Friday, 10 February 2012

Do you have to be a terrorist to understand gold?

Britain's "best selling financial magazine" MoneyWeek has a piece on the back page called "The Magic of Gold" (10 February issue but I've only just noticed it was available online sooner) by Bill Bonner.

Bill writes for the Daily Reckoning. In a recent piece for the site he covered the gold standard and US politics.

Near the end of it he highlighted a Reuters story  about Sovereign Citizens and the Redemption movement and was unconvinced by FBI fears that there were some extreme criminal terrorist elements to this 'movement'.

Bonner said: "The FBI says these people are “extremists” who believe they have a right to protect themselves from what they see as an overbearing government. The G-men tell us that these extremists can turn violent “at the drop of a hat.”

"How long before they’re rounded up? And maybe they’ll round up “potential domestic terrorists” too, even those who have never committed any crime? And what about gold bugs? They may look harmless, but they give aid and comfort to dangerous elements, don’t they?"

Even so the FBI seem to take the problem pretty seriously:

There is a habit of calling gold bugs terrorists like this spat between analysts at GFMS and GATA (the Gold Anti Trust Action Committee)

It is hard to tell how relevant this stuff is to the UK investor. There's not much evidence of it in the MoneyWeek piece. Instead we get an encouraging sales pitch for gold - which I should probably listen to (more below).

But the question for newbies to gold investing like me is whether there's really some kind of ideology driving the gold ownership of a lot of these gold commentators - not straight forward investment judgement.

There may not be anything wrong with that ideology but it could add a layer of complexity to the gold stories we are told - which is why it is interesting. Anyway, that sort of discussion is beyond me at the moment.

In MoneyWeek Bonner says: "We associate a rise in the price of gold with inflation. But gold is much more versatile than we think. It protects your wealth when paper money loses its value. It also protects our wealth when paper money gains in value. It protects you when you are right and when you are wrong."

When the value of money diminishes you get inflation. Bonner says that inflation will see the price of gold soar. He thinks Bernanke's aim at moderate inflation will help but suspects he'll overshoot.

The opposite scenario is deflation when money increases in value. Bonner points to the great depression when "the price of gold rose against dollars, even though the prices of food, clothes and other consumer items (as well as the prices of investment assets) were falling in dollar terms."

It sounds like a free lunch and I've always wanted one of those.

So, obviously I should be buying. Why not now? Gold is down a bit today and as the chart shows - and as chart-loving commentators have pointed out -  the price of gold tends to jolt from the $1,600s to the $1,700s - there's no smooth moves here. And its nearing that area now - around $1,715 - because of Greece and the euro... (Reuters)

So although the gold ETFs I do not own are down I'm still hanging on for worse.

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