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Gold perfect asset { October 3 2002 } Original Source Link: (May no longer be active)
http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=29159http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=29159
Gold: The perfect asset
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Posted: October 3, 2002
1:00 a.m. Eastern
© 2002 WorldNetDaily.com
New production and industrial consumption are relatively unimportant determinants of gold's price, even though many pundits make much of them. Unlike any other metal, most of the gold that has ever been mined is sitting in the vaults of central banks and the safe deposit boxes of investors. It's not being "used" for anything: Its raison d'etre is simply to be an asset. What determines the price of gold, therefore, is the desire of its owners to own it or to liquidate it and own something else.
And that, in turn, depends on the inflation rate (how fast paper money is losing value), the chances of a credit collapse (the likelihood of deflation wiping out paper assets), and the general level of confidence in the future.
The most likely alternatives are much higher inflation or uncontrolled deflation. The creation of more currency and credit are the only ways for the government to fund its deficits, transfer programs, bailouts and other disasters waiting in the wings. And if we have a financial accident, that in itself will be an excuse for the authorities to expand the money supply further. High inflation rates would send gold skyrocketing, much as they did in the '70s.
Yet serious deflation would likely also cause the price of gold to explode. It is the only financial asset that's not simultaneously someone else's liability. And if we have deflation this time around, it won't be possible to buy government paper and wait in safety, as was possible in the '30s, for at least two reasons.
First, a deflation would set off all kinds of spending programs and bailouts. The federal government would go from being a questionable risk to a bad risk as it was forced to borrow on a huge scale to finance emergency spending, much of which is already mandated by law, while tax revenues were falling. Second, a deflation would almost certainly result in calls to reinflate as rapidly as possible – a course of action unlikely to inspire confidence in the dollar. Gold would soar during serious deflation.
Gold is a big winner in either scenario; it is a matchless crisis hedge. It's the only financial asset that's completely invisible and private. There are no Social Security numbers stamped on gold coins, and they leave no paper trail when they change hands. Unlike real estate, for instance, a government cannot easily find gold to tax or confiscate. Unlike stocks, gold doesn't represent a value that can be dissipated or mismanaged. Unlike bonds, gold cannot default. And unlike currency, gold cannot be inflated away.
There are not many low-risk places for wealth to hide today. But plenty of wealth exists and, as the world's greatest coward, capital will look for a place to hide when things get scary. Gold is the perfect financial asset in times of uncertainty.
This is not the '70s, when gold was a great speculation. You should view gold as a vehicle for savings and for conservation of capital. When you save, you're not expecting to hit a long-ball homerun; you are simply trying to put away assets for future consumption. You want safety. You do not want to have to trust a government, a banker or the management of some corporation. You want the asset itself, something you can hold in your own hands.
Gold is not a trading vehicle; it's a core holding. Buy it as privately as possible, put it away and forget about it.
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Legendary speculator Doug Casey logs 150,000 miles a year, trekking through jungles, deserts and high mountain passes, while his readers sit home and collect returns of 400 percent, 4,170 percent, even 10,060 percent. He is the author of the best-selling "Crisis Investing" and "The International Man." He also edits the newsletter International Speculator.
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