You Don't Have To Outrun A Bear if You Own Gold
There is no shortage of media coverage on gold.
But there is a shortage of fresh perspective on gold's strength relative
to various currencies. I would say the same thing for
silver.
So when Wyatt Investment Research's Kevin McElroy,
Editor of the daily letter, Resource Prospector, penned the
following on gold's strength relative to a variety of currencies, I had
to send it to readers of Small Cap Investor Daily.
Many of the same catalysts that are propelling
gold higher are pushing silver higher too. I've written a great deal
about silver, such as the silver opportunity in the Sierra Madre region of
North America, but I enjoyed Kevin's perspective on gold.
I hope you do too. Here it is.
"You know how well gold performed as priced in
dollars over the past ten years, or rather, how poorly the dollar
performed against gold during that period.
In 2001, you could buy an ounce of gold for
$250. Today, gold sells for more than $1,400 an ounce. That's more than a
460% gain.
Again, you know this information. You might
even be getting sick of hearing it repeated by gold vendors, gold bugs,
or talking heads on TV who mention it with the rapt excitement of someone
reporting actual news.
So, in an effort to illuminate a different
aspect of the gold story that you probably haven't seen anything about,
I'm going to focus on other currencies.
Because I'd be surprised if you've heard
ANYTHING about gold's price as expressed in a different
currency.
Take a look at the chart below, which shows
the percentage gains of gold priced in dollars and six other major
currencies.
It's kind of difficult to make out, but
there's a huge disparity between the US dollar's loss of gold-purchasing
power (more than 450%), and the Swiss Franc's loss of gold purchasing
power (less than 200%).
The question is: why did the Swiss Franc lose
half as much purchasing power as the US dollar lost? Or perhaps even more
interestingly, how is it possible that the dollar lost 1.5 times more
purchasing power than the Euro? The weak-sister, debt-plagued,
hodge-podge Euro is stronger than the dollar after the past ten
years?
I could come to a variety of confusing
conclusions after looking at the chart above. I'm sure there are dozens
of economists who would pounce down my throat after making any one of
them.
But I think a dollar crisis is the only
logical conclusion we can come to. Regardless of how we got here, whose
fault it is, who pushed the printing press lever, or who spent beyond
whose means – the point is: we're here. Crisis isn't just on its way.
It's here. The dollar is in crisis.
It's lost a significant portion of its value
not just against gold, but against other world currencies, much more
value in some cases.
It would be one thing if all paper money
devalued at more or less equal rates. No currency would become an obvious
winner or loser, and there would be no reason or incentive to dump one
for another.
But when one currency devalues so much more
than others, by orders of magnitude, then you should start worrying if
you're the holder of that currency.
Let me back off for a
second.
I'm sure you're familiar with the joke about
the two campers who see a bear coming. One camper begins lacing up his
running shoes, and the second camper says, "You can't outrun the bear,
even with running shoes on."
And the first camper replies, "I don't have to
outrun the bear, I just have to outrun you."
Well right now, I own gold, but not because
I'm certain that we're imminently headed towards an inevitable gold
standard that will make me rich when gold is revalued to account for the
dollars out there.
Gold is the bear. These other currencies don't have to be better than gold in order to gain the same kind of cache the US dollar has enjoyed over the past 50 years.
They just have to be better than the
dollar.
And if the dollar gets caught by the Renminbi, or the Yen or even the Euro, then it won't matter whether it was gold that dethroned the dollar. It will just matter that the dollar has been dethroned.
Our hegemony hangs by a paper string. Our
ability to procure oil, copper, coffee, gold, silver and all those other
wonderful things that we don't produce, but need to buy – it hinges
heavily on the dollar's status as a reserve currency.
It only takes one country or exchange to start
settling contracts in another currency, and the dollar is in big
trouble.
I hope you own bear insurance. I hope you own gold". - Kevin McElroy, Editor, Resource Prospector
