Will the gold market make its admirers feel like losers ever?
In Dice Have No Memory, Bill Bonner reiterates that the story of paper money is always short and sad and gold investors continue to be the winners
The year was 1999. And Bill Bonner came up with this trade of the decade. Sell stocks, buy gold. Gold prices then were around $300 per ounce. Now, the prices of gold are at a little over $1800 per ounce, an absolute return of more than a whopping 500%.
Bonner is the president and CEO of Agora Publishing, one of the world's largest financial newsletter companies. He explains the logic of his recommendation in his new book Dice Have No Memory - Big Bets and Bad Economics from Paris to the Pampas "the story of paper money is short and always sad. Since the invention of the printing press, a new paper dollar or franc can be brought out at negligible cost. Nor does it cost much to increase the money supply by a factor of 10 or 100 - simply add zeroes. It may seem obvious, but adding zeroes does not add value."
In comparison gold has always been money. "Gold has a long history. And during its history, humans were tempted to replace it with other forms of money - which they believed would be more convenient, modern, and most importantly, more accommodating. After all, gold is hard to find and hard to bring out of the earth. As a result, its quantity is always limited - by nature itself…." writes Bonner.
Creating gold out of thin air is not possible. On the other hand, paper money can be created any time at a press of a button. As Bonner elaborates, "Once people were able to create money at virtually no expense, no one ever resisted doing it to excess. No paper currency has ever held its value for very long. Most are ruined within a few years. Some take longer. Even the world's two most successful currencies - the American dollar and the British pound - have lost more than 95% of their value in the last century."
The world is now in the midst of what Bonner calls Gonoism, in reference to the central bank governor of Zimbabwe, Gideon Gono. Gono has been notorious for printing money big time and this has led to a hyperinflationary scenario in Zimbabwe in the recent past. "Between August 2007 and June 2008, the Zimbabwean money supply increased 20 million times. Naturally, this led to the kind of spectacular increase in consumer prices that modern economists had only seen on newsreels. Consumer price inflation was clocked at 2 million percent…(which) sped up to 230 million percent," writes Bonner.
Central banks around the world have been practicing this Gonoism over the last few years in order to revive their moribund economies. The idea is to print money and flush it down the financial system in the hope that banks will lend, people will borrow, people will spend, more spending will mean more profits for the companies, which in turn will mean more jobs and the loop repeated all over again. And all this would mean more economic growth.
Now only if life was as simple as that. What sounds good on paper, doesn't always work out. But with so much money being printed more and more people are buying gold. "People are losing faith…a total of $2.3 trillion (have been) added to America's monetary footings since the Fed began its QE programme…This will also mean that Ben Bernanke has added three times as many dollars to America's core money supply as all the Treasury secretaries and Fed chairmen who came before him put together," explains Bonner.
And where does Bonner see gold prices going in the near future? "Gold is still a winner. Gold investors are still winners. There is no reason to doubt that they will be winners this year…just like they have been every year this century. But that's not how it works. Not usually. The gold market needs to make its admirers feel like losers. It needs to cause them to wonder…and question their own faith and judgement. How? By letting the price fall to…$1,200…or even $1,000. Then, we will be ready for the third and final stage of this great bull market," Bonner wrote in a recent column.
So gold will rise but it may fall in between to rise again. Now that's some paradox. Bonner is a gold bug as clean as they come, but still feels the price of gold might fall in the near future. As he concludes, "If only there were not so many paradoxes, dear reader. Wouldn't life be much better if women meant what they said? Wouldn't it be nice if you could be happy by thinking of yourself and only doing what makes you happy? Wouldn't it be grand if the investments that made people rich last year would make you rich this year?" Now that's something worth thinking about.
In Dice Have No Memory, Bill Bonner reiterates that the story of paper money is always short and sad and gold investors continue to be the winners
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The year was 1999. And Bill Bonner came up with this trade of the decade. Sell stocks, buy gold. Gold prices then were around $300 per ounce. Now, the prices of gold are at a little over $1800 per ounce, an absolute return of more than a whopping 500%.
Bonner is the president and CEO of Agora Publishing, one of the world's largest financial newsletter companies. He explains the logic of his recommendation in his new book Dice Have No Memory - Big Bets and Bad Economics from Paris to the Pampas "the story of paper money is short and always sad. Since the invention of the printing press, a new paper dollar or franc can be brought out at negligible cost. Nor does it cost much to increase the money supply by a factor of 10 or 100 - simply add zeroes. It may seem obvious, but adding zeroes does not add value."
In comparison gold has always been money. "Gold has a long history. And during its history, humans were tempted to replace it with other forms of money - which they believed would be more convenient, modern, and most importantly, more accommodating. After all, gold is hard to find and hard to bring out of the earth. As a result, its quantity is always limited - by nature itself…." writes Bonner.
Creating gold out of thin air is not possible. On the other hand, paper money can be created any time at a press of a button. As Bonner elaborates, "Once people were able to create money at virtually no expense, no one ever resisted doing it to excess. No paper currency has ever held its value for very long. Most are ruined within a few years. Some take longer. Even the world's two most successful currencies - the American dollar and the British pound - have lost more than 95% of their value in the last century."
The world is now in the midst of what Bonner calls Gonoism, in reference to the central bank governor of Zimbabwe, Gideon Gono. Gono has been notorious for printing money big time and this has led to a hyperinflationary scenario in Zimbabwe in the recent past. "Between August 2007 and June 2008, the Zimbabwean money supply increased 20 million times. Naturally, this led to the kind of spectacular increase in consumer prices that modern economists had only seen on newsreels. Consumer price inflation was clocked at 2 million percent…(which) sped up to 230 million percent," writes Bonner.
Central banks around the world have been practicing this Gonoism over the last few years in order to revive their moribund economies. The idea is to print money and flush it down the financial system in the hope that banks will lend, people will borrow, people will spend, more spending will mean more profits for the companies, which in turn will mean more jobs and the loop repeated all over again. And all this would mean more economic growth.
Now only if life was as simple as that. What sounds good on paper, doesn't always work out. But with so much money being printed more and more people are buying gold. "People are losing faith…a total of $2.3 trillion (have been) added to America's monetary footings since the Fed began its QE programme…This will also mean that Ben Bernanke has added three times as many dollars to America's core money supply as all the Treasury secretaries and Fed chairmen who came before him put together," explains Bonner.
And where does Bonner see gold prices going in the near future? "Gold is still a winner. Gold investors are still winners. There is no reason to doubt that they will be winners this year…just like they have been every year this century. But that's not how it works. Not usually. The gold market needs to make its admirers feel like losers. It needs to cause them to wonder…and question their own faith and judgement. How? By letting the price fall to…$1,200…or even $1,000. Then, we will be ready for the third and final stage of this great bull market," Bonner wrote in a recent column.
So gold will rise but it may fall in between to rise again. Now that's some paradox. Bonner is a gold bug as clean as they come, but still feels the price of gold might fall in the near future. As he concludes, "If only there were not so many paradoxes, dear reader. Wouldn't life be much better if women meant what they said? Wouldn't it be nice if you could be happy by thinking of yourself and only doing what makes you happy? Wouldn't it be grand if the investments that made people rich last year would make you rich this year?" Now that's something worth thinking about.
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