With the price of gold bullion hitting a new record high this morning, as Moody’s Investor Services says it’s placing the U.S. credit rating under review for downgrade, my mind wandered to my core beliefs about gold.
What I realized is that my opinion on gold and the reasons I believe the metal will continue to rise in price have not changed.
What has changed: the financial events of the past 10 months have created an even stronger argument for investors to have exposure to gold-related investments.
Below, please find a repeat of one of the most read articles I published in 2010. It’s from PROFIT CONFIDENTIAL on September 8, 2010:
“‘I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold shares.’ (Michael Lombardi in PROFIT CONFIDENTIAL, December 13, 2002.)
The format of this e-newsletter really hasn’t changed much over the past eight years, and neither has the message: Continued record U.S. deficits, rising American national debt as a percentage of GDP, and too much liquidity in the financial system—will all contribute to a weaker U.S. dollar. Given the fragile state of the euro, gold becomes the ‘currency’ of choice.
In these pages, I have repeatedly expressed the benefits of individual investors acquiring gold-related investments. I ‘pushed’ gold at $300.00 U.S. an ounce, $400.00, $500.00, and each time gold hit a new milestone price (basically each time the metal rose another $100.00 an ounce).
As recent as this summer , I was writing in these pages about the benefits of owning gold-related investments. Basically, I have been pushing gold to my readers until I have turned blue in the face.
Yesterday, gold bullion reached a new milestone. Gold for December delivery closed at a new record high of $1,259.30 per ounce. In the days ahead, I expect gold to close above its record intra-day high.
Here are my three beliefs on what lies ahead for gold-related investments:
With the White House predicting that the official U.S. debt will hit $20.0 trillion by the end of this decade, the pressure to somehow devalue the U.S. dollar will push gold prices much higher.
On these pages, I have been predicting a gold bullion price between $2,000 and $3,000 an ounce. It could go even higher.
The great majority of investors have no exposure to gold-related investments. Our company has severed hundreds of thousands of investors, providing them with investment information and guidance.
I can tell you that only a very small portion of investors (maybe five percent) have actually bought any gold investments. Eventually, when the herd finally joins the gold bull market, prices will be pushed higher.
Finally, there’s not an investment that moves higher or lower in a straight line. Gold bullion prices are no exception.
Yes, gold has recently moved to a new record high, but, historically (at least over the past eight years), gold price run-ups are followed by small contractions, which give investors the opportunity to buy more gold-related investments before the next run-up.”
One of the next most-read stories of 2010 had to do with gold and, of all things, coffee. Here’s how the lead article from October 28, 2010, started…
“Do You Have My Wallet?
It’s 5:00 A.M. and I’m at work writing this morning’s PROFIT CONFIDENTIAL. The Starbucks down the street opens at 6:00 A.M. and, all of a sudden, I realize I don’t have my wallet.
My mind starts to wander. What happens if I went into Starbucks this morning and tried to pay for my chocolate banana ‘Vivanno’ with gold coins? I don’t think it would work.
Starbucks is a modern, hip place offering the ultimate “it’s all about me” customer statement. It’s obviously more fashionable to have a Starbucks cup in your hand than a Dunkin’ Donuts cup.
And, at Starbucks, it’s pretty much consistent. You know what you are going to get. And the concept works—millions of customers go through Starbucks’ 16,000 locations every single day. At most stores, you’ll find line-ups at peak hours.
But would a modern place like Starbucks take payment in gold coins? After all, it was only a couple of hundred years ago when they were readily accepted by merchants.
Of course, Starbucks would not take gold coins. Hence, I’ll have to wait until someone comes into work so I can bum $5.00 off them for my drink.
What’s my real message here?
The price of a beverage at Starbucks will rise over time, because we will need more dollars to pay for it. Think $5.00 is a lot to pay for my morning drink? I can see a day in the future when the same drink will be selling for $10.00, because the value of our fiat currency will diminish as inflation takes hold.
Even in Rome, when the empire was all but finished, it was lire that merchants were accepting, not gold coins. In 1927, it took 19 lire to buy one U.S. dollar. By 1970, it took 625 lire to buy one U.S. dollar—the after-effect of too much currency in circulation backed by a bankrupt country. Much like the direction we are headed in here in America.
Why does inflation grip currencies? Usually because there is too much of the currency in the financial system…again, very similar to what’s happening now. More dollars printed, more debt issued. One needs to wonder how far the greenback will erode in value. But, as investors, we know the greater the devaluation of the U.S. dollar, the more debt America takes on, the higher gold prices will rise.”
Coming back to today, July 14, 2011, not much has changed since September and October of 2010, except that our dollar has fallen further against other word currencies and the U.S. government has hit its debt ceiling. How can gold not continue its march higher?