Zurich is a delightful city. So much history! So much beauty! So much money!
You can barely throw a Kruggerand in any direction without hitting a rich banker or his model wife.
They stroll along the Limmatquai. They dine at the Kronenhalle. They shop on Bahnhofstrasse.
And what do they think of today’s markets?
“It’s crazy what is happening,” said our friend. “But crazy things happen. You just have to make sure you’re not doing something crazy too.”
What crazy thing happened yesterday? The Financial Times says stocks rose when investors got good news from the manufacturing sector.
Maybe.
We noticed a big bounce in gold. The metal was up $32 an ounce. And beaten-down gold miners showed even more gains.
Whassup? End of the correction in the gold market?
Only a fool would pretend to know where gold will come to a bottom. I guessed $1,100 yesterday. Colleague Chris Hunter (who will be providing us with our new Market Insight notes every Monday, Wednesday and Friday) thinks it could be lower.
Nobody knows. But a lot of people think they know. And when people think they know something that they can’t really know, it is an opportunity for those who don’t know and who know they don’t know. Is that clear?
Gold – No Longer Necessary?
Our old friend Mark Hulbert at The Hulbert Financial Digest reports that independent financial advisors have never been more bearish on gold than they are today. Other indicators tell us that the public and the professionals are overwhelmingly against the yellow metal…
Even at the “top” – when gold was near $1,900 an ounce – few investors owned gold. It was considered kooky. Bizarre. Vaguely seditious.
Since so few people owned it, few were unhappy to see it go down. And when it did begin to correct, all those investors who had jumped into the gold market at the last minute, because they didn’t want to be left behind, thought they should get out immediately. Their rush for the open door is what brought about the sharp sell-off.
Meanwhile, serious investors are not speculating on the next move of the gold price. They’re accumulating gold… and measuring their wealth in it.
We’ve heard investment professionals recently tell us that gold is no longer necessary. It’s just a hedge against central banks going wild, they say. And, now that the Fed has demonstrated its willingness to “taper” its bond buying, there is no need for gold, especially when official consumer prices are rising at an annual rate of just 1.4%.
Anti-Wealth
But consumer prices aren’t the only kind of inflation…
Nor are they the first kind…
The first kind of inflation is the kind that raises values for the lucky 1%. People who own financial assets – stocks, mainly – see their wealth increase as a result of central bank manipulation.
That’s the kind of inflation that most people like. Even if they aren’t part of the 1%… and they don’t own stock… they are happy to see a bull market on Wall Street. They imagine – like Ben Bernanke – that somehow this ‘wealth’ will trickle down to the working stiffs.
They’re right. It does seep into the consumer economy, eventually. But not as wealth. As anti-wealth. Prices for toilet paper, parking spaces and cookies increase. The working stiffs end up with lower real purchasing power.
We’re not there yet. Consumer price inflation is still – apparently – very low. In fact, we are in what looks more like a period of disinflation than an inflationary cycle.
In fact, we’re so far away from consumer price inflation that investors can’t see it coming. They think the feds have everything under control. They think the economy is fundamentally sound… and that monetary policies are fundamentally sensible!
They’re betting that Mr. Bernanke can work things out with Mr. Market…
We don’t approve of speculation – not in gold and not in anything else. Most people – including us – don’t have the stomach for it.
Instead, put your money to work the way serious people do. The way the Swiss do. If you haven’t done so already, begin a lifetime program of gold accumulation, not gold speculation.
Set aside some amount. Buy gold every month. And hope the price goes down so you get more for your money.
Regards,
Bill