Why Gold Keeps Rising
- How to start investing in gold
- A $9 billion drop in the bucket
- Bigger than Macdonald’s
I hesitate to write about gold in today’s article. If you’ve been a reader of Resource Prospector for more than a few days, you’re probably already sick of hearing about it. And if you haven’t built a position in it, you probably feel like it’s too late to start now.
And with gold near its all time nominal highs (it still has a way to go for inflation adjusted highs) you’d think I’d be cheering. But I’m reluctant to tell you to buy things when they’re at any high. That’s not the way to build a position in any investment. So before I go on to talk about gold and why I think it’s so neat, let me recommend waiting for a dip before you pull the trigger. A dip could be a minor hesitation in gold’s price, or it could be a major decline - but basically, the idea is to try to buy the asset for less than what it was going for yesterday.
Don’t get me wrong, I’m still super bullish on gold. What’s not to like about it? It’s the perfect way to protect your nest-egg from irresponsible politicians and central bankers. So long as the Federal Reserve is backstopping the EU, and the EU tries to fix its currency problems by blaming speculators and telling Greece to raise their sales tax to 23%... Well, you get the idea.
There’s literally trillions of reasons why gold is a better long-term bet than currency, but I saw something yesterday that stuck out like an especially large piece of spinach between someone’s teeth.
It was a little headline on yahoo finance. Amid all of the bluster about Greece, the “fat-fingered” trading theories for last week’s nearly 1,000 point stock market plunge and more news about Goldman-Sachs, there was a tiny blurb about Fannie Mae.
Yeah, remember Fannie Mae; that government sponsored entity with the calamitous foresight to underwrite billions of dollars worth of bad mortgages? Remember when they needed a few billion dollars here and another $10 billion there? Well, now their total bailout from the Treasury comes to about $84 billion. They just requested another $9 billion. That’s after Freddie Mac asked for $10.6 billion last week.
That number used to be a big deal, but today, it’s a minor blurb in newspapers around the country. Our sovereign debt has become so perversely large, that even ridiculously large debt additions don’t make major headlines. Huge debt increases are no longer anathema. They’re no longer news. We’re in the midst of a worldwide frenzy of debt so deep, so large and so pervasive, that major news outlets don’t even notice. Debt is now official policy.
Well, I have news for you – it still is a huge number! $9 billion is a hair more than Macdonald’s (NYSE: MCD) annual gross profit! Where will that $9 billion come from? Where will the $84 billion total come from? What about the $61 billion total for Freddie Mac?
Together, that’s nearly $145 billion, but it doesn’t include next quarter’s loss for these two firms. Of course, that $145 is just the tip of the iceberg.
Just a few years ago, these numbers would have congressmen screaming outrage on Capitol Hill, and journalists would be writing big headlines all about government waste. But today, these numbers just don’t measure up. Today, it’s the $1 trillion mark that gets attention.
At this point, there is literally nothing that the government will not backstop with free money from the Treasury and the Fed.
Until that changes - that is, until central bankers around the world stop treating their currencies like a magical piggy bank, and until politicians realize that increasing sovereign debt is a terrible policy – only then will gold stop rising.
It will happen, but it just might take the total annihilation of the euro and the dollar first. In the meantime, looks for dips in gold to add to your positions.
Good investing,
Kevin McElroy
Editor
Resource Prospector
p.s. If you’re interested in learning about a gold stock with the potential to multiply gains made in gold, check out this write-up by Ian Wyatt on a small North American miner that’s so cheap right now, buying their stock is like buying gold for $120 an ounce. Click here for the full story.
