Beware Fortune Magazine's Gold Warning

It was hardly a surprise to see a Wall Street mouthpiece come out with an anti-gold attack on the day that gold reached a new, nominal record-high. What is a surprise is how utterly pathetic was this counter-attack.

For those that missed it, Fortune magazine put out a piece yesterday titled “Beware the Gold Bubble”. The only piece of accurate analysis in the entire piece completely refutes the title to the article. There are two components to an asset-bubble: highly-leveraged debt and (obviously) a high asset-price. The gold market does not exhibit the slightest sign of either of those characteristics.

Even the first paragraph of this piece of trash refutes its own premise:

Signs of gold fever are everywhere. TV commercials scream “Sell your baubles, prices are reaching the sky!”

How stupid can Fortune magazine get? When “fever” sweeps a market, people are buying in, not selling. In fact, what those TV commercials “scream” to the masses is “gold is over-priced, sell while you have a chance!” For Fortune's assertion to be correct, we would have to see widespread advertising encouraging people to buy gold. In fact, while investment has surged, only a tiny percentage of investors hold any gold or silver in their portfolios – and there has been no mass-advertising of any kind in North American markets.

As Fortune, itself is forced to point out, adjusted for inflation the price of gold would have to rise to over $2,000/oz – just to equal its high from 1980. And that is using the phony “inflation” numbers of the U.S. government. Plug in real inflation data and the price of gold would have to surpass $2,500/oz to equal the previous high.

Can anyone list any other asset-class currently trading at less than half of its 1980 price? Obviously gold remains one of the most under-priced asset classes on the planet (with silver being the only cheaper commodity). It is a tautology that something which is under-priced cannot possibly be “in a bubble”.

The second requirement for an asset-bubble to exist is lots of leveraged debt. However, the stingy bankers are only providing leveraged financing for their own bets in their private casino: the derivatives market, as well as their own, in-house trading. There is absolutely no evidence that there is any leveraged debt in the precious metals market.

However, trillions of dollars of highly-leveraged debt still exists in the over-priced U.S. housing market – due to the complete inability of the Wall Street crime syndicate to purge all of the financial feces from its balance sheets. Citigroup, alone, is still sitting on a trillion dollars of off-balance sheet “assets” - leveraged waste products of which it is utterly incapable of absorbing the losses.

While there are real “bubbles” in the world, what we see more and more are media-parrots and pseudo-experts tossing this word around every time some asset hits a new high. The only place where the U.S. propaganda-machine cannot seem to (ever) spot a “bubble” is in U.S. markets – at least not until after those bubbles burst in spectacular fashion.

Far from gold being in a “bubble”, its bull market remains in its early stages – thanks to the reckless actions of Western bankers in trying to prop-up their crumbling, financial empire. What few people (and none of gold's critics) understand is that generally speaking, gold doesn't “rise in value”, instead it is the inferior forms of money – the paper “fiat currencies” - which are rapidly losing their value (and the confidence of investors).

This should surprise no one with any knowledge and understanding of economic history. For two thousand years, every time that bankers have been given an unlimited “license” to print money (i.e. where a “gold standard” is no longer present) they destroy their own financial systems through excessive debt-creation and excessive money-printing.

This seems impossible. How could the same “professionals” never learn from making the same mistakes for two thousand years? However, all we have to observe for this to suddenly become easy to understand is how little (i.e. nothing) the Wall Street banksters learned from destroying their own sector this time, and nearly destroying the global financial system.

It is no secret that greed is an irrational emotion, and that Wall Street banksters are the most reckless, greedy bankers in the history of this species of parasite. Thus, the end of this story was already written the day that Nixon defaulted on the United State's gold obligations – and completely removed the last remnants of the previous gold standard.

Two thousand years of history tells us, however, that these banksters never willingly accept their own self-created fate. As their over-leveraged, fraud-based financial empire teeters like the unstable Ponzi-scheme that it is, we can expect even more extreme, more frantic efforts to try to prop-up their own assets. This means nothing less than even more reckless money-printing, and more leveraged debt.

When I first became a true, “gold bull”, I was looking for a price-target (as a top) somewhere around the inflation-adjusted previous high – in other words, $2,000+, but not a lot more. However, when Wall Street's massive, Ponzi-scheme burst, and the response was to engage in the most-reckless money-creation and debt-creation in history, my long-term price target gradually shifted toward the $5,000/oz range.

