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The following was part of the Oct 31st 2011 update sent out to paid-up WV members. We have Part 1 of this commentary also available for public — no charge — consumption here..
by Barry Goss
Co-Founder & Publisher
Gold bug fever can get so rampant that some of the die-hard extremists forget that its price has always been dictated via political puppetry.
If a central banker has the will to raise real rates, as Volcker did 30 years ago, then the price of gold can be crushed. The mood of investors, based upon what I’ll call a gloom-to-boom ratio, can easily reverse price momentum in its tracks.
History has shown this to be the case, over and over.
“Gold at $1,500 is not what I would call an investment. An investment is something you buy near its value. If gold costs $450 or $500 to produce, at $1,400 you don’t have value, you have momentum.” said Kaplan, of Prospector Asset Management.
Because, contrary to what bandwagon barkers would have you believe, gold is really just a solid form of back-up money. Or, to be technically correct, a “currency of last resort,” as Greenspan has stated many times through the years.
It’s pure insurance against paper currency breakdown. Like California falling over into the Pacific Ocean, not something I’ll expect to see in my lifetime.
The cries for “buy, buy, buy” gold (bullion, that is) can get so loud, that the high priests of the metal (think Glenn Beck, Mike Maloney, or Howard Ruff) truly feel that using your hard-earned money for anything else is a crime.
They end up choosing between the metal and stocks. But, there shouldn’t be an “it” versus “it” approach there. It’s gold versus paper currencies and debt, not innovation and value creation.
How To Create A Fortune and a Better World: If you can get anything about this now-popular topic across to your family members and friends, this is it:
Gold does not PRODUCE wealth. It is a non-productive monetary asset… unless it’ll be accepted widely as a medium of exchange in some distant future.
A purist might simply be correct by saying that gold can be regarded as a store of value (without growth), whereas stocks can be regarded as a return on value (i.e., growth from anticipated real price increase plus dividends).
There is still questionable debate, however, on the true store of value pitch (but, I’ll save it for my report).
Back to value-creation, however.
What is the most measurable, most sustainable, vehicle to represent any kind of creative innovation; imagination and productive change?
I think you already know the answer. But, it’s a well-run company that produces and sells something the world needs.
Remember, just like a gun used solely for home security, gold is also boring (you can make a gun not boring at the pistol range every week, if you like. Can’t really do much with gold, except melt it down to jewelry and impress your wife).
In other words, gold doesn’t bring about any dividends and doesn’t guarantee capital gains. It doesn’t bring about VALUE until you have to use it.
And, if you’re saying to yourself, “well, I’ve owned some physical gold — bars, coins, jewelry — over the long haul. I disagree with your claim that I don’t have value, or a great return on my capital,” I’ll say this:
It’s only a paper return until you do something with it.
And, trust me… the longer ago you bought the gold, the greater the chance you’ll have that you might still get a return. Meaning, if its price tumbles back down to $1,000/ounce and you bought it just under, or just over, that price, your returns are teetering on break-even.
As I see it, gold above $1000 can’t be used to rationalize anything other than speculation… assuming, that is, you don’t already have some stored away to be used as insurance.
And, for that correct purpose, just know that it will hedge against inflation but won’t pay a premium to it. It will track inflation, but won’t give you a premium over it.
But, what will are companies that produce profits. Profits that are paid out as income in the form of dividends or are reinvested and compounded.
Where you find these companies — even the ones that are just percolating under the public radar (the ones that can be the next Apple or Google) — I’ll share with you later this week.
NOTE: The above commentary is the preface to our October 31st member update. To read it’s continuation and the rest of the update, as well as obtain full access to our coveted money-growing Vault, click here… After you join us a full-fledged paid-up member, go to the October 31st member update to finish reading the above commentary.
Or… if you just prefer more no-charge gold bug commentary…
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