Alas Poor Gold Bug

By Howard S. Katz, GoldSeek

Alas, poor gold bug. Things are better than a week ago. Monday’s gap is explosive. But here you sit, with gold about to break above $1000 and make you rich. Yet you are torn with fear and doubt. When you look back at this period, you will think, “Why was I so scared? I made a beautiful play. I beat the stuffings out of all my friends. Why did I have such doubts?”

And therein hangs a tale, dear gold bug. Listen to the wisdom of the One-handed Economist, and you will learn a valuable lesson, a lesson which will serve you well both in the financial markets and in life. Because it is easy to observe that every powerful move in the markets is preceded by a period where the large majority of the people are supremely confident that the exact opposite is going to happen. And the social pressure put on by these fools is difficult to resist.

Well people, we are in such a period right now. Pretty much every newspaper, news magazine and TV news show is lying to you. (To be completely fair, not all of them are deliberately lying. Some of them – the stupid ones – actually believe what they are saying. It is only the smart ones that are lying. But that is not much comfort to your bottom line.)

Yes, virtually every source of news and opinion in this country is screaming one word at you: “deflation.” Whether they use the words “Great Depression,” “Great Recession,” “economic crisis,” or whatever, the message is the same. Prices are going down. To their eternal shame, there are even some writers on the gold bug sites who are shouting “deflation.”

Well, it is not very hard to figure. If “inflation” is coming, then gold is going up. If “deflation” is coming, then gold is going down. You can’t have it both ways. You have to make a choice. There was a period in the late ‘60s and early ‘70s when gold was good pretty much whatever happened. That was because it had been suppressed in price for 35 years by the U.S. Government working through the London Gold Pool. This was a consortium of 10 countries which sold their own gold stocks in an attempt to manipulate the price and keep it from rising. The high price of labor and production materials forced the gold mines to close (in 1956), and very little new gold was being produced. So in 1968, when the London Gold Pool was broken, the prognosis for gold was very strongly up, and even a mild “deflation” would not have stopped it.

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