As the banksters continue to make things worse (for themselves, and most of the U.S. economy), they continue to create even more-bullish fundamentals for the gold market. I now have no long-term price target, because in the current fluid state of the global financial system (where no responsible reforms of any kind have occurred), I would have to simply keep revising such an estimate higher every few months.

Far from proving that the gold market is a “bubble”, all that Fortune magazine proved is that you should never listen to anything from a Wall Street mouthpiece when it comes to gold.

Disclosure: I hold bullion, otherwise no positions

Comments

[Jeff Nielson:]

Angel Martin, the USD has lost 97% of its purchasing power since the Federal Reserve was created in 1913. This implies prices rising by a factor of 33 since then - but does NOT take into account any of the RECENT fiscal/monetary insanity which has yet to filter-down through the economy.

Also, were it allowed to trade openly and fairly in markets, gold is a much better "barometer" of economies than market indices. What the rising gold price TODAY is also telling people about are the combination of a HUGE wave of price-inflation + the fact that the global financial system is lurching closer and closer to a HUGE crisis/collapse (last year was merely a WARNING).

The U.S. already has a Ponzi-economy (where default can only be averted by borrowing/printing EXPONENTIALLY larger amounts of paper each year), while several other developed economies are close behind.

As was evidenced during the Great Depression, precious metals are as much of a protection for investors during those debt-implosions as they are during high inflation. We are facing BOTH in the future.


On Oct 08 12:17 PM Angel Martin wrote:

> Chap08:
> -gold was at 20.67 from 1879 until 1934 when FDR confiscated private
> gold and revalued at $35, a long period to establish a price baseline.
>
> -the price of gold seems to decline to near it's CPI based value
> only when inflation fears subside (eg 1998-99)
> -i see much more value than you in stocks and bonds because i think
> the economy is recovering while experiencing disinflation (repeat
> of the 1920's)
> -i don't see gold as much of a financial risk hedge, the flight to
> quality in the fall of 2008 was to the US dollar (gold went down).
>

Oct 08 12:49 PM

[Boxed Merlot:]

On Oct 08 11:48 AM chap08 wrote:
> - I don't give much weight to gold standard prices, particularly
> one that was abandoned so soon afterwards
> - I give more weight to historical periods when the price floated…
> … I think about possible changes in supply based on where it comes
> from and recent production trends…

Gold, as the “wealth of kings”, is difficult to grasp on so many levels given our current economic climate. It’s velocity of trade can be difficult to track making it a pariah to the meddlesome information gathering technologies we have come to rely so heavily on. While buying and selling decision making processes have been so thoroughly dissected and scientifically studied / calculated / designed and implemented to the nth degree by marketing magicians worldwide, it’s allure remains a mystery. Equally mysterious is the myriad of ways it finds its way into the world’s population. I continue to believe vast amounts of “unofficial” Au exist in the market place as much of the mineral extractions left mining facilities in lunchboxes by unscrupulous mining owners, managers, workers and others. Think of a mine as an independent “Federal Reserve” and you get the idea. (Those early days of Wells Fargo stages and Butch Cassidy movies weren’t based on fiction.) Trust, integrity and uniform weights/measures with a strong voluntary adherence to law, not gold, have always been the bedrock commodity of any nation’s wealth. But as even the extraction of natural resources can and has been polluted, our current legislative, executive and judiciary branches of government have been carried away by the same sentiments of greed and avarice. Fun days ahead. Impo
Disclosure:deeded mineral rights w/proven reserves, Ca mother lode.

Oct 08 01:04 PM

[Wisdom vs. ...:]

the Dems have ALWAYS protected the dollar in the past and they are promising to do so again

Oct 08 01:25 PM

[fireball:]

hi jeff
i always look forward to and look for your articles.
you can't eat gold? can you eat paper? not sure it is a safe alternative to tp because of the ink.
i have taken profits on my miners. right now i am only in possession of gold and silver.
i was talking with the pres. of my local bank. she knew i had bullion because of a safety deposit box inventory years ago. she is looking to buy.
we live in interesting times. good is evil and evil is good. strange days indeed.

