The Working Man's (and Woman's) Best Friend

Yippe-Ki-Ya · Nov 16, 2011

Your editor is writing from our Sydney hotel this morning, before we head to the airport.

Yesterday we chaired the second day of the Sydney Gold Symposium.

Keynote speakers were Richard Karn, Alf Field, Ben Davies and John Embry.

No prizes for guessing their views on gold (and silver). The message was buy both. And buy them now.

To be honest, the 100% bullish view made us a little uneasy.

But more on that in a moment. First, following on from Monday's Money Morning, a few highlights from the Gold Symposium...

Three Types of Money

Monday's keynote speaker was Egon von Greyerz. Here are a few choice quotes:

"There are three types of money. There is money which is worthless (Zimbabwe), there is money that will become worthless (US dollar), and there is real money (gold)."

"100,000 people earning average $40,000 have to work for 350 years to produce as much income as Ben Bernanke can print $1.4 trillion in a fraction of a second."

What's the difference? The first is mostly productive work... The latter is a man pressing a button!

"Nixon should have been impeached for going off the gold standard, not Watergate... or shot even! It was the worst criminal act I've ever seen."

The afternoon session saw our old pal, Dan Denning take the stage:

"The gold standard should be the friend of the working man..."

"You cannot have true liberty without gold as real money."

And on the sham of central banks having an inflation target, Dan pointed out an inflation target of 3% means the central bank is authorising the steady erosion of personal wealth... by 3% each year.

But "under a gold standard [the people] cannot be robbed by the central bank in that way."

The second day was a ripper too. But as we were chairing, we did not have the chance to take as many notes as we would have liked. Richard Karn's talk on specialty metals was the best of the crop.

His best slide compared nations' money supply growth and reported inflation rates. Turns out Australia's money supply is growing faster than the U.S. Yet officially our inflation is under control!

But getting back to our point from the start of this letter, some parts of the Gold Symposium made us feel a bit uneasy.

We know it was a gold conference. And we knew everyone would be bullish on the yellow metal. But still, we had hoped for some counter arguments. Or at the very least for one of the speakers to say, "Of course, if I'm wrong, this will happen..."

The closest any of the speakers came to this was (we think) John Embry of Sprott Asset Management. To paraphrase, he said: "Be careful what you wish for. If there is hyperinflation it will be terrible for everyone."

It's an argument we've made here many times. We know the gold bugs won't like us saying it. But the best outcome for gold investors is probably for the world's economies to experience more of the same... bailouts and central bank money printing.

That will be bad news for those who don't own gold as they'll remain unaware of the silent destruction of their wealth. But for gold and silver investors it could (or should) see precious metals crank higher over time.

Back to our point. Whenever someone tells us it's inevitable the price of something will go higher, as we said, it makes us uneasy.

It's Possible to be Wrong

Just in the same way we were uneasy with the "buy a house now before you miss out" craze. To us the housing spruiker argument didn't make sense. So we dug deep and it turned out we were right... house prices don't always go up. And what's more, sometimes they can fall.

Every month in Australian Small-Cap Investigator we write about what we think are some of the best small-cap stocks on the market. We write about them because we believe they could give investors whacking great gains.

But here's the thing: we also know there's a chance we're wrong. That the stock we've spent all that time researching turns out to be a dud.

Of course, you don't want that to happen. But there's a chance it could. And so we always warn our dear subscribers of what could happen if we're wrong. It's risk management 101.

And so, despite the big names and cracking small Aussie companies presenting, the one thing missing was the answer to the question, "What if you're wrong?"

Before we go on, let's make something clear... your editor is super bullish on gold (and silver, although we see silver as higher risk). And we're convinced paper currencies will devalue at a rapid rate of knots.

So, hold some gold and silver (at least 15% of your portfolio would be a good start). Or we think you're asking for trouble in this high inflation environment.

Anyway, the panel discussion gave us the opportunity to ask "What if you're wrong?" Although and this might have been a mistake we didn't ask the question directly.

Questions Unanswered

First we asked:

"According to a report by the World Gold Council in 1996, written by Stephen Harmston: 'In 1896 if an ounce of gold had been sold for dollars... [and invested] in the composite index of stocks it would have been possible in 1996 to buy approximately 444 ounces of gold.' Is there any reason why the same can't happen again? Is it possible that if we have high inflation, stocks will outperform physical gold many times over?"

