My gold guru, Frank Giustra of Vancouver, Canada pushed me
hard on gold from the summer of 2008 when it was selling at $900 an
ounce– all the way up to $1900 an ounce in the summer of 2011– a hell of
a run of accumulated gain of more than a double– while stocks
floundered pretty badly.
The gold story went like this; Ben Bernanke’s policy of one QE after another– dramatically increasing the supply of greenbacks– was bound, sooner or later, to cause the dollar to face its own severe crisis of devaluation. Faith in the dollar was going to swoon badly– and then the late to the game investors would recognize that the only true protection against the denouement of paper currency was that precious metal gold. Giustra even believed that the panicky selling of dollars to escape its tarring and feathering would trigger a parabolic rise in the value of gold to some astronomically fantastic level– and then you were supposed to make your exit, selling to the crowd.
Such noted hedge fund barons as George Soros and John Paulson signed onto this playbook to one degree or another. Family offices, public pension funds, fixed income advisors looking for an extra kick to their bond portfolios– and the many camp followers no matter how amateur trailed along, thinking to make a killing when gold shot through $200 an ounce to $5000 an ounce and then God knows where. Chinese banks, encouraged by the Communist government, allowed their banks to establish monthly gold accumulation plans as the way to stay ahead of whatever inflation hit the fastest growing economy in the world. Indian gold jewelry was hoarded while retail lenders offered credit to accumulators of silver, which was expected to move jointly with gold. Central banks in Asia and in Russia regularly purchased gold whenever the IMF scheduled auctions of its inventory. The tv networks were filled wit come-one advertisements to join the smart money.
Then came the denouement in Europe, and pressure on the euro, while the Japanese economy languished and China appeared to be tightening up credit to avoid some kind of bubble. Gold retreated, advanced again, then retreated again– and seems stuck in a trading range between $1525 and $1650 an ounce. The dollar has not collapsed; rather it has gotten stronger as US treasuries became more and more the safe haven holding for investors frightened of another 2008 meltdown.
When I heard from Giustra today, he insisted that the dollar’s current strength is only because there is so much cash in the world looking for a safe haven. “Anyone who thinks that practically the entire globe can go on a money printing spree and a currency devaluation race to the bottom without eventual inflation is going to be in for a big surprise.
” Anyone who thinks the Fed will take its foot off the gas anytime soon is also sadly mistaken,” Giustra added. “ The dollar has not strengthened; it is merely a parking spot in the only currency with enough liquidity and size to accomodate all the cash that’s piling up while investors try to make sense of where it should be invested.”
In other words, Guru Giustra, who called the ascent of gold since 2002, before I knew of him, and recommended to Forbes readers they accumulate gold from the 2008 level of around $900 an ounce and called every step of the ladder in gold prices up to its peak.
While he’s not predicting when the price will go to $2000 an ounce and beyond, he’s standing firm on his basic analysis t hat gthe dollar must decline and gold must advance.
The gold story went like this; Ben Bernanke’s policy of one QE after another– dramatically increasing the supply of greenbacks– was bound, sooner or later, to cause the dollar to face its own severe crisis of devaluation. Faith in the dollar was going to swoon badly– and then the late to the game investors would recognize that the only true protection against the denouement of paper currency was that precious metal gold. Giustra even believed that the panicky selling of dollars to escape its tarring and feathering would trigger a parabolic rise in the value of gold to some astronomically fantastic level– and then you were supposed to make your exit, selling to the crowd.
Such noted hedge fund barons as George Soros and John Paulson signed onto this playbook to one degree or another. Family offices, public pension funds, fixed income advisors looking for an extra kick to their bond portfolios– and the many camp followers no matter how amateur trailed along, thinking to make a killing when gold shot through $200 an ounce to $5000 an ounce and then God knows where. Chinese banks, encouraged by the Communist government, allowed their banks to establish monthly gold accumulation plans as the way to stay ahead of whatever inflation hit the fastest growing economy in the world. Indian gold jewelry was hoarded while retail lenders offered credit to accumulators of silver, which was expected to move jointly with gold. Central banks in Asia and in Russia regularly purchased gold whenever the IMF scheduled auctions of its inventory. The tv networks were filled wit come-one advertisements to join the smart money.
Then came the denouement in Europe, and pressure on the euro, while the Japanese economy languished and China appeared to be tightening up credit to avoid some kind of bubble. Gold retreated, advanced again, then retreated again– and seems stuck in a trading range between $1525 and $1650 an ounce. The dollar has not collapsed; rather it has gotten stronger as US treasuries became more and more the safe haven holding for investors frightened of another 2008 meltdown.
When I heard from Giustra today, he insisted that the dollar’s current strength is only because there is so much cash in the world looking for a safe haven. “Anyone who thinks that practically the entire globe can go on a money printing spree and a currency devaluation race to the bottom without eventual inflation is going to be in for a big surprise.
” Anyone who thinks the Fed will take its foot off the gas anytime soon is also sadly mistaken,” Giustra added. “ The dollar has not strengthened; it is merely a parking spot in the only currency with enough liquidity and size to accomodate all the cash that’s piling up while investors try to make sense of where it should be invested.”
In other words, Guru Giustra, who called the ascent of gold since 2002, before I knew of him, and recommended to Forbes readers they accumulate gold from the 2008 level of around $900 an ounce and called every step of the ladder in gold prices up to its peak.
While he’s not predicting when the price will go to $2000 an ounce and beyond, he’s standing firm on his basic analysis t hat gthe dollar must decline and gold must advance.
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