Gold oh Gold

Do you love Gold? You should (hold) buy on the dip!

Over the past week, gold dropped from more than $1,400 an ounce to about $1,360 an ounce today. The pundits are panicking... Yesterday, when gold fell 3%, headlines asked, "Is it time to sell gold, or double down?" An investment banker friend of mine sent an e-mail with the same question.

It's absurd that a $40 drop in gold is spurring these questions. Will individual gold buyers fret over $40 or even $100 an ounce when the U.S. dollar collapses? Will central banks and sovereign wealth funds, with their trillions of dollars, care about a 3% change in the price of gold when they lose faith in paper money? There's a short list of things to buy when you lose faith in paper money... Along with energy and agriculture, gold is near the top. And the central banks' gold holdings are historically low.

You can't value gold like a stock, bond, or any other traditional asset. You have to view it as a currency. Except this currency has no counterparty risk. You can't print more of it. And it's only as valuable as paper money is worthless. (We all know paper money is fast approaching its intrinsic value... zero.) And the market is saying the same thing. Take a look at the following five-year chart of the gold ETF (GLD) versus the 20-year Treasury ETF (TLT). People are losing faith in government bonds (i.e. the dollar) and favoring gold, proving what the true currency is...


Gold has risen 10 consecutive years. Going all the way back to 1980, we found no other market with the same consistency.

And we see gold's rally isn't over. Go to the grocery store and ask people if they own gold... Not gold jewelry, but actual gold bullion. Most do not. Sure, gold is making headlines. But until your waiter, auto mechanic, and tailor are showing off their new Canadian Maple Leafs, you can bet gold will rally. If we do see a short-term dip down to $1,300 or $1,200, we'd treat it as a tremendous buying opportunity.

And it helps that the Federal Reserve is hell-bent on printing the dollar into oblivion. Yesterday, the Fed released minutes from its December 14 meeting... Attendees dismissed rising long-term Treasury rates as a strengthening economy (no inflation here). Officials also committed to the $600 billion Treasury bond purchase program proposed in November. According to the Fed's minutes:

While the economic outlook was seen as improving, members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program. Some indicated that they had a fairly high threshold for making changes to the program. (Emphasis is our own.)

We're not sure what it will take to hit the Fed officials' "high threshold"... Perhaps when interest rates hit double digits, and we're walking to the store with wheelbarr ows of cash. But we're sure the dollar will be far less valuable by the time the Fed quenches its thirst for printing.

In addition to rising interest rates, another "End of America" prediction is also playing out... Soaring food prices. Last November, Porter attended a secret meeting with some of the world's most powerful people (billionaire investors, government officials, corporate CEOs) to discuss the looming food crisis. While most attendees tiptoed around the central issue, Porter dove in. He recalled his contribution to the meeting in the November 2010 issue of Stansberry's Investment Advisory...

Excuse me... I wonder if everyone here is merely trying to be polite... We are here talking about the risks to the global food supply chain because we all know food prices are rising rapidly and these price shocks are merely the beginning.

We all know there's a currency war underway – a currency war that began in 2008 with the collapse of Wall Street's investment banks. We all know this will, eventually, lead to a trade war. And we all know that as sure as night follows day, a currency war will lead to a trade war. We know this will have catastrophic consequences for food supplies.

But why hasn't anyone yet pointed to the obvious problem?

It terms of gold, agricultural commodities prices have fallen by about 50% over the last 10 years.

Obviously it's not the price of food that's the problem. It's the collapsing purchasing power of the U.S. dollar that's led us to this situation.

That's what's going to cause a food crisis – and an energy crisis.

The real question we should be discussing isn't food. It's money. And more specifically, the lack of a sound world reserve currency.

As Porter predicted, the weakening currency caused food prices to rise. According to the United Nations, world food prices hit an all-time record last December (besting the 2008 levels that sparked deadly riots across the world). An index of 55 food commodities followed by the Food and Agriculture Organization rose for the sixth month to 214.7, above the June 2008 high of 213.5.

Have a good day