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MiningMX on Harmony, DRDGold, and a decline in world gold production
6:55p ET Friday, February 25, 2005
Dear Friend of GATA and Gold:
The author of the commentary from Smart Money
magazine that is appended here recognizes that
gold is money. Why he thinks that the
exchange-traded gold fund he recommends is
necessarily gold is something else. But take
it for what it's worth.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
One Man's Barbarous Relic ...
By Donald Luskin
Smart Money magazine
Friday, February 25, 2005
http://www.smartmoney.com/aheadofthecurve/index.cfm?story=20050225
Send yourself traveling in your imagination back to September 2000.
The great 1990s boom was still apparently booming. The Nasdaq had
topped out six months before, but the broader S&P 500 was at all
time highs, adjusted for dividends.
We've been through a lot of pain since then, but the economy has
more than entirely recovered. It may be a while until stocks see
those giddy heights again, but real GDP, household net worth, home
ownership, and payroll jobs are all higher today than they were in
September 2000.
There's one really big nagging problem, though. Something very bad
has happened to the purchasing power of the dollar.
You can see it to some extent in the consumer price index. It creeps
up on you a little bit at a time, but the reality is that prices, on
average, are more than 10 percent higher today than they were in
September 2000.
But there are other indicators of the value of the dollar that
respond more quickly and sensitively than the CPI -- and they are
considerably more alarming. The price of a barrel of crude oil has
risen 50 percent since September 2000. The euro -- the common
European currency that is the dollar's most important rival in world
markets -- has risen 52 percent. With oil and foreign currencies
moving like this, it's a sure thing that the CPI is going to
continue to head higher -- and at a faster clip.
What does one do when the purchasing power of the dollars in our
wallet starts to erode?
Simple. Don't hold dollars. Hold real money.
Yes, I'm talking about gold.
If you'd held gold instead of dollars starting in September 2000,
from your perspective crude oil today would actually be 5 percent
cheaper than it was then -- rather than 50 percent more expensive.
The euro would be 4 percent cheaper, rather than 52 percent
stronger.
Don't even ask about the CPI. You'd be so far ahead of that game
it's not even worth doing the math.
The governments and central banks of the world may have given up on
gold as an objective benchmark of currency value. And supposedly
sophisticated economists may have long ago relegated gold to the
status of a "barbarous relic," as John Maynard Keynes famously put
it.
But the real world still treats gold as real money -- as the
ultimate store of real purchasing power.
Governments and central banks get it right to the extent that they
stop listening to the economists and start listening to gold. The
European Central Bank has been doing a lot better than our Federal
Reserve on that score. That's why the euro has stayed rock-steady
vs. gold (while the dollar as fallen in half) -- and why a euro buys
about as much oil today as it did in September 2000 (while a dollar
only buys half as much).
I suppose you could use that as an argument for keeping your cash in
the euro. But someday the ECB will get it wrong, too. Gold never
gets it wrong.
What would it have taken to buy gold back in September 2000?
Actually, it was a bit of a hassle. You either had to buy gold coins
and squirrel them away someplace, or open up a futures account and
buy commodities contracts; or invest in gold mining stocks.
But more than anything else you had to be willing to do something
deeply contrarian. At that point the gold price had been steadily
declining for three years. Gold and gold stocks were deeply out of
favor. In fact, those who have followed my writings since before I
started this column for SmartMoney.com might recall that my earlier
relationship with another financial Web site blew up in a very
public catfight precisely because I committed the heresy of calling
the double-bottom in gold and gold stocks in mid-2001.
Today it's all different. Economists still turn their noses up at
gold. But investors don't.
Today it's easy to hold gold. One of the best ways is by buying
shares in the new StreetTracks Gold Trust (GLD) -- an exchange-
traded fund that almost perfectly tracks the price of gold tick by
tick.
But with gold up 70 percent since the bottom, and some gold stocks
having turned in even more spectacular performance, no one can call
it a contrarian play at this point. At this point gold is what it
has always been -- real money, and as such, a hedge against the loss
of purchasing power in the play money we all carry around with us
every day.
But it may be a bit more than just a hedge. Maybe there's a trade in
here too.
From the way Alan Greenspan and the Fed are acting, I'm expecting
the purchasing power of the dollar to keep declining. They should
have started raising rates earlier, and should now be raising rates
faster. Yet they continue to hew to their "measured" pace of rate
hikes, and act in all their public statements as though there's not
the slightest whiff of inflation in the wind.
If this keeps up, we could see gold move to new highs. In fact, last
Friday my technical analyst colleague Fred Goodman got a technical
buy signal on gold from two of his indicators. When markets opened
this Tuesday after the President's Day holiday, gold was up almost
eight points.
Do I think we're going to see another 70 percent move? No, not at
all. Hopefully this next move in gold will be the last gasp in its
bull market, the one that hits Greenspan over the head with a two-by-
four and forces him to come to terms with the inflationary demons
he's been ignoring by keeping rates too low for too long. Once
there's a signal that Greenspan has gone on inflation-alert, then
that will be it for the "barbarous relic" -- at least as far as
trading the long side is concerned.
But if what you're looking for isn't a trade, but rather a hedge,
then gold is one investment that never goes out of fashion. You
might want to consider doing what I do -- keeping a vault of the
stuff tucked away in a corner of your fallout shelter.
Just kidding about the fallout shelter. Not kidding about the gold.
-----------------
Donald Luskin is chief investment officer of Trend Macrolytics, an
economics consulting firm serving institutional investors. You may
contact him at don@trendmacro.com.
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RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
Free sites:
http://www.cbs.marketwatch.com
http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)
http://www.resourceinvestor.com
Subscription sites:
http://www.lemetropolecafe.com/
http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Blanchard & Co. Inc.
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1-800-869-5115
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Michael Kosares, Proprietor
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Harvey Gordin, President
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Greg Westgaard, Sales Manager
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178 West Service Road
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Toll Free:1-877-775-4826
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and
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Lee Certified Coins
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fax: 952-925-0143
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Contacts: David Schectman,
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Missouri Coin Co.
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314-965-9797
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Resource Consultants Inc.
6139 South Rural Road
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Pat Gorman, Proprietor
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Metalguys@aol.com
Swiss America Trading Corp.
15018 North Tatum Blvd.
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http://www.swissamerica.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com
The Moneychanger
Box 178
Westpoint, Tennessee 38486
http://www.the-moneychanger.com
Franklin Sanders
1-888-218-9226, 931-766-6066
----------------------------------------------------
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