Bill Gross's Remarkable Comments About Gold

 |  Includes: GLD
by: Tim Iacono

After yesterday's German high court approval of Europe's $600+ billion bailout program (see article), the first of two prerequisites for higher precious metals prices is now in place and only today's launch of the Federal Reserve's third round of money printing (otherwise known as quantitative easing and expected to also be over $600 billion) now stands in the way of sharply higher gold and silver prices over the very near term.

As noted here the other day, it is clearly the minority view that the Fed may not come through as expected today, however, at this point, it really just seems to be a question of "when", not "if", the U.S. central bank joins in on the latest global money printing extravaganza, which brings me back to some remarkable comments about money printing and gold made by bond giant Pimco's Bill Gross in an interview at Bloomberg last week that, for reasons that will soon be obvious, have stuck with me in recent days.

Gold can't be reproduced. It can certainly be taken out of the ground at an increasing rate, but there's a limited amount of gold and there has been an unlimited amount of paper money over the past 20 years to 30 years and now … central banks are at their leisure in terms of basically printing money.

And so, gold is a fixed commodity. It has a considerable store of value that paper money has not. It is certainly dependent upon the price and it's hard to know whether current levels for gold are the appropriate price, but, when a central bank starts writing checks and printing money in the trillions of dollars, it is best to have something that's tangible and cannot be reproduced, such as gold.

You know, I am not a gold bug. I am just suggesting that gold is a real asset and will be advantaged if the Federal Reserve or the ECB central banks start to write checks in the trillions. So what my objective is, I am not sure. I just think it will be higher than it is today and certainly a better investment than a bond or stock, which will probably return only 3% to 4% over the next 5 to 10 years.

While Gross was famously wrong about the direction of interest rates last year, he's not likely wrong about gold and whenever someone who oversees trillions of dollars in investments talks, people should listen.

What struck me about these comments is that the highlighted sections above echo my feelings about precious metals prices - so long as governments and central banks keep doing what they're doing, people should buy gold and you can't really know what the correct price is, only that it will keep going higher as long as governments and central banks keep printing money.

It really is as simple as that…