Is It Too Late to Profit from the Gold Boom?

You’re no doubt aware of gold’s tremendous performance over the last several years, and maybe you’re a little nervous that it might be too late to get in on the gold boom.  As a gold dealer and gold investor I am often asked about Gold’s price action. These days the questions tend to have a bubble-ish tone to them. The “gold is in a bubble” debates are the easiest one’s to counter, albeit the most frustrating. When someone asks me about gold prices being in a “bubble” or gold’s price action resembling the tech stock market of the late 90s or the real estate pandemonium of 2007, they’re forgetting a crucial fact about bubbles: For a true investment “bubble” to exist, you need penetration and participation on a massive scale.  In the late 90s right before the NASDAQ blew up, everyone owned tech stocks. Tech stocks made up a large portion of people’s investment portfolios, and penetration and participation in them was deep and aggressive.  Look also at the real estate bubble.  Participation was so deep and combined with so much leverage, that in order to melt down, the market didn’t even need to fall; it simply needed to stop rising as fast.  Lenders would loan money to anyone with a pulse. By contrast, ask your friends how many of them have bought even a single ounce of real investment gold, let alone a significant portion of their savings or investment capital in real gold or even gold stocks.  I can already tell you the answer:  not much, if any.  Gold makes up 1 to 1.5% of the average American’s portfolio today. It’s even less of a percentage in 401Ks, IRAs, pensions and other retirement accounts. Yet because of gold’s price, people want to talk bubble?  Forget the price. The fundamentals that caused gold to double over a three-year period are not only still in place, they are accelerating. Debt, money printing, political indifference, global slowdown, lack of fiscal faith in policy makers, and global uncertainty all mean that now is still a good time to invest in gold.

The concern over gold being in a bubble also says something about the perception of today’s fiat currency, the US debt and other forms of paper or “debt-based” savings. Or it simply illustrates the very common lack of understanding in monetary policy or, and even more importantly, the history of money.  People who worry that gold is in a bubble are typically comparing what gold is worth in terms of paper money.  Their perception is that green paper is a viable benchmark for the cost of goods or assets to be priced in, and they couldn’t be more wrong.  By contrast, the central banks that control the world banking system use gold as their store of value and backing to their currencies, because gold has a real value that cannot be debased by monetary policy the way paper money can.  Simply put, the more your paper gets diluted, the more your purchasing power is eroded, and the more you need to switch your faith out of paper money and into gold.  I try my best to help people understand that there is an end-game to debt-based savings and living beyond our means in a debt-based economy.  Gold’s upward limit can really only be calculated in terms of fiat currencies’ downside limit. Yet if a currency’s downside limit is zero, think how high can gold go, considering it has outlasted every fiat currency ever made. It’s clear that gold will keep rising as long as debt accumulation continues and fiat currencies continue to be debased.

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