Oct 08 01:31 PM

[Angel Martin:]

Jeff, I calculate a 22 fold increase in prices since 1913 based on BLS published data. ftp://ftp.bls.gov/pub/...

I use the mid-1920s CPI as a basis for valuing gold since it is after the post-WW1 deflation. The CPI is up 12 fold since 1925.

Since FDR confiscated private holdings of gold in 1935, I'm not sure how much protection gold provided for investors.


On Oct 08 12:49 PM Jeff Nielson wrote:

> Angel Martin, the USD has lost 97% of its purchasing power since
> the Federal Reserve was created in 1913. This implies prices rising
> by a factor of 33 since then >
.
>
>
> As was evidenced during the Great Depression, precious metals are
> as much of a protection for investors during those debt-implosions
> as they are during high inflation. We are facing BOTH in the future.
>

Oct 08 02:00 PM

[Angel Martin:]

sorry, full link


ftp://ftp.bls.gov/pub/...

Oct 08 02:02 PM

[Jeff Nielson:]

Hi Fireball.

You can never be faulted for taking profits - only for getting greedy and then watching those (paper) profits evaporate on you.

I've done a small amount of selling myself. One of the exploration companies I'm holding reported some stunning drill-results and the s.p. took off. I keep long-term sell orders in place - and if those targets are hit, I'll take some profits.

More generally, most of the mining companies (especially the "juniors") have not recovered to their 2006 highs - when gold was trading at less than $700.

As Roger Knights pointed out in a previous comment (above), the miners typically LEAD bullion whenever the market is in a bullish phase - and GREATLY out-perform whenever we hit some medium-term top.

So there is clearly a lot more upside potential for the miners even if bullion goes sideways for a while. I definitely think people need to hold BOTH bullion and shares in quality miners.

These companies are NOT that difficult to learn for those willing to spend some time doing "homework". The best risk/reward (in my opinion) is with the "junior" producers.

Look for companies with good profit-margins (at current prices) and who are well-capitalized so that you aren't looking at any dilutive financings.

My favorite jurisdiction for mining companies is Mexico. It has a VERY mining-friendly government, lots of domestic mining expertise, and LOTS of old mines which were never previously mined with new technology - meaning a lot of very profitable deposits which were never mined at depth.

I also saw an internal report from a company with operations in China which ranked Mexico as the 2nd cheapest jurisdiction to operate a mine (China was ranked as the cheapest).

There are literally DOZENS of Canadian mining companies who fall into that category. They are all listed on Canadian exchanges, and most also have U.S. listings - although some only trade in the "pink sheets" market in the U.S.

We are starting to build up a data-base of those companies on our site, although my associate who handles those duties has more of a preference for earlier-stage exploration companies.

THOSE companies are either for those with significant knowledge of mining companies OR for people to put a TINY amount of speculative capital into.

Favorable geography can dramatically increase the odds of such companies paying off. There are "greenstone belts" in numerous areas of the world where either new claims are being discovered or old sites are being restarted.

One of my personal favorites is "adjacent and on-strike" to a mine that has a total resource of 60 million oz's.

By "on-strike" I mean that not only is the exploration property directly adjacent, but the geographical trend of that deposit is connected to the exploration property.

As a general rule, any company which can prove-up a resource of 3 or 4 million oz's has probably discovered a future mine - subject to geography/economics. Some deposits are very profitable with only 1 million oz's of known resources. Some MAY not be profitable even with a 10 million oz resource - IF the grades are too low, or the engineering/extraction challenges are too great.


On Oct 08 01:31 PM fireball wrote:

> hi jeff
> i always look forward to and look for your articles.
> you can't eat gold? can you eat paper? not sure it is a safe alternative
> to tp because of the ink.
> i have taken profits on my miners. right now i am only in possession
> of gold and silver.
> i was talking with the pres. of my local bank. she knew i had bullion
> because of a safety deposit box inventory years ago. she is looking
> to buy.
> we live in interesting times. good is evil and evil is good. strange
> days indeed.

Oct 08 02:12 PM

[Jeff Nielson:]

Hi Michael.

Maybe I'm just not QUITE old enough to remember people borrowing money to buy gold in 1980 (lol), but again let's accept this as true for sake or argument.

