On Gold Bugs!
An article yesterday titled 'Taking Issue with Some Gold Bugs' - reading time 4 minutes - is written by Jordan Roy-Byrne of The Daily Gold blog. In the article, Roy-Byrne, a self-confessed "gold bug both philosophically and in terms of investing" takes exception to a number of 'gold bug' headlines and talking points, being:
'there will be system wide meltdown as U.S. enters hyperinflation'. Roy-Byrne opines that, in his view, the odds of hyperinflation are very low, and hyperinflation talk is nonsense. A few days ago I commented on the criteria that must be met to meet the definition of hyperinflation in a fiat currency environment - being at root that a compound inflation rate of 26% must occur over a consecutive three year period. I don't think this is likely to happen in the U.S. in the foreseeable future, and accordingly, am in Roy-Byrne's camp on this;
'gold & silver have bottomed, and there will be a 'summer explosion' ahead'. Roy-Byrne believes gold and silver both will find new highs going forward, but that won't happen for gold until at least August, and won't happen for silver for as long as 12 months from now. From my perspective (and I think importantly) all gold and silver future price estimates, be they Roy-Byrne's or anyone else's, are nothing more or less than forms of 'proxies on unstated specific future macro-economic conditions'. As a result, I don't pay attention to them. I focus for purposes of my own investments on my own view of macro-economic trends, about which I currently am on the side of pessimism - which current view leads me to conclude that the trend price of gold will be up from here, without me having or assuming a target price. As I have said repeatedly in these e-mails, I find physical silver to have a far more complex supply/demand interaction with the global economy than I find physical gold to have. Accordingly, while I indirectly own both, my indirect holdings are far more weighted to physical gold than they are to physical silver. That said, as every investor's risk profile and strategy needs to be specific to him/her, I strongly believe you should not participate in either the physical gold or physical silver markets without first seeking your own 'fact-specific' investment advice;
'hedge funds are 'shorting' the gold stocks and the juniors'. Roy-Byrne doesn't' believe this, and believes that the reason gold producer and gold explorer stocks are lagging the price of gold currently has to do with 'risk aversion'. I have been working on an e-mail commentary setting out my views on the reason for what many equity market observers have seen since the end of April as being a dichotomy between the physical gold price and the market price of gold producer and explorer stocks. I plan to include my commentary in an e-mail later this week. For now, suffice to say that at a high level I agree with Roy-Byrne's conclusion as to 'risk aversion'; and,
'bonds will crash without QE, interest rates will skyrocket'. Roy-Byrne expects "continued debt monetization, currency depreciation and inflation but (disagrees) that Bonds are going to collapse anytime soon". Based on what I am reading and thinking, Roy-Byrne's comment currently is consistent with my own views assuming Roy-Byrne is using the term inflation in the context of the U.S. Federal Reserve's current guideline of 2% or less. In all the attendant circumstances (U.S. unemployment rate, monthly trade deficits, consumer confidence, etc.) if the reported U.S. inflation rate climbs significantly past 2% to me that will signal near-term 'bad things economic'.
As if out of a page 'from my own book', Roy-Byrne concludes by saying "one-way thinking with sensational statements can be dangerous and deadly to your portfolio. It is more sensible to be cautious, entertain foreign ideas and explain both sides of the coin". I find it refreshing to find an admitted 'gold bug' express what I think to be a balanced view, and will pay more attention to Roy-Byrne's comments going forward than I have in the past.