As a gold dealer and 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 it says something about their perception of today’s fiat currency, US debt and other forms of paper or “debt-based” savings. Or simply illustrates the very common lack of understanding in monetary policy or, and even more importantly, the history of money.

A true miracle is a change of perception…

Gold is $1800, ok you know this, but let’s play this in reverse, you are comparing what gold is worth in your paper money because you are a “Paper Bug” or you’re “perception” is that the green paper is a viable benchmark for the cost of goods or assets to be priced in. Now, what does this gold price mean in relation to your dollars in your account and your stocks and your purchases of food, gas and everything else you need to buy?

The central banks control the world banking system, they use Gold as their store of value and backing to their currencies. Clearly, with gold at or near $1800, you have to realize that your faith in paper is misplaced, your paper is getting diluted, your purchasing power eroded. You need to switch your faith out of the paper.

If not, than you join the millions of other people around the world who are subsidizing Fannie, Freddie, AIG, GM and all the others including Bank of America soon , the gov’t will dilute your paper in order to keep status quo and get re-elected. Face it, you believe in and have faith in the store of value in paper. But even though an old president is on the paper, and mention of god on there, you can’t trust politicians to make the fiscally responsible choices because their whole premise on decisions is getting re-elected. Slap yourself out of your sleep, wait till the next big drop in gold and start accumulating physical.

I try my best help people to understand that there is an end game to debt based savings and living beyond your means in a debt based economy. I think we are banging up against it. Gold’s upward limit can really only be calculated in terms of fiat currencies’ downside limit. If that limit is zero, how high can a wealth asset that has outlasted every fiat currency every made go? I think it will keep rising as long as debt accumulation continues and fiat currencies continue to be debased.

Those who compare Gold to other bubbles are the most misguided mainly because for a true investment “bubble” to exist, you need penetration and participation on a massive scale. In 1998/9 right before the NASDAQ blew up, everyone owned tech stocks. Tech stocks made up a large portion of people investment portfolios and penetration and participation was deep and aggressive. Many were leveraging themselves to buy tech stocks. If you look at the implosion of 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. In 2007 lenders, most with no ethics, would loan money to anyone with a pulse. You didn’t need any proof of employment or any documents to borrow. Everyone was buying, flipping and carrying multiple loans at one time regardless of the ability to service them.

Now… ask ALL your friends how many of them have even a single ounce of real investment gold… Let alone a significant portion of their saving or investment capitol in real gold or even gold stocks? Not jewelry… real investment gold. Ask them what they own in their retirement accounts. Where the bulk of their assets are and what % of them are placed in Gold? I can already tell you the answer… “not much, if any”. Gold makes up 1-1.5% of the average American’s portfolio today. It makes up even less of the massive amount of paper that lives in 401ks, IRA, pensions and other retirement accounts. Yet because of its “price” people want to talk bubble? Forget the price. The fundamentals that have caused gold to double in the last three years are not only all still in place, they are accelerating. Debt, money printing, worthless politicians, global slowdown, lack of fiscal faith in policy makers, uncertainty.. need I go on?

Central banks have all the gold. They have been net buyers for 4 years now. India, China, BOJ, South Korea and many others.. Why? because the hold massive amounts of US dollar reserves that are decaying faster than a tooth with caramel stuck in it. You earn those same dollars when you work, you save them, you have them too.. are you being your own central banker or are you too busy being decoyed away from the reality of the situation by all the “bubble” talk?

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