The Glory of Gold

Wasn’t the expectation that gold’s price would rise, not fall? Now the question is…how much further will it decline? And if it loses value during a crisis, what purpose does it serve? Kitco reports:

Gold sees biggest weekly loss in six years, faces more downside as inflation threat sidelines central banks

One paradox that nature plays on investors is presenting gold as the safest investment available, yet at times making it among the riskiest. When people treat gold as an easy way to profit, caution disappears and protective measures are ignored. Suddenly, gold transforms into a speculative commodity, with countless investors gambling on its price rising and pushing it beyond sustainable limits. Many even leverage their gold holdings to amplify gains.

These individuals aren’t true enthusiasts of gold; they are gold bulls, wagering on its upward movement. But when the market switches to ‘risk off’ mode, they dump gold in favor of returning to the short-term security of cash.

This appears to be the case following near panic in the Near East. The Gulf states, whose wealth depends heavily on oil assets, witnessed their income evaporate. The Strait of Hormuz’s closure left them with oil reserves but no way to exchange it for dollars. Faced with tight liquidity, they resorted to selling their most liquid asset: gold.

At least, that’s the narrative presented to investors. Over the weekend in Zurich, while visiting an investment manager, we heard this story firsthand. His phone was nonstop ringing last week with concerned clients seeking explanations. We caught one of these calls in the office.

The caller was frustrated his investment manager hadn’t offloaded his mining shares once the conflict erupted. But who could predict the outcome? Would it be a brief, decisive conflict like Venezuela, or a prolonged quagmire akin to Afghanistan?

A gamble is just a gamble; it could go either way. And who wants to bet against gold? It was the star performer for the last 26 years…and the most reliable performer since the Flood. Was he to abandon it, just because the price corrects a little? Isn’t this one of those moments that separate the real pros from the amateurs?

Yet, in reality, we’re all novices to some extent. Some conduct thorough research, others treat markets like casino gamblers. We all have our theories, hunches, and predictions; chalking up losses as ‘bad luck’ while crediting gains to our own skill.

“I think we’re going to see a big run-up in the stock market,” said the caller. “Because Trump is cleaning things up. All around the world. Eventually, that will show up in stock prices. I just want to go to cash now so I’ll be able to buy back in when prices start going up again.”

Will his bet pay off? Will he be fortunate?

Perhaps. (More on that tomorrow.)

At BPR, we neither claim genius nor depend on luck. We never advise ‘investing’ in gold. We’re HODLers—holding on for dear life—not gold investors or speculators. Gold serves as a place-holder, not a profit vehicle. Its price fluctuates, but those changes barely affect us. We measure our wealth in ounces of gold, not in dollar terms, so price drops are mostly theoretical and short-lived.

However, we’re referring to physical gold, not ‘paper gold.’ Real gold exists tangibly—you can hold it, or even hide it in your backyard. In contrast, paper gold is a contract promising access to gold at a specific price.

The strength of real gold lies in its immunity to counterparty risk. Others may fail, but your gold remains yours. Paper gold operates differently. If the issuer cannot honor the contract, your ‘gold’ might vanish.

‘Paper gold’ is speculating. That’s mostly what’s being liquidated currently. Real gold ownership remains intact, as with us.

Do we keep gold forever? No…our goal isn’t to possess gold indefinitely. Buffett is right; it’s merely a passive metal that never increases anyone’s wealth. We hold it until the right opportunity to exchange it for stocks arises.

That moment hasn’t arrived yet. But eventually, after the assassinations, explosions, artillery, folly, sanctions, inflation, fiscal chaos, and bombing subside…when the dust settles…one thing will endure. You’ll approach to examine it—and it will be gold.

Editor’s note: Sign up for Bill’s free newsletter at BonnerPrivateResearch.com.

Stay tuned.