Tuesday, September 23, 2014

MarketWatch: Gold Tarnished for Good

On this blog we devote a lot of coverage to those who believe that the current monetary system is in trouble and will be replaced with a new one. This is understandable since the whole premise of this blog is that change is coming. But we also try to make sure we present the mainstream view as well. Here is a MarketWatch article that says the US dollar looks strong, the economy is in recovery, and all that will make gold a bad investment (at least for awhile).

It doesn't bother us that the mainstream view tends to dismiss the idea that change is coming (at least any time soon) or that it views gold in a negative light. Frankly, we hope the article is right. Why would anyone want to see another global financial crisis like Jim Rickards is forecasting? And it is true that if gold is trading at mutiples of its current price, some bad things have probably happened.

Also, we have pointed out here on this blog that some feedback we have gotten from readers here within the system suggests that there is a widespread feeling within the system that even with the large sovereign debt problems out there, things can be managed over time. Christine Lagarde said much the same thing this weekend as we noted in this article.

You won't find us pulling for a crisis or anything else that would lead to widespread suffering and potential social unrest or disorder. If no new crisis unfolds, we think that would be great news.

With all that said, we still believe that the scenario presented by Jim Rickards and others should not be dismissed or ignored. Those who take that approach are acting foolishly in our view here. There is a lot of evidence and sound logic supporting the idea that another crisis is possible. We have presented a lot of it here on this blog. The information is still on here archived in articles listed on the right hand side of the blog. For example, we have linked to many articles where the IMF, the World Bank, and the BIS have all issued warnings that another crisis is possible. If they think its possible, why should we dismiss the idea? The G20 just warned again this weekend that there might be "excessive risk in the financial markets." 

The idea of preparing for a possible crisis sometime in the future is not radical or extreme. It is really just common sense. It is the same concept that supports the entire insurance industry that no one views as radical or extreme. No one gets up in the morning expecting their house to burn down. They don't think, today my car is going to be involved in an accident. But most people think it is reasonable and wise to carry insurance just in case because reality tells us some houses will burn down and some cars will be involved in accidents. And there is some level of risk it will be our house or car.

There is nothing different about trying to insure (or hedge if you like that word better) against another financial crisis. Everyone who is in a position do to do that should do that. It's not radical. It's not extreme. It's just being wise. Insurance is something you hope you never need, but don't want to be without. Those who think it can never happen and don't do anything to prepare are the foolish people in our view here. They are the same people who would probably shake their head at people who don't carry insurance on their home or their car. But they see no problem in taking the risk that another financial crisis can't happen. We can hope they are right, but we think it is wise to have some insurance; just in case.

Update 9-23-14: Bo Polny just did an update re confirming his forecast that gold will spike up by the end of this year. So here in one day we can offer two polar opposite views on the price of gold for readers to consider. If Mr. Polny is right, it will mean that his forecast about a big stock market drop next year gains credibility. If the MarketWatch article is correct, it likely means the FED is moving towards increasing interest rates and the economy is doing better.

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