Responses to “Why Gold?”

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We never know how many clients read the blog that I post most weeks.  Since last week’s entry “Why Gold?” was relevant to all clients who hold a position in the metal, we sent it to all who hold gold. The widely read Seeking Alpha site also picked up the article, and forwarded it to more than 300,000 of their subscribers.

From that list of recipients we received a number of responses, almost all favorable.  For most clients, the message was not new.  I had disclosed the rationale for our gold position from the day we acquired our first holdings.  I did receive one skeptical response, essentially stating that the article would have been far more helpful had it been written in 2003 instead of a decade later.  Given gold’s huge price rise over that period of time, it was an understandable response and one that might logically be shared by others who did not respond.  Let me provide a little history.

While we have not dedicated any of our conferences or seminars specifically to the subject of gold, we have addressed it in perhaps half of those gatherings either in the prepared presentation or in the question period.  Beginning at the end of the 1990s, when debt levels had risen to extremely dangerous levels, we began to outline probable outcomes to that perilous condition.  Most importantly, we anticipated the beginning of a long weak stock market cycle that would serve to correct the excesses of the then ending long strong cycle.  While not knowing how long such a cycle would take, we offered the historical perspective that such a corrective cycle had averaged about a decade and a half in length over the past two centuries.  We speculated that the upcoming one might be longer and/or more severe because it was correcting the most substantial long strong cycle ever, which had produced historic excesses.  Thirteen years later, stock market price levels are barely above those of 1999, and most of the excesses remain uncorrected.

Throughout history, because the normal governmental response to extreme debt levels has been to minimize them by depreciating the currency, we suggested that action to be a probable response by our Federal Reserve in the early twenty-first century.  I made the point any number of times that my wife and I had acquired physical gold in the mid-1980s at an average price around $350 per ounce.  I also indicated that we did not consider it to be a part of our investment portfolio.  It was, instead, a form of insurance against inflation or other financial disruptions.  I urged all listeners to own some gold for similar reasons, notwithstanding gold’s weight and the inconvenience of safe storage.  I have repeated that message every year since.

As I explained when we acquired our initial portfolio gold position in 2011, I first decided to include gold in client portfolios when it became clear that multiple major central banks were committing to overt currency depreciation policies to extricate themselves from extreme debt burdens.  I won’t repeat last week’s points about our expectations.  For reasons stated in that earlier article, we anticipate that gold prices will ultimately be higher–possibly soon, possibly not for years.  If prices rise from current levels, we will soon have a nice profit on a still small position.  If prices decline further, we will acquire larger positions at increasingly lower average prices leading ultimately, I suspect, to much larger long-term profits.