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- How to start investing in gold
- A $9 billion drop in the bucket
- Bigger than Macdonald’s
I hesitate to write about gold
in today’s article. If you’ve been a
reader of Resource Prospector for more than a few days, you’re probably
already sick of hearing about it. And if
you haven’t built a position in it, you probably feel like it’s too late to
start now.
And with
gold near its all time nominal highs (it still has a way to go for inflation
adjusted highs) you’d think I’d be cheering. But I’m reluctant to tell you to buy things when they’re at any
high. That’s not the way to build a
position in any investment. So before I
go on to talk about gold and why I think it’s so neat, let me recommend waiting
for a dip before you pull the trigger. A
dip could be a minor hesitation in gold’s price, or it could be a major decline
– but basically, the idea is to try to buy the asset for less than what it was
going for yesterday.
Don’t get me wrong, I’m
still super bullish on gold. What’s not
to like about it? It’s the perfect way
to protect your nest-egg from irresponsible politicians and central bankers. So long as the Federal Reserve is
backstopping the EU, and the EU tries to fix its currency problems by blaming
speculators and telling Greece
to raise their sales tax to 23%… Well,
you get the idea.
There’s literally trillions
of reasons why gold is a better long-term bet than currency, but I saw
something yesterday that stuck out like an especially large piece of spinach
between someone’s teeth.
It was a little headline on
yahoo finance. Amid all of the bluster
about Greece,
the “fat-fingered” trading theories for last week’s nearly 1,000 point stock
market plunge and more news about Goldman-Sachs, there was a tiny blurb about
Fannie Mae.
Yeah,
remember Fannie Mae; that government sponsored entity with the calamitous
foresight to underwrite billions of dollars worth of bad mortgages? Remember when they needed a few billion dollars
here and another $10 billion there? Well, now their total bailout from the Treasury comes to about $84
billion. They just requested another $9
billion. That’s after Freddie Mac asked
for $10.6 billion last week.
That number used to be a big
deal, but today, it’s a minor blurb in newspapers around the country. Our sovereign debt has become so perversely
large, that even ridiculously large debt additions don’t make major
headlines. Huge debt increases are no
longer anathema. They’re no longer
news. We’re in the midst of a worldwide
frenzy of debt so deep, so large and so pervasive, that major news outlets
don’t even notice. Debt is now official
policy.
Well, I
have news for you – it still is a huge number! $9 billion is a hair more than Macdonald’s (NYSE: MCD) annual gross
profit! Where will that $9 billion come
from? Where will the $84 billion total
come from? What about the $61 billion
total for Freddie Mac?
Together, that’s nearly $145
billion, but it doesn’t include next quarter’s loss for these two firms. Of course, that $145 is just the tip of the
iceberg.
Just a few years ago, these
numbers would have congressmen screaming outrage on Capitol Hill, and
journalists would be writing big headlines all about government waste. But today, these numbers just don’t measure
up. Today, it’s the $1 trillion mark
that gets attention.
At this point, there is
literally nothing that the government will not backstop with free money from
the Treasury and the Fed.
Until that changes – that
is, until central bankers around the world stop treating their currencies like
a magical piggy bank, and until politicians realize that increasing sovereign
debt is a terrible policy – only then will gold stop rising.
It will happen, but it just
might take the total annihilation of the euro and the dollar first. In the
meantime, looks for dips in gold to add to your positions.
Good investing,
Kevin McElroy
Editor
Resource Prospector
p.s. If you’re interested in
learning about a gold stock with the potential to multiply gains made in gold,
check out this write-up by Ian Wyatt on a small North American miner that’s so
cheap right now, buying their stock is like buying gold for $120 an ounce. Click
here for the full story.