The case against gold
- Only you are responsible
- Why do they spend?
- The only question that matters
If you own gold and gold stocks, I say good for you. Gold is up about 10% year to date, and gold stocks seem to be the only bright light in an otherwise dim stock market.
And as much as I'd like to take credit for urging you to buy gold and gold stocks - it's ultimately your choice, your responsibility and your glory for your investment success.
But today I want to discuss the arguments surrounding the very fiscal policy that has so far allowed gold to make strides higher as world currencies continue to fall.
As I type, the Federal Government is no doubt pondering another massive stimulus package. Whenever the government asks the question "To spend or not to spend" the answer is almost always "spend, and if that doesn't work, spend some more."
It's an answer that comes easily, and not just because the Fed is run by unelected officials -or because spending is easier than listening to constituent groups complain that you're not spending - the simple truth is that the spenders have a cut-and-dried theory of economics on their side: Keynesianism.
Keynesianism is the answer to: how can we spend much more than we earn?
And since this fiscal experiment is absolutely of the Keynesian variety, it's tough to imagine that it won't continue playing out to script. That is, I'm waiting for President Obama to announce another leg of "stimulus spending" any day, week or month now.
At the risk of repeating the obvious mantra that I've been chanting with monk-like regularity, inflationary policy is good news for people who own gold (and silver, and practically every other commodity).
To see the current debate about whether to spend, or not, I recommend taking a look at this youtube video, and the two others in the series: http://www.youtube.com/watch?v=7-pndXGafUg
Not to spoil the ending, but the videos feature Paul Krugman waving the Keynesian banner for more spending, today, tomorrow and possibly yesterday if we ever invent time travel.
On the other side is Niall Ferguson, a Harvard business school professor who suggests that instead of spending more, maybe we should spend less, rein in our debt, pursue tax reform and generally balance the Federal Government's checkbook before the whole system goes up in inflationary smoke.
You know who I agree with - but I urge you to watch the videos and make up your own mind. If you're convinced by Krugman's arguments, please do me a favor and send me a note explaining why at editorial@resourceprospector.com.
In any event, new spending measures will only cause gold to go up in price, and gold stocks to continue skyrocketing.
The question you have to ask yourself isn't who is right or who is wrong, necessarily. The question is: how can you best position yourself to benefit, or at least not suffer the consequences of Keynesian policy?
The answer is to buy more gold, silver and relevant securities.
For those of you looking for an alternative to the SPDR Gold ETF (NYSE: GLD) I'd recommend looking into Perth Mint Certificates through Kitco.com.
These certificates allow you have ownership of real gold, stores in Australian vaults. It's a little pricey to open an account ($10,000) but it's a relatively inexpensive way to own physical gold without taking delivery.
Another (cheaper) way to do so is to open up an account on goldmoney.com. This site allows you to buy gold by the gram with no minimum or maximum purchase.
The gold is allocated in insured vaults in Zurich, Hong Kong and London, and is subjected to regular external audits - unlike GLD.
You can buy and sell your gold through their site or even take delivery for a small fee.
Buying gold and other precious metals through these firms gives you the protection of world-class vaults as well as keeping your wealth far away from the Federal Government.
Good investing,
Kevin McElroy
Editor
Resource Prospector
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