Rah rah rah!

By: Gary Tanashian | Thu, Sep 23, 2010
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Gold 16-Year Chart

Have you noticed that gold is making some pretty powerful and mainstream friends lately?

Snipped from a recent interview of Donald Luskin, by ETF website site Index Universe:

Index Universe: Regarding gold, what do you make of views that say prices are being increasingly supported by investment demand? Is the gold market headed for a correction?

Donald Luskin: I don't really think of gold in terms of the traditional jargon, investment demand or jewelry demand. I think of gold as just basically a form of money. It's different than Dollar bills; you can fashion pretty jewelry out of gold and you can't do that with Dollar bills. Gold throughout history, and still now, is considered money. Gold should be thought of as a competing currency, right up there with the Dollar and the Euro and the Yen and the Yuan and the franc and all the others. And the price of gold in any one of those currencies is simply the exchange rate. We're certainly comfortable talking about the Dollar-Euro exchange rate, and yet when we talk about the gold-Dollar exchange rate, we call it the price. I would argue that that is wrong, it is an exchange rate.

The entire interview can be reviewed on the BullionVault feed here: http://www.biiwii.com/pmres.htm.

With the bull in full force, mainstream financial types like Don Luskin weigh in on gold. I am not overly familiar with Mr. Luskin, so for all I know he may be a closeted and raving gold bug fanatic. But somehow I doubt it. I do know that he is a media expert on many things having to do with the stock market and economy. He now favors gold. As the chart attempts to illustrate, gold has done just fine being despised by the mainstream and the authorities who pull the mainstream's strings - all the way up. It is when too many voices attempt to make the idea of ownership too easy that things can go wrong.

And by "go wrong" I mean with the 'price' only. The 'value' is and has been intact all the way up, in service to providing an honest anchor within a corrupted system. Read A Value Proposition, written in 2007 after a well known 'price' manager de-emphasized gold's value proposition in favor of its lack of utility as a 'return' investment. Gold's price went up from there. It went up after the Goldman farce came out. It went up when Robert Prechter was trying to will it down from 350, 390 and 420.

Not to sound like a broken record, but when these types of sources get bullish (Prechter excepted as I don't know that he ever gets bullish on its 'price', although he does seem to understand much of the 'value' proposition), they tend to draw in the wrong kind of holders, folks. Holders with no concept of the idea that 'gold is not about price - don't worry about the price - gold is about value and insurance in uncertain monetary times'. In other words, these MSM commentators draw in hot, scared, emotional and yes, stupid money.

You have owned and strongly held gold all or much of the way up because you understand the security of its value proposition. Let me tell you, no matter the fad of the moment, most do not.

In fact, aside from the volume of kitschy gold ads on Fox, nothing creeps me out more (as a gold bull) than seeing the MSM gurus sanctioning the barbarous relic with boilerplate babble that is easily digested by the curious herd. Is this in service to making it easy to buy now at near one of our intermediate target of 1300+? Well, these are the markets and they usually work to punish people who think it is as easy as all that.

For fun, let's give Mr. Luskin's excerpt above the usual treatment:

I don't really think of gold in terms of the traditional jargon, investment demand or jewelry demand. I think of gold as just basically a form of money.

Well you should, Don. In this bull market there is only investment demand due to the serious nature of monetary policy experiments going on in the developed world. Jewelry demand, Indian wedding season... all just noise. If you do not know why you are investing, you will be lost.

It's different than Dollar bills; you can fashion pretty jewelry out of gold and you can't do that with Dollar bills.

Screw the pretty jewelry. Ever since I lost my gold cross necklace when I was a kid, I have not worn a scrap of gold since. My wedding band is silver. As for fashioning pretty jewelry, who is to say some free thinking artists cannot make dollar bills work well as jewelry. I've seen stranger things.

Gold throughout history, and still now, is considered money.

I knew this was coming; word for word, from the forward to the Gold Bug Handbook.

Gold should be thought of as a competing currency, right up there with the Dollar and the Euro and the Yen and the Yuan and the franc and all the others.

Gold is for the most part not a currency because in most places it is not accepted as money in transactions. Gold, in its place outside the official money system, is simply sitting there acting as an anchor to value to be used by people to retain their wealth until either a) a new system rises out of the ashes of the current one, or b) gold is officially announced as the backstop of a major currency.

And the price of gold in any one of those currencies is simply the exchange rate. We're certainly comfortable talking about the Dollar-Euro exchange rate, and yet when we talk about the gold-Dollar exchange rate, we call it the price. I would argue that that is wrong, it is an exchange rate.

Theoretically he is right, but again, it is not official money so I would argue that gold is more of a barometer on how things are going in the official money world. And that barometer is signaling a high level of pressure.

Officialdom does not want its herds to panic full force into gold because that would mean confidence is lost in the system. The system only knows how to keep on trying to perpetuate itself, even as it slowly degrades over time. Expect some serious volatility to attend the gold gushing Don Luskin and an increasingly bullish herd. But that is just volatility in the price casino; you have invested in gold for value, which has been a good strategy all the way up.

Things are going to get really interesting and really emotional here; in the precious metals and the broad markets around them. This blog will not become part of the noise but rather, will try to decode the noise every step of the way. As for the newsletter, we will not only decode, but actively participate because noise means opportunity - to increase capital and to preserve capital.

Stream of consciousness screed ends now...

 


 

Gary Tanashian

Author: Gary Tanashian

Gary Tanashian
http://www.biiwii.com/

Disclaimer: biiwii.com does not recommend that any trading or investment positions be taken based on views expressed on this site. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.

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