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Larry Myles Reports

The superiority of the gold standard consists in the fact that the value of gold develops independent of political actions.

September 4th, 2011

The Cure For Recovery
....Embrace Individual Prosperity

Physical Gold and Junior Gold Stocks

 I have come to the conclusion that even at this late date, there are many people who simply do not want to believe in gold; no matter how compelling the evidence.  On the plus side, many of the withered and wan arguments against gold have already been trumped; gold being overbought, gold produces no income, the market and the prices are manipulated. Currently the anti-gold narrative has come down to two last-ditch arguments by the pro-fiat crowd:

Gold is a bubble and gold will be confiscated!

Although there have been weighty and dominant pens more eloquent than mine obliterating the ‘bubble’ argument, allow me to offer a simple, yet relevant observation: When considering supply side fundamentals and thinking of gold simply as a commodity, one quickly realizes that mine production has barely stayed on top of traditional demand.

Some of largest gold producers are in decline as many of the slow rabbits have already been caught. The grades are getting lower and the shafts are getting deeper. The costs are increasing and there are an ever-increasing number of social and jurisdictional challenges facing the mining community. For example, basic supply issues that do not even take into consideration the exploding demand for gold bangles in India, gold coins in China or tonnes of gold bars now being sought, as opposed to being sold by the world’s central banks. With supply side gold in a fragile state and demand increasing from all sides, the chances of a gold bubble are non-existent. This would probably account for the fact that every time the price of gold takes a hit, the global rush to acquire gold on the dips continues to increase. This brings us to the present underlying concern with everyone involved in the business of gold… We need new discoveries pronto, to supplement the dwindling resources that producing mines are facing if supply has even the ghost of a chance to meet near-future demands. So it is worth repeating: THERE IS NO GOLD BUBBLE!

Also, there is what I consider the unpromising and scanty argument by the once-smug fiat defenders: what happens if the government confiscates your gold?

First of all, the government will not confiscate your gold! This is not 1933 when America was still on the gold standard. Back then you could round up 100 people and tip them upside down and would be guaranteed to find at least a smattering of gold coins. Now, all you would get would be some tinny plasticized metal coins, some food stamps and a few wrinkled pieces of debased fiat. Back when FDR was on the cusp of ruining America, each paper dollar was covered by physical gold owned by the U.S. Treasury. Sadly, the words of Peter Seller’s character Inspector Clouseau apply here when he responded to the priceless Steinway being destroyed, “not anymore!” That was during a time when by law, to create more paper dollars the government needed more gold. Those times have not yet returned.

But okay, this is for all the tottering and hopeless lovers of air-backed paper money to consider. If the government did decide to do the impossible and confiscated your gold, realize this - the Keynesian oafs would have to make it worth your while, and would hand you a huge paper profit. Of course this profit would be in debased U.S. dollars, so I would not much tarry before spending those dollars.

With the trite and trivial confiscation argument dealt with, I am pretty sure the pro-fiat crowd has run out of moves and there is no longer a single reason, either valid or nonsensical, why each and every one of the folks should not continue to accumulate physical gold.

Gold is Not Money; It is Better Than Money

"The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."
--Hans F. Sennholz

I am not going to waste ink on the recent suffering and desperation of Ben Bernanke at Jackson Hole when he got up and said…nothing. Instead, let us revisit an earlier and more seminal moment when the hapless Fed leader commented that gold was not money. Either Bernanke lives in a vacuum or he needs to sack someone on his research team. If gold is not money, why in 2007 did JP Morgan announce it would accept gold as collateral? Or for that matter in 2009, why did the Chicago Mercantile Exchange capitulate and initiate gold as a medium of exchange for margin requirements?

And last I looked, the European Union is being torn apart over a move to have the bankrupt PIIGS put up their gold before they’re allowed to go any further into the tank than they already are! More recently of course, and I will concede that even the Fed clown was caught off guard by Hugo Chavez (!) ordering delivery of Venezuela’s physical gold from the Bank of England. C’mon Ben, if a thug like Chavez can put it together that gold is important, the writing is on the wall for over-printed fiat currencies. But yes, let us give Ben a mark – he is correct when he states that gold is not money. Gold is unquestionably better than money. 