This plays right into my argument, instead of people borrowing money to BUY gold, we have people SELLING their gold into this market (all over the world). Thus both the psychological component of a "bubble" AND the necessary leveraged-debt which is the foundation of all bubbles is totally absent.

The "scrap" sales of gold is no threat to the price of gold because central banks are switching from being HUGE sellers of gold to net BUYERS. Previously, there was 400-500 tons of gold being dumped onto the market every year by European central banks.

In the last (fiscal) year, there was only about 170 tons sold by these banks. Meanwhile dozens of central banks BOUGHT gold, and since China mostly buys its own internal production, we have no idea how much more gold it has accumulated this year.

And now (for the first time in 50 years), gold is being sold to Chinese citizens (along with silver) - in quantities small enough to be accessible to most families.


On Oct 08 10:02 AM Michael Clark wrote:

> Chap: 1980 gold price WAS a bubble. I remember everyone I knew in
> 1980 was selling things in their house to try to raise enough money
> to buy ANOTHER ounce of gold BECAUSE the price had just started to
> move and it was going up to $3,000 and nothing was going to stop
> it.
>
> Actually, when everyone are selling stocks and buying penny gold
> stocks, that will be the time to get worried and sell. That hasn't
> happened yet (at least I don't think it has).
>
> Gold will be a bubble when there is NO OTHER investment choice, and
> gold miners are appearing on Bloomberg and CNBC and are being celebrated
> as the next great entrepreneurs and Cramer is pounding the table
> saying everyone HAS to own Silverado Gold Mining, which is this market's
> version of Microsoft in 1981. Gold will be a bubble when Baron's
> is having regular round tables on Gold Mining shares: "HOW HIGH CAN
> IT GO?"
>
> I don't think we're there yet.
>
> Also, the historical Night-Cycle (gold up, stocks down) ran from
> 1965 - 1983. We still have room to run during this Night-Cycle (2001-2019).
> Still some room to run.
>
> (God bless Bernanke! He's ruining America, but he's making them
> junior minors up in Canada sing 'Mine Eyes Have the Glory of the
> Coming of the Lord...")

Oct 08 02:30 PM

[fireball:]

thanx jeff. i'm looking for juniors right now.

Oct 08 02:35 PM

[Mark123:]

Nickelman..... Tossing around baseless insults about Jeff Nielson is clearly about as lame as it gets... Dude--How old are you??? Jeff backs up all his articles with facts and in-depth research... You assert that he is wrong simply because he has his own website, beliefs, and convictions backed by research??? Seriously Hoss... Take the RED PILL while you still can!!!!

Oct 08 10:13 PM

[Jeff Nielson:]

I studied economics for four years, before entering law school - where I obtained my degree from the University of British Columbia in 1989.

Does this PROVE anything? Obviously not. Will it shut you up? Obviously not.

I could simply be making this up. And even if someone did research the 1989 graduating class from the university, it could be a DIFFERENT "Jeff Nielson".

Of more relevance, most of the so-called "experts" on the economy have demonstrated themselves to be utterly clueless - but apparently they still impress small minds like yours.

One of the sharper economic minds I know is an American acquaintance who runs his own one-man home-building company - and has ZERO formal education in economics.

And with respect to your follow-up attack about my disclosure, LEARN the rules of the site!

All writers are required to disclose any SPECIFIC investments they discuss - which generally means company NAMES only. I probably didn't NEED to mention holding anything as generic as bullion - but did so anyway.

Did you see me mention the name of ONE, single mining company? That's why there was no "disclosure" of my mining holdings.

FINALLY, if you had the slightest sense or understanding about business, you would understand that the LAST thing I would do is to mention specific mining companies in my commentaries - because even a casual reference could be construed as an "inducement to purchase".


On Oct 08 07:35 PM NickelMan wrote:

Oct 08 10:42 PM

[Michael Clark:]

Jeff: I don't remember friends borrowing money to buy gold in 1980. It wasn't easy to get a loan in 1980 -- so friends were selling furniture, and old cars, and any other things they had lying around. Some may have borrowed -- but 1980 was not like it was in 2009, as far as borrowing.

I don't think we're at a bubble stage -- although Bernanke could make gold appear as a bubble, and he could probably pop the bubble if he really wanted to. Oddly, Bernanke and gold seem to be on the same side at the moment, even though they don't want to be.


