Monday , 28 September 2020

The Gold Bug's Best Ally: Politicians!

I am baffled by the reluctance of knowledgeable analysts to entertain the prospect of substantially and even dramatically higher precious metals prices in the months and years ahead. Even when all the relevant fundamentals have been enumerated, explained and quantified, the obvious conclusions are seldom adequately articulated. Why this lack of confidence by almost everyone [when the messy ‘political process’ virtual guarantess such increases]? Words: 747

In further edited excerpts from the original article* Arnold Bock ( goes on to say:

The Reasons for the Current Gold Bull Market are Many
We are all aware of the reasons cited for the current bull market in gold. The fact is that:
a) gold is the only “real” money amongst the paper coupons and digital versions we use daily
b) supply is severely limited by virtue of the constraints in finding and extracting more from the earth.
c) demand for gold is growing as investors seeks protection against inflating and devaluing currencies, especially the US dollar which is the world’s main and virtually exclusive means of pricing commodities and manufactured products and the primary method of settling international trade accounts
d) central banks, sovereign wealth funds, hedge funds and investment pools such as pension funds and insurance companies who are all awakening to the need for safe haven investments and hedges beyond the fragile dollar, or increasingly, to protect themselves from the dollar itself.

How the Political Process is Affecting the Price of Gold
I remember a professor who spent much of his time in the real world consulting his specialty conveying that nothing much could be accomplished outside the cumbersome political decision-making process. The presentation of an exquisite technical proposal, in and of itself, was inadequate. It needed to be sold! He knew that the results frequently were expedient, short term fixes imbued with the usual failings resulting from compromise. Nonetheless, nothing of consequence could be accomplished without undergoing this messy political process.

What this means in terms of the price of gold is that politicians and legislators generally will make policy decisions and legislation which can be characterized as expedient short term fixes. Such decisions are almost always deficient in terms of what is really needed and frequently result in great harm and unintended consequences. Political imperatives invariably prevail. The political version of long term planning, i.e. the date of the next election, will trump all other considerations.

Implications of short term pandering to voters almost always runs counter to sound public policy. Moreover, as desperation mounts more unfunded spending, deficits and debt, money creation and creative new ways to bribe the voter become the norm. The escalating price of gold is the inevitable consequence.

The political process outlined above is why we are facing mounting economic and financial problems. Imperatives of the electoral process cause politically expedient decision making to go into overdrive resulting in a feverish succession of costly and doomed initiatives. Real money is the safe haven destination to its consequences. Precious metals prices can be expected to gain serious momentum and reach unheard of price levels in this environment.

Where is the Ultimate Gold Price Destination?
Clearly no one knows. However, the magnitude of the financial crisis caused by government deficits and debt, coupled with and the complexity and scale of financial products, virtually guarantees that real money, i.e. gold, will skyrocket to unimagined levels.

The owners of most of the world’s gold are the central banks and governments starting with the United States, Germany, France, International Monetary Fund, and Italy along with countries like China and India, including a succession of third tier nations, currently buying as if there was little time remaining to stock up. These institutions effectively place a floor under gold prices. Their readiness to buy removes much of the risk. Price consolidation and corrections following seemingly relentless upward movement will inevitably occur but they will be shallow and brief.

Precious metals should rank at the top of your investment “to buy” list. While prices cannot be predicted with precision they will go dramatically higher as confidence in paper money deteriorates. Gold bugs have their politicians and their messy political process to thank for this inevitable event!