Do You Remember? Why Gold?

Ukraine

Gold is turning into something of a forgotten asset, and that’s fine by me. There will be a time to buy gold again, and when that time comes, there will be very few believers. That’s the way it always is before a major rally.

With most things in life, you see something like a 90/10 or 80/20 rule. As it relates to gold, this means that 5% are in the “gold bug” crowd, 5% is in the “gold is a barbaric relic” crowd, and 90% in the “I don’t have a strong opinion about gold” crowd. This helps explain rallies; remember, there is tremendous latent energy in gold, and it comes from the majority that isn’t thinking about gold–yet.

Now this is really the case with any asset, such as stocks. I am telling you, more people will be stampeding to buy the Dow at 30,000 than at 10,000. And I’m not only talking about the mythical and much-derided “herd” that always buys too late. I’m talking about institutional money. It’s not, “let me think in terms of probabilities and expected value and ease into stocks.” Nope. It’s skepticism, disbelief, and absolute religious-like refusal to buy stocks. Then finally capitulation and panic buying.

Suddenly. And in size.

Stocks vs Gold

We’re still in the middle innings of this rally in stocks as we haven’t seen the exponential move that is a hallmark of all bubbles. So something like 35,000 on the Dow (a rough doubling), is a reasonable target. Remember, the Dow went from 1,000 in 1982 to over 10,000 in 2000. So a move from about 7,000 to 30,000, by let’s say 2025 is not a big deal at all. It actually would represent a relatively muted move.

What’s important to understand is that stocks crashed for almost 2 years. 5 years later, people are convinced there is a bubble. But objectively this doesn’t really make sense; if you take a step back, you realize that the Dow has only gone from 10,000 to 17,000 in the last 14 years. No. Big. Deal.

Anyway, my point is that a congruent move with gold suggests a price in the $5,000 range is reasonable. However, gold is a totally different asset and a sharp rally would represent different things. My concern is that there’s no real understanding or appreciation of what $5,000 gold means. If gold rallies to $5,000, it’s not like we’re all going to retire on a beach somewhere. It probably means things like: a) capital is being hunted down on a large scale, b) taxes have risen substantially, c) civil unrest of the violent kind (Occupy Wall Street was really only a prelude), and d) meltdowns in Asia and Europe.

Now if you ask me, I’d rather lose money and have gold go straight to $500 and live in a free society. But that’s just me.

Always remember what gold represents. It is a hedge against the government. It is insurance against things like civil unrest, which we are now seeing around the globe. There is a mysterious contagion effect to civil unrest that was around throughout history. In my opinion, social media only exacerbates this existing trend. What this means is gold’s time in the sun will come, probably soon and probably very suddenly. But never allow the pure profit motive obfuscate the fact that tremendous pain is in store for all of us Americans. As they say, “it is always darkest before things go totally black.”