On Oct 08 02:30 PM Jeff Nielson wrote:

> Hi Michael.
>
> Maybe I'm just not QUITE old enough to remember people borrowing
> money to buy gold in 1980 (lol), but again let's accept this as true
> for sake or argument.
>
> This plays right into my argument, instead of people borrowing money
> to BUY gold, we have people SELLING their gold into this market (all
> over the world). Thus both the psychological component of a "bubble"
> AND the necessary leveraged-debt which is the foundation of all bubbles
> is totally absent.
>
> The "scrap" sales of gold is no threat to the price of gold because
> central banks are switching from being HUGE sellers of gold to net
> BUYERS. Previously, there was 400-500 tons of gold being dumped onto
> the market every year by European central banks.
>
> In the last (fiscal) year, there was only about 170 tons sold by
> these banks. Meanwhile dozens of central banks BOUGHT gold, and since
> China mostly buys its own internal production, we have no idea how
> much more gold it has accumulated this year.
>
> And now (for the first time in 50 years), gold is being sold to Chinese
> citizens (along with silver) - in quantities small enough to be accessible
> to most families.

Oct 09 12:12 AM

[Michael Clark:]

Nickel:

Do you think Fortune Magazine has no agenda? We're all adults here: we can make up our mind who is telling the truth, and whose opinions make the most sense. I certainly am not going to take the work of Fortune Magazine as a gospel (not much gospel around here anyway, unless I slip into a trance and start speaking in tongues, which I have done on occasion.)


On Oct 08 04:04 PM NickelMan wrote:

> Fortune Magazine's credibility vs Jeff Nielsen credibility ? Only
> the sheep that follow him would take his perspective
> over Fortune Magazine. His web site is Bullion Bulls Canada and people
> don't think he has an agenda and a bias to
> push Gold down your throat? How Dare Fortune Magazine threaten his
> agenda!
>
> But why don't we all visit this author's website. Bullion Bulls Canada
>
> This way you can figure out how to accumulate more GOLD. Then when
> Armageddon comes as this author so often preaches, if you run out
> of stones defending yourself then you can throw your GOLD nuggets
> at the would be assaulter and then GOLD will actually have some value
> unlike it does now!
>
> Question: So when you fools buy your magical mystery metal Gold,
> what do they take in trade? Why in Gods name would they take your
> FIAT
> currency if it has no value. THINK JUST A LITTLE BIT BEFORE YOU TAKE
> THIS ARTICLE AS ANYTHING MORE THAN MILD AMUSEMENT!
>
> This Author is nothing but a Gold Pumping Fool! That is all he does.
> He has no experience,No education or any real perspective
> to be an authority on anything!
>
> Nick KrahS

Oct 09 12:19 AM

[swsprime:]

Hmmmm RJA? must buy some, but what is it?

According to the Glossary of Stamp Collecting Terms RJA = US Revenue Narcotic Tax, buy some narcotics tax? Nope that can't be right.

Let me see now, according to David E. Blair - 2002 - Mathematics - 260 pages you can define RJA and £a by row and column vectors, mmmm so I need £a as well? That can't be.

Must be something else, Ahh yes! According to the Urban Dictionary RJA stands for Red Jumpsuit Apparatus, a band from Jacksonville Florida that recently got signed to Virgin Records, thats it!! Dump Gold and buy Red Jumpsuit Apparatus, couldn't be more clear now its' been explained.


On Oct 08 10:27 AM LoveShorting wrote:

> Many commodities can hedge against inflation. You can't eat gold
> nor heat your home with it. Buy RJA instead, at least its components
> have real value ... we all gotta eat to survive. Gold is worse than
> tulip bulbs.
> At least the flowers were pretty in the late 1700s..

Oct 09 08:25 AM

[PompanoFrog:]

i want to put my two cents in..exactly what my comments are worth..i have found, over the years, to pay close attention to replacement value when analyzing the long term potential of an investment..

did you take notice of the new mine planned for Mongolia..what catches my notice is that huge new copper production is necessary for economic development in BRIC..this is going to have consequences for the eventual gold price..

What does it cost to bring a large new gold producer into production and what then are the ongoing costs of production..i think gold is ultimately tied closely to the other metals..

years ago when i wanted to protect myself from a declining dollar i was very limited in my alternatives..today, if the dollar is falling other currencies must be rising..i would assume, like myself, other investors try to take into account potential currency fluctuations when making asset allocation decisions..golf course next..

