Lear Capital: Gold Price Makes No Sense – Nothing Does

on April 16 2013 8:33 AM
Gold Ingots
Gold Ingots. Reuters

If you are one who relies on gold to diversify your savings and retirement, you are likely salivating at the the opportunity, today, to add to those savings at these lower prices.  If you own gold because you were in it for short term gains, you, obviously, don’t share the moment.

The talking heads tell us gold is down because the world economy is healing – stimulus is working.  Working so well, in fact, that money printing, the threat of nuclear war and a shrinking workforce no longer strike fear in anyone.  I may agree with the ignoring of a potential nuclear war with Junior Kim, but I have trouble digesting the rest.

If it be so, that the economy is healing, why are all commodities tipping over?  It’s really only gold that has been called the “alternative currency” one you flee to, in order to survive lost purchasing power of your own paper money.  The other metals carry value because of their industrial uses.  Silver is a good example.  It is reported that 90% of all silver ever mined is gone.  Even the mint was out of silver on two occasions this year.  Does it make sense that in one moth you are out of silver and not three months later, the price is off nearly 20%?  No!

If housing is in recovery, does it make sense copper is down?  With copper being a key material in home building and remodeling, demand should be higher along with the price.  Yet, copper is down.  Platinum and palladium alike, both of which are used heavily in industry, are also falling in lock-step with gold and silver.  So which is it?  The economy is recovering? – or not?

At times like this, it’s like flying a plane.  I was privileged to have dinner with John Scott, co-anchor of Happening Now on Fox News with Jenna Lee, a few days ago.  John is a pilot and he spoke of flying conditions in which you just have to trust your instruments.  That’s what investors must do in these crazy times.  Whatever you feel — is likely wrong!  Numbers, however, do not lie.  Fewer people are working, debt is rising as fast as ever and central banks are printing more money than ever.  And, speaking of central banks, they ended the year 2012 with record demand for gold.

Do you think central banks got it wrong?  The same people who control the money supply have been buying gold as fast as they could print the money to do it.  Surely, they are idiots caught in their own trap.  Do you think fewer people working is a sign of recovery?  It’s simple.  Less workers, less income earned, less income tax revenue all add up to higher deficits.

And finally, last week we got news that should terrify the average investor.  28% of Americans are raiding their 401ks, IRAs and other retirement accounts.  Does that sound like a stat that accompanies recovery?  That stat alone is likely more indicative of all out economic collapse than it is of economic recovery.

If you still demand further explanation, keep in mind spot prices have little to do with the physical market or physical demand.  Spot prices are based on futures contract prices where little physical metal actually gets delivered.  It’s like a group of para-mutual gamblers, each better trying to anticipate another’s bet and beat the odds.  It really is kind of like horse racing.  In the case of each, neither better actually owns the horse.

So what are you betting your retirement on?  Recovery – or – gold?

As always these are just my opinions sprinkled with facts but one thing is for certain.  We live in interesting golden times.  For more breaking news and up to the minute opinion, visit LearCapital.com every day.  And if you would be so inclined, follow me on Twitter  @DaveTheGoldDr

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