I run a collection of gold and silver websites and newsletters, meaning I’m in contact with people who are passionate about gold. This is both good and bad — it’s good because they know at least basic economics says we can’t print our debt problems away.
But it’s bad because, unfortunately, being mindlessly pro-anything is bad. Gold has good years, bad years, up markets, and down markets. Gold isn’t magical — even though it’s the best long-term inflation hedge in existence.
In this article, let’s take a step back and see how some gold bugs get it wrong.
History Repeats Itself Over and Over Again
As I said the other day, the economy moves in wealth cycles. This is important to understand, and unfortunately many don’t. This means that just because gold is going up, the “real” value of gold can’t go up forever. It’ll have huge down markets at some point in the future — it’s how the economy works.
You know the old expression — those who forget history are bound to repeat it. I think it could be even more to the point to shorten that expression to just “history repeats.” Everyone is bound to experience a repeat in history, because it’s just the nature of things. We move in cycles.
One of those cycles is that gold becomes expensive. Another is that it drops in value. Same for stocks, real estate, tulips, and every other asset class and/or investment in the history of man.
Gold is Going to Have Another Down Market
I wince at the idea of gold having a rough 6-months or a year. When it does some time, I’ll be contacted by people who will be smug and think that they’ve somehow “won” and gold has “lost” because the price is dipping.
Of course, it won’t matter to them if it was predicted or not — they know I’m pro-gold and every time gold goes down, they announce it’s the end of gold as we know it.
Of course, you know the end of the story — gold always comes back, they get really confused while their portfolios get destroyed, and we make a lot of money in the up swing of metals.
It’s happened in the past, it’s happening now, and it’ll happen in the future. History repeats.
How does this disprove the gold bugs? First, being pro-gold and being a gold bug are two different things. A gold bug is someone who always thinks we’re on the verge of hyperinflation and gold is about to hit a million dollars per ounce. Always.
They’re no more consistently right than a Keynesian who thinks gold is always a weak investment compared to stocks.
Gold bugs ignore wealth cycles — they think all of history is one huge gold-cycle. That’s silly. It’s not true. Gold is a fantastic investment, especially right now, and especially if you know how to use it to buy stocks and bonds cheaply.
I’ll be writing about that over the next few weeks, so either subscribe if you haven’t already, or just wait and I’ll email you if you’re already a subscriber.
I’ll be explaining how a portfolio works that I have my money in, and how you can invest in gold in a way that won’t have you destroyed when it drops in value at some point. You seriously need to read this up and coming article. Stay tuned.
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