Why I Still Get Blank Faces

Spending time with friends who are either businesspeople or investors is a favorite pastime for me. I find it so interesting getting different views on where people believe the economy is going and where they are investing their own money.

When I first started telling people three years ago that I was buying gold stocks because I thought gold would go up in value, I drew blank faces. And today, when I continue to suggest that investors should look at gold, I still get blank faces. But that’s alright, because the more blanks I draw, the higher I believe gold bullion prices will rise.

Why is gold rising in price? That’s not the real question. The real question is why isn’t gold much higher in price today than US$410 to US$415 an ounce? I believe gold prices are not higher today because of the deflation threat I often write about. But as the economic risks present in today’s economy outweigh the deflation threat, gold, I believe, will rise rapidly.

Here’s what gold has going for it and why the metal is at a five- month high in price:

— Oil is at about US$50 a barrel. No one is talking $60 a barrel, but it could happen. Gold usually rises as oil prices rise.

— The U.S. dollar is in a gentle collapse. I’ve written many times on why I believe the U.S. dollar will continue to fall against other world currencies. Gold usually rises in price as the American dollar falls.

More people are starting to pay attention to the cracks in the economy too:

— The Institute for Supply Management reported Friday past that its purchasing managers’ index fell in August from September. This basically means growth in the U.S. factory sector is slowing.

— The University of Michigan’s consumer sentiment index fell again in September, the university reported on Friday. This is a popular and widely followed gauge of the U.S. consumer index.

— The number of Americans looking for work “unexpectedly” spiked in the previous week, with U.S. weekly jobless claims rising to 369,000 for the week ended September 25, 2004 from 351,000 the previous week.

Finally, let me leave you with this one last thought. As recently as the 1980s, the United States was defined by economists as a “creditor” nation. By measuring the accumulated claims the U.S. had on the remainder of the world, less the claims foreigners had on the U.S., the U.S. stood with a surplus that ranged between three and four hundred billion American dollars. Today, only twenty years later, that surplus has become a deficit of $2 trillion. The world biggest economy has gone from being the world’s biggest creditor to the world’s biggest debtor.

Now, why am I drawing blank faces again when I tell people I’m investing in gold?