ME AND THE GODFATHER OF SOUL, HARDEST WORKING MAN IN SHOW BUSINESS, SOUL BROTHER #1, MR. DYNAMITE…

8/24/11

Knowing that I am a long time bull on gold, several people have asked how I feel about that ancient object of kingly desire now that the December future has fallen $113.30, or 7% from its $1898.40 high of just two days ago.

I still like gold for the reasons I’ve liked it since June, 2006: it is a bet against the political and monetary leadership of this country, the world, and the world economy. Gold is also a bet that the only way we can get ourselves out of the debt hole into which we have dug ourselves, all the while reassuring each other that what we had (have) was (is) a “housing problem” or a “sub-prime mortgage problem,” is to inflate, inflate, inflate. The more than tripling of the price of gold since I took my position has done nothing to remove the bullish rationale for holding it; in fact, developments since mid-2006 have only reinforced the notion that our country, and the world economy, is in the hands of poseurs and pompous, poltroonish popinjays.

But doesn’t a drop in gold, like the hair-raising plummet we have just witnessed, make me nervous? Maybe a little, but not enough to make me want to sell. Why?

First, I’m not smart enough to know what a commodity or a market will do over the course of a few days, weeks, or months. (Twenty years ago, of course, I was smart enough to know what a market would do over such short time periods, but, like most people, I seem to have gotten dumber with age. But I digress.) But I do know that nothing goes up in a straight line, so something like what we have seen was to be expected after the sharp run-up in gold over the last few weeks. I wouldn’t be surprised to see it fall further over the short run, and would be at least equally unamazed were gold to turn up again in the next few days.

Second, every time something like this has happened since I took my position in gold, I have been delighted when I resisted the temptation to get out. Yes, I could have gotten out and gotten back in again, but, again, I’m not that smart and maybe I’m a little lazy; it’s easier just to stay put.

Third, commentators were quick to proclaim that today’s drop was the largest since March, 2008. Suppose you were a gold holder in March, 2008, as was yours truly, and you panicked in the wake of a drop in gold similar to the one we saw today and got out. Or suppose that you were contemplating getting into gold during March, 2008 and decided, in the wake of its defenestration that month, that the rally had run its course and the best course was to stay out of gold and buy good old common stocks. How would you feel? On 3/31/08, gold was at $921.30. At its peak on St. Patrick’s Day of 2008, gold was at $1004. It closed after today’s debacle at $1,765.10. You tell me how you’d feel if you sold or postponed plans to get in, perhaps waiting for gold to fall a little more.

For my part, I feel good for having stayed long gold these last few years and am confident that I will feel equally good being equally long the next few years.