Being Long Gold Equals Shorting The Financial System

by: Mark Thomas

We have been doing research for months, first about silver and then gold. Our further research has just reaffirmed the facts supporting our thesis of continued substantial gains in gold and silver over the next few years. The rising price of gold and silver this year, and the acceleration in the rise in prices, especially over the last couple of months, has confirmed our investment thesis.

We began our gold and silver news update service newsletter with a mission: To help protect average citizens' savings and investments from the destruction of wealth caused by the Federal Reserve's reckless monetary policies and the US Congress’ prolific fiscal policies. To prevent real and nominal losses in stocks, bonds and real estate, we choose to invest 100% in gold and silver. While that might not be suitable for everyone, we believe that everyone should have at least a majority of their assets in precious metals, currently. We believe this is the only way to not only protect your wealth from being eroded, but will also retain and even substantially grow your purchasing power over the next 2-3 years.

We’re not gold bugs who believe that we will always own a majority percentage of our assets in gold and silver. There will come a time after gold and silver have appreciated by a factor of hundreds of additional percent higher from today’s prices when we will sell our gold and silver and purchase stocks and real estate, which will be much, much cheaper than today’s prices. Our approach is designed to help average investors take the necessary actions to profit from the economic turmoil that will continue. More importantly, it is designed to reinforce the strong investment conviction backed up by facts and information necessary to stay with this investment strategy through the ebbs and flows of the market's day to day fluctuations.

When you are long gold and silver, you’re short (betting against) the following:

  • The US dollar, euro, yen and all of the developed world's non-gold backed currencies. These are what are falling in value currently (rather than gold prices rising). It might not be obvious currently in the exchange rate of one currency versus another, but they are all depreciating against gold. That is a barometer of confidence in the currencies that with each round of money printing becomes less and less valuable.
  • The US Congress, its inherent corruption and sheer incompetence. These men and women long ago put their interest in being reelected above the nation's interests. When you own gold and silver, you actually can sit back and enjoy it when Congress bickers with each other and spends borrowed or freshly printed money. It is not a coincidence that the debt debacle was actually a catalyst for gold and silver prices to quickly go higher. As a US citizen, I hate to see the country going to waste, but at least my wealth is positioned to not only be protected from them erosion, but even profit from it.
  • The US and European economies, which unfortunately are in for additional years of subpar or little growth, chronic unemployment and, more recently, stagflation. We still haven’t experienced a true recession where the system clears excesses and bad debts are fully accounted for. The extreme efforts of government financial intervention have delayed an even more deep recession, but we still will eventually have one.
  • Secular bear market for paper based financial assets like stocks, bonds and most derivatives. Not only will the quoted prices for these securities continue to fall, the currencies they are denominated in are all falling in real purchasing power, which is the same as a loss on your principal. This is a double whammy of both real and nominal losses that will crush millions of investors and savers.
  • The consensus opinion that current gold and silver prices are currently in a “bubble”. While many commentators and financial advisors continually call it a bubble, very few of them actually own either gold or silver. In fact, most individual and, more importantly, institutional investors (like pension and hedge funds) have very little exposure to precious metals currently. How can it be a bubble when most investors haven’t bought any yet? Was that the case near the end of the bubble in technology stocks and, more recently, real estate? We think that the third mania phase of the bull market has just begun and this last phase is when the greatest and most rapid gains occur. We don’t doubt that precious metals will become a bubble; in fact, we think it will be a very big one that will include investors all around the globe, including China and India, which didn’t participate heavily in the last precious metals bull market from 1971-1980.

While the points above are part of my investment thesis and have led me to have such a strong conviction about my “all in” bet on precious metals, recent market performance has verified it. In August, the US stock market was down six percent, while gold rose twelve percent. That is market beating performance by 18% in just one month. This position has worked like a charm to hedge against turmoil in the US and world financial system, its currencies and its governments. So as an an individual/investor, you should consider allocating a much higher percentage of your investable assets in precious metals.

Disclosure: I am long GLD, IAU, PHYS, CEF, GTU, SLV, SIVR, NEM, KGC, AUQ, NG, TGB.