Is gold a good bet?

Sep 16, 2010

Las Vegas, Nevada

We're not exactly in Las Vegas. Not yet. But we're on our way. Yesterday, we had a funeral in Paris. Today, we have a speech to give in Las Vegas.

This is not the way we planned it. It's just the way things work out.

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Yesterday was a bit of a letdown. After having hit a new record high on Tuesday, gold decided to take it easy on Wednesday. The price slid $3.

Stocks, meanwhile, showed a little progress. Not much.

So we still have no clear trend. We wait. We wait.

For a while it looks like the next leg down has finally begun. Then, it looks like we're in for another rally.

The only sure thing, so far, is that gold goes up. Even that is not really sure...but it is surer than just about everything else.

Our dear readers who bought gold back in 1999 have made about 4 times their money. This year alone it is up 15%, a very respectable return. Most of that has come as a result of paper currencies going down. Investors are buying gold to protect themselves.

They may also be getting a little insurance from a much more serious level of inflation which many think is coming. We think it is coming too. But in our view it looked like it would be awhile before it showed up. We're in a major de-leveraging. You don't get the normal cost-push or demand-pull inflation in a de-leveraging cycle. You get something else...something much more violent and dangerous.

But, heck, we wouldn't rule out anything.

We made money on gold over the last 10 years simply because gold was cheap when we bought it. We were betting on regression to the mean. Nine times out of ten, when you bet on regression to the mean, you'll make money.

Can you make money buying gold now? Yes, but now you're betting a different phenomenon. Actually, to hear the analysts tell the story, you've still got a good chance of making money. If the economy picks up, inflation will likely pick up too - ergo, higher gold prices.

If the economy sinks into deflation, gold still goes up. Why because deflation is sure to bring worry, doubt, and trouble.

Then, there are those who think we're headed to hyperinflation. If so, you ain't seen nothing yet as far as gold is concerned. The price could get to $5,000 an ounce...and beyond.

What do we think? Well, we agree with them all, more or less. The best bet is probably that we'll stay in Japan-like trance for a while longer. This is not necessarily good for gold. And not necessarily bad. Most likely, the yellow metal will meander around ...generally headed upwards.

On the other hand, who knows?

The trouble with this market is that there are too many people who think they know. Many are saying that gold is a ‘can't lose' investment. Maybe they're right. But we don't like the sound of it.

*** After the church service, the black-clad, downcast group made its way a few blocks to one of the main entrances to Pere Lachaise cemetery - probably the most famous cemetery in the world. It's the largest cemetery intra-muros in Paris, laid out by the same person who designed the stock exchange. We followed the casket...up over the cobble-stoned streets between the large sycamore trees to its final resting place.

At first Pere Lachaise was thought to be too far from the heart of the city, so its sponsors began a marketing campaign. They advertised that they were moving the bones of a few famous people to the cemetery. Pretty soon, people couldn't wait to be buried there; they must have figured they would be there for a long time they might as well enjoy the neighbors.

Now there are over 300,000 people buried in Pere Lachaise, including Sarah Bernhardt, Georges Bizet and Jim Morrison. But one of the most interesting internees is probably Judah P. Benjamin.

Here's a question for you, dear reader. Who was America's finest president?

Chester Arthur? William Henry Harrison? No, Jefferson Davis!

We're not really serious about that. The War of Secession was a disaster for the South. Davis should have done more to avoid. A campaign of non-violent resistance, a la Gandhi, for example, might have been more successful.

But who knows. When people get their blood up they'll do any fool thing you can imagine. A president has to follow them. Because he's their leader.

So who was America's best Secretary of State? Maybe it was Judah P. Benjamin.

Benjamin was an accomplished lawyer and planter. Then he became the second Jewish senator in American history and later took the role of Secretary of State of the Confederate States of America. He was invited to join the US Supreme Court twice. Both times, he refused. Once in the US Senate a fellow senator refered to him as a "Hebrew with Egyptian Principles."

Benjamin replied:

"It is true that I am a Jew, and when my acestors were receiving their Ten Commandments from the immediate Deity, amidst the thundering and lightnings of Mt. Sinai, the ancestors of my opponent were herding swine in the forests of Britain."

And when they drove Ol' Dixie down, Benjamin fled to Britain, where he had another successful legal career.

In some ways his personal life is more curious. He married a woman from a great Creole family in New Orleans. They had one daughter. But his wife decided she'd rather live in Paris, so she took the daughter and left. She spent the rest of her life in Paris, where Benjamin came to visit every summer.

Then, at the end of his career, Benjamin rejoined his family, died in Paris and is buried at Pere Lachaise.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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