The Gold Owners’ Guide To The Rest Of 2014

Over the next few weeks, I will make a series of posts on the current state of affairs as they relate to the gold market. So stay tuned to this page. . . . .

Let me start the proceedings with this — a repast on the nature of the human predicament 2014. Below is a follow-up to Richard Russell’s stated concerns (scroll below) on the  persistence of war and inflation in human affairs.  I do not bring this line of thinking to your attention to disturb your comfort level, but to make you aware that there is more going on than the panoply of misdirection afforded us by the mainstream media.  (Today’s somewhat mysterious 300 point + drop in the DJIA might be trying to tell us something.  Stocks are now level for the year.  Gold is up over 6.5%.)

Late in 2013, former Fed chairman Alan Greenspan was interviewed by PBS’ Charlie Rose in connection with the publication of his latest book — The Map and the Territory.  In that interview Greenspan made a very interesting reference to the novels of Jane Austen.  He noted that the behavior of individuals in Austen’s novels (early 19th century) is not a whole lot different from human behavior today. “We are a homogenous species,” he said with reference to Austen.  He might have said that history itself is homogenous — the result of human beings acting like human beings irrespective of the historical age under consideration.

From my perspective at 66 years of age, it is bracing to see a man at 88 years of age still wrestling with what it is that governs human behavior on a mass scale and how it effects the economy — a man still wrestling with the truth and his own intellectual demons.  (See this) As he told the New Yorker magazine, “rather than behaving like omnipotent calculating machines, [people] respond to things like fear, greed, euphoria, and impatience.”  He seems surprised by this, but somehow underneath it all I think he understood the forces at work all along.  He just did not understand the full extent of their power. These are things that cannot be put into a computer algorithm.  They are overlooked by the ordinary, technocratic central banker.  They nurture results that are incalculable, random and unpredictable. . .

This is why people own gold.

Not long ago, I happened upon a riveting HBO movie titled “Hemingway and Gellhorn.” It portrays the stormy, painful marriage of novelist Ernest Hemingway to Martha Gellhorn, the war correspondent. Nicole Kidman is extraordinary in this role and Clive Owen makes for a good, believable Ernest Hemingway.

You could not pass through a Liberal Arts school in the United States during the 1970s without coming in contact with Hemingway. I latched onto him as a young man and, after my college days, read practically everything he wrote. I admired the way he put words to paper — his economy of style. Watching the movie that night sent me afterwards in search of his most famous quotes. I remembered that he had written something important about inflation and was able to find it:

“The first panacea for a mismanaged nation,” he said, “is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

Echoes of the Richard Russell observation. . . .

Here is another quote from Hemingway:

“I always try to write on the principle of the iceberg. There is seven-eighths of it underwater for every part that shows.”

Inflation, in the end, is a process rather than a singular event.  It progresses quietly until suddenly it surfaces with a vengeance. In the inflation and war quote, Hemingway leaves seven-eighths of the matter underwater. In his imitable way, though, he drops the words “permanent ruin” like a rock on the reader’s consciousness. It behooves us to consider what we cannot perceive below the water and draw importance from that which we can see above. . . . .

Gold fits into this scheme of things as a gesture to humility — an understanding that we can neither predict the future nor govern it, an admission that in the end we are human.

If financial history contains a fundamental lesson, it is that into every economy a little (and perhaps even a lot of) rain must fall. Economic planners in the halls of government and central banks from one end of Earth to the other make it their preoccupation to even out the bumps in the natural ebb and flow of the economy.  Economic magicians, they make it seem that things are not what they are.

All they ever manage to accomplish though is a delay in the inevitable. By tinkering (hinting and feinting) with the day of reckoning and pushing it forward, they usually only make things worse than they would have been if events had been allowed to simply follow their natural course.

The economic planners hate gold because it constantly reminds them of their potential for failure. Like the slave on the chariot, it whispers to Caesar: “Look behind you, remember you are but a man.”

Own gold to protect what you have. (We recommend a 10% to 30% diversification depending upon your level of concern.) Then invest the rest of your money as you see fit.

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Michael J. Kosares is the founder of USAGOLD and the author of “The ABCs of Gold Investing – How To Protect and Build Your Wealth With Gold.” He has over forty years’ experience in the physical gold business. He is also the editor of Review & Outlook, the firm’s newsletter.