Is Gold Flying Under the Radar?

It’s hard for Americans to understand that gold is an asset that reflects global confidence, not just confidence in America. So arguments against gold that are focused just on America are not entirely valid to me. Even if we solved our debt problems, which is unlikely, there still would be huge sovereign debt crises in the Euro zone and Japan. Although gold would not rise as much as it would with a U.S. debt collapse, it would do just fine because these problems are global.

It is natural for people to think only in terms of their currency when pricing various assets. Because of this currency bias, Americans probably don’t realize that gold is approaching its highs in terms of Euros. Earlier today gold made new all-time highs in British pounds.

We think in terms of demand in the U.S. or inflation rates in the U.S. But are people rioting in Greece not allowed to buy gold? What about people in Spain who see a huge crisis coming? What about people retired in Japan who have been living through a 2 decade depression that is only getting worse? What about people living in nations in Africa and the Middle East that are experiencing social unrest? We must try to understand that it is not only about us.

For years all I’ve been hearing is that the global economy will get better and that the debt crisis is behind us. Instead civil unrest actually rises while the economy stagnates. I’ve previously written about how “bad” things tend to cluster together historically. Why is it that we are experiencing a sovereign debt crisis at the same time we have droughts around the world? I’m not sure, but this is what happened during the Great Depression too. These type of things cycle, and we must deal with it intelligently.

Rising food prices due to the falling dollar and extreme weather globally are creating serious civil unrest around the world. This is the kind of civil unrest that will eventually spread throughout Europe and the U.S. No one has jobs, prices are rising, and our governments are broke. It doesn’t take a genius to figure out this is a formula for serious problems down the line.

Although I presume most people who read this blog are gold bugs, I’m pretty sure most of you are not rushing out to buy gold at $1500. Gold equities look very attractive to me, but I’m also pretty sure most of you are not buying into weakness. So if even gold bugs are apathetic about gold right now, what do you think about everyone else? And are bull markets built on a foundation of apathy or excitement? I’m telling you that the price action in gold is extremely bullish and that this will be very apparent in hindsight.

I am just about pounding the table that you should be buying gold in this period of consolidation. Gold stocks have taken a beating with the stock market even though gold has held up pretty well the last couple of months. These are the kind of divergences you should try to capitalize on. I am loving it that people are just shrugging their shoulders even though gold is approaching its all-time highs; this suggests to me that we may be seeing a rocket launch move soon.

Source: Expected Returns