, will governments pass laws that limit the influence of hedge funds in trading in precious metals? Sixth, is fiat paper money an antiquated medium of exchange, doomed for extinction like Yapese stone money?
Professional bullion market analysts should know the answers to these questions and many others. They should have an accurate handle on the effects that soaring gold prices will have on everyday life. And they should stop banging the drum every time gold reaches a new high-water mark on paper when compared with prices from decades ago. Remember; it took 773 years from the time men started charting the price of gold in 1200 A.D. for it to reach $100 an ounce. And, today's $1,040 an ounce bears no relation to 1980's $850 an ounce.
If the gold market forecasters prove to be wrong in their projections of skyrocketing gold prices, and the U. S. manages to get up off the canvas and recover its usual position as the greatest nation in history, I hope they will humble themselves and admit their mistake. That's the only compensation the gurus will have to offer all the people who lost money by buying gold to protect themselves from a falling sky.
If their predictions come true, this world is not going to be a pleasing place in which to live.