Oct 09 11:24 AM

[SilverHog:]

Why confiscate when a "90% greed tax" or "spread the wealth tax" can easily be passed by Congress to punish the evil precious metal hoarders Precedent has already been set with the 90% AIG bonus tax fiasco.

When you "evil hoarders" (that profited from the misfortunes of the poor that didn't purchase precious metals) try to sell, you will be taxed appropriately. Bartering, (avoiding to pay your fair share of taxes) will result in confiscation of your wealth and prison time.

Social justice. It's only what's fair, right?


On Oct 08 08:10 AM sdavid0419 wrote:

> I couldn't agree more with your article. I do have a small correction
> to add. In between the highest prices paid ads are now appearing
> the former head of the US gold supply advocating the purchase of
> at least some gold for your portfolio. In addition there has been
> a long running radio ad selling gold which is why I was able to get
> in at the $600 level.
>
> As to chap08 warning of government confiscation of gold I would like
> to point out that I attend as many TEA parties as I can and I am
> noticing that more and more people are showing up and the speakers
> are angrier and angrier. I also go to gun shows and have noticed
> crowds and buyers are growing like crazy. Look in any Lowes or TSC
> and you will see gun safes selling like crazy. Any attempt to confiscate
> gold could and very likely will trigger a civil war.

Oct 10 08:24 AM

[SilverHog:]

Nick,
I don't understand your point, are you saying that gold has no value?
If so, then 1,000's of years of human history says you're wrong.

Who cares if he's pumping his business, the important thing is what is actually happening. I suggest you watch the news sometime. The dollar is going down in value, gold is going up in value. This cannot truthfully be denied.

And the odds definitely favor this trend continuing as long as our government continues to print trillions of pieces of colored paper that have no real value backing them (other than a bunch of crooked politicians telling us it has value).

To me this is not difficult to understand.

And Nick, there will probably be a few pullbacks along the way, (maybe a severe one). My advice to you is instead of screaming "I TOLD YOU SO!", use that opportunity to buy in low. Everyone desires more money, even you.


On Oct 09 12:19 AM Michael Clark wrote:

> Nickel:
>
> Do you think Fortune Magazine has no agenda? We're all adults here:
> we can make up our mind who is telling the truth, and whose opinions
> make the most sense. I certainly am not going to take the work of
> Fortune Magazine as a gospel (not much gospel around here anyway,
> unless I slip into a trance and start speaking in tongues, which
> I have done on occasion.)

Oct 10 09:46 AM

[Tony Daltorio:]

Here is an example why most small investors do NOT make money over the long-term.

He calls gold a bubble (which it's not) and is completely missing two of the biggest bubbles I've ever seen in my near 30 year career in the investment industry - US Treasuries and stocks.

On Oct 08 09:44 AM Angel Martin wrote:

> I believe gold is definitely a bubble. Confirmation will be when
> good economic news moves the gold price down rather than up. At that
> point the peak of the bubble will have passed and the crash will
> shortly follow.

Oct 10 11:45 AM

[Angel Martin:]

Tony: I agree with you that at least one of gold, treasuries, stocks is a bubble. As for which, we shall see.

I may be a small investor, but I have done allright because I have always had a balanced portfolio (including precious metals) because I know that the future is uncertain, and there is more than one possible outcome.

I take small option positions (hey, I'm a small investor!) when I see what I think is a market wildly out of touch with reality (eg. economic recovery will be weak or non-existent, Weimar Republic is coming). I would never position my whole portfolio as if the only possible outcome is a strong recovery this fall, or the only possible price path for gold is a 50% crash next year, and back to $300 by 2011.


On Oct 10 11:45 AM Tony Daltorio wrote:

>
> Here is an example why most small investors do NOT make money over
> the long-term.
>
> He calls gold a bubble (which it's not) and is completely missing
> two of the biggest bubbles I've ever seen in my near 30 year career
> in the investment industry - US Treasuries and stocks.
>
> On Oct 08 09:44 AM Angel Martin wrote:

Oct 10 02:56 PM

[chris coonan:]

Agree, Fortune and Forbes are tainted.

Nov 29 03:30 AM