Remember, an alternative to selling the ounce of gold in 1896 would have been to keep the ounce of gold. But 100 years later, one ounce of gold would still be one ounce of gold... whereas the stock investor could buy 444 ounces of gold.

Our second question was this:

"In Australia, 97.7% of all financial transactions don't involve cash. Is hyper inflation possible without the physical printing of paper money? Is hyperinflation just as much psychological as monetary?"

In other periods of hyperinflation, consumers could see the currency debasement (for instance, a lower silver content).

But now, you can't see the devaluation of your money. It happens electronically... Most consumers don't know what's happening to their wealth. It's out of sight and out of mind. Bottom line: who's to say that won't continue?

Who's to say things won't carry on as before... Who's to say rising prices won't keep amazing people without them twigging their wealth is being destroyed. That rather than catching on, consumers will just say, "Gee, I've just got to work harder."

Unfortunately, we didn't get the answers we were after. Maybe it was our fault. Maybe we could have phrased our questions better.

That said, it hasn't changed our view on gold. We believe the gold price will go higher. And we believe Dan Denning is right (in hindsight, Dan's comment was probably the most important of the two days), "gold is the friend of the working man."

It's not just for the rich. That's why you should own some.

Of course, we can't be 100% certain the gold price will go higher. No-one can.

Buy gold.

Buy silver.

But beware idolatry.

And always question those who are 100% certain in their views (even if you don't end up getting the answers you were looking for!
Click to expand...

Cheers,
Kris.
Money Morning

TheEnd · Nov 18, 2011

I've only learned about what's going on in the last six months.....In the last 2 after much much research I bought some of both......And the way this thing is all heading I'll be buying more come this Monday..... Good luck everyone, hope most of us make it through this o.k

RCM · Nov 19, 2011

Thanks for posting such a great article.

I wish I could get some of my friends and family as passionate about wealth preservation through gold and silver as I am, but I'm afraid if i try to explain it, they'll think I'm talking about seeing aliens or bigfoot.

I think the best bet is maybe to buy Mike Malloney's Gold and Silver book from Rich Dad Poor Dad for them for Christmas.

Yippe-Ki-Ya · Nov 19, 2011

RCM said:

Thanks for posting such a great article.

I wish I could get some of my friends and family as passionate about wealth preservation through gold and silver as I am, but I'm afraid if i try to explain it, they'll think I'm talking about seeing aliens or bigfoot.

I think the best bet is maybe to buy Mike Malloney's Gold and Silver book from Rich Dad Poor Dad for them for Christmas.
Click to expand...

You can order the book off a link on this website - click on 'Bookshop' right at the top of the page ... it's on page 2 ... only $10.98!

It contains what 99.99% of the population don't know - not even so-called "economists" and other so-called "financial advisors" - who generally have sh1t4brains when it comes to giving sound financial advice.

Ag-ness · Nov 19, 2011

I agree. An interesting side effect of having read so much by now.... is that it's getting harder to find material that is advanced enough! I started reading an ebook on silver recently, and it was so beginnerish, I lost interest. Then I giggled.

Lav · Nov 19, 2011

Ag-ness said:

I agree. An interesting side effect of having read so much by now.... is that it's getting harder to find material that is advanced enough! I started reading an ebook on silver recently, and it was so beginnerish, I lost interest. Then I giggled.
Click to expand...

I got to this point about a month or 2 ago, now all I read is pretty much peoples chart analysis and when and where the price is going.

Ausecon · Nov 19, 2011

Hi guys - aside from RDPD, any other specific items worth reading? I've come at it more from an overall economic point of view, and have only just recently begun devling into research on PM's etc.

Sadly, it's hard to get reliable information on supply and demand dynamics, from a balanced source. People who write on the topics seems to be either PM's are going to the moon tomorrow or you're mad if you buy gold.

It would be nice to have a source of info that provided a balanced reflection of information.

Ausecon · Nov 19, 2011

Specifically, i know there is a good thread on JPM, however where is a good summary of the history of their involvement in the market.?

Thanks guys

Butch · Nov 19, 2011

I reckon its a big con. Big Birds probably spamming us and sub planting ideas into our heads, to generate site traffic.

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