A Legendary Gold Bull Market

Setting aside the macabre entertainment value of watching the final strain and struggle of the Keynesian Death Dance, let us review our options again as we have in the past. Not to put too fine a point on it, but I was not wrong in 2008 when writing (Compelling and Unstoppable: The Historic Secular Gold Bull Market); nor am I prepared to miss the mark three years later. Reason: During the crash in 2008, the price of gold went down with the stock market and that also included the junior gold market. At the time, I recommended to my readers that they go out and buy physical gold, in addition to not being afraid of the sub-$800 per ounce price tag! I felt very strongly they would look back at that price point as a flat-out gift.  The big difference today is we are bearing witness to the price of gold moving up as the stock market is enjoying more bad days than good. 

During the 2008 market meltdown, the majority of the herd was all atremble and huddled on the sidelines. Only a very few of the most sharp and vigorous investors ventured into the battered junior gold market to take advantage of stellar investment opportunities that turned into windfall profits. In the current market, that fear we all felt in 2008 has been tempered thanks to a growing number of astute investors agreeing there is someplace to go – namely physical gold, along with gold and silver juniors. The sidelines are for the most part deserted (with the glaring exception of quaking and quivering Keynesians) as investors are preparing to enter the junior gold market with gusto and confidence. Strong, yet not brash words; allow me to make my point!

Strong...Not Brash Words

First off, thank you for the many (and persistent) emails regarding my call on $1500 gold. But no more emails, please. Correctly calling $1500 gold three years in advance must be blamed upon scant research and an obscene amount of luck.

I am not even going to respond to queries as to when gold will crest at $2000, as it is of zero importance. There is a much larger picture we need to consider: Gold will be pushed into new and wholly unchartered territory. Weekly price swings of $100 or $200 will mean very little, for we must soon prepare for weekly moves of $500 or more. Fully realizing of course that the problems within the market are now structural and no longer cylcical.

Understanding the ramifications of price plateaus will become very important and we will all have to plan accordingly. For those of you who remember, I noted that once gold went through $1500 our lives would change, as would the national narrative. Evidence: Gold crested at $1500 and continued to move up the charts!  All the while, most of us became concerned and entered the discussion about America losing its credit rating and defaulting on its debts.

In addition, our worries abounded as Europe became in danger of a complete collapse as their union morphed into fiscal meltdown. Inflation became a part of our everyday news cycle, with the threat of a double-dip recession refusing to go away and the forty-year, faith-backed monetary system showing increasing signs of unravelling. Imagine the timbre and tone of the national narrative once gold crests at $3,000!

Avoiding the Mawkish Insipidity of Recovery

A large part of the rigid and inexpressive mainstream narrative continues to revolve around where to go to find even the hint of a path to financial recovery. I recently devoted an entire day to watching the networks’ talking heads. It certainly did not take me long to see that every segment of nearly every show had an undercurrent of concern… the quest for firm financial footing. I am sure that if I had a dime for every time the word recovery was uttered, there would have been more than enough for me to buy an ounce of gold.

Conversely, if I had a dollar for every time the heads mentioned gold, one just might be able to buy a small cup of coffee. I am going to be kind and write off this repellent and ungracious omission to the belief the commentators still view gold as the financial world’s equivalent to the hula-hoop or the cabbage patch doll; a mere flash in the pan and no staying power. Never mind the fact that gold has proven to be the best value investment over the last decade.  Sidestepping the mainstream media’s hand wringing and navel gazing with their constant mewling about recovery, here is what I suggest. Continue to believe in the business of gold and stick to the plan of buying physical gold on the dips. Continue to research and invest in gold, silver and select energy juniors, as we gird ourselves to experience standing room only when it comes to investor participation in the junior resource markets. 

Larry Myles
Larry Myles Reports
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Larry Myles is neither a geologist nor a financial analyst. I do not purport to offer personal investment advice nor recommendations. While all statements of fact are derived from reliable sources, and are believed to be accurate, I make no warrant that they are so. You must do your own research and check statements of fact for yourself. My opinions are precisely that, my opinions. I do not accept any responsibility for any gains or losses you may experience resulting from actions taken based on my opinions. If not otherwise qualified, you should consult with your own personal financial advisor before engaging in any investment activities. Larry Myles Reports does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Larry Myles may actively trade in the investments discussed in this publication. Larry Myles may have a substantial position in the securities recommended and may increase or decrease such positions without notice. I do not know your personal financial circumstances. I am not your personal financial advisor. You must do your own due diligence. By entering this web site, or reading LMR reports, you acknowledge and accept the foregoing.