Don't be Afraid,
May 30, 2008
As the price of gold has taken
some lumps since it crashed into the symbolically significant
$1,000 per ounce mark back in March, those on Wall Street who
had consistently underplayed its potential on its way up are
now assuring its continued retreat. According to these gold market
spectators, prices have risen solely as a result of financial
panic, and now that the fear has apparently subsided, gold's
gains will evaporate as well.
I have been buying gold and gold stocks for myself and my clients
since 1999 and not once did I buy out of fear. In fact, from
my perspective the only fear I've observed in the gold market
is from those who have been too afraid to buy.
While fear may from time to time play a role in creating price
spikes in gold, the underlying bull market has been driven by
solid fundamentals. Those who have been too afraid to buy simply
do not understand the underlying dynamics and have instead decided
that the market is irrational. As a result, gold continues to
climb the classic wall of worry as any dip in its otherwise upward
trajectory causes the speculative investors to jump ship.
Gold's ascent from less than $300 an ounce to its current level
was, and is, being driven by those who prefer it as a store of
value to the paper alternatives offered by governments.
As the Federal Reserve's dollar debasement policy kicks into
high gear and other central banks around the world are forced
to follow suit to maintain their pegs against the dollar, the
rational choice for long term investors is gold. Thus, the decision
to buy is not rooted in fear but reason. On the other hand, the
decision not to buy is not only rooted in fear, but ignorance
Those oblivious to gold's warnings instead place their trust
in government-supplied statistics. Based simply on flimsy CPI
reports, these observers believe that inflation is nowhere in
evidence, and that the flight to gold is therefore unwarranted.
Yesterday's GDP report provides the latest illustration of this
dynamic. The government was able to present an annualized first
quarter growth rate of .9% based on an assumed annualized rate
of inflation of only 2.6%. In other words, inflation in the first
quarter of 2008 was the lowest first quarter inflation in the
last four years. How such a claim did not elicit howls of laughter
is beyond me. The government previously reported that in the
years 2007, 2006, and 2005, annualized first quarter inflation
rates were 4.2%, 3.4% and 3.9% respectively. Does anyone,
besides Fed governors and Wall Street economists, really believe
inflation so far in 2008 is 33% below the average rate over the
past three years?
Many of those who place their faith with government figures and
dismiss the movements in gold believe that inflation is not a
problem so long as wages are not rising rapidly. The fact that
wages are lagging other prices merely means that inflation is
that much more problematic for average Americans. Ironically,
what is overlooked is that wages are in fact rising, just not
in America. They are rising in the nations that produce the goods
that we consume, and those higher costs are indeed being passed
on to Americans.
However, recent action in the bond market suggests that a few
more people are getting wise to the government's con. This week,
yields on long-term treasuries hit new highs for the year, with
the yield on the ten year up 90 basis points from its March low.
While the Pollyannas on Wall Street attribute this move to the
strengthening U.S. economy, those of us buying gold know it's
more likely a long overdue increase in inflation expectations.
For a more in depth analysis
of our financial problems and the inherent dangers they pose
for the U.S. economy and U.S. dollar denominated investments,
read my book "Crash Proof: How to Profit from the Coming
Economic Collapse." Click here
to buy a copy today.
More importantly, don't wait for reality
to set in. Protect your wealth and preserve your purchasing power
before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free
research report on the powerful case for investing in foreign
equities available at www.researchreportone.com, and subscribe to
my free, on-line investment
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.