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The Golden Commodity Compass

By: Richard Daughty, The Mogambo Guru - The Daily Reckoning


-- Posted Monday, 21 January 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

People ask me, as a famous gold-bug fanatic, "If 1980 was the last high price for gold, which is $2,150, then when was the all-time historical high in world history?" I admit that I don't know, but I have some magic beans for sale.

Fortunately, Ambrose Evans Pritchard had a chart in his column at The Telegraph showing the year 1492 as the high, at $3,100 per ounce.

Why 1492, the year that "Columbus discovered America"? Because after that, gold was removed from "the New World" by slaughtering the natives and stealing it from them, after which, it was sent to Spain, whereupon by about 1555, the price of gold had dropped to less than $800 an ounce under the influence of this influx of gold, which was money, which means that money is debased when the supply is expanded even when the money is gold!

You will be glad to know that we have given up slaughtering American natives, although we keep our skills up by killing thousands of natives in OTHER countries, but we don't do it for gold. Nowadays, we do it for money and oil.

But the government can get all the money it wants when a central bank like a Federal Reserve creates all the money and credit necessary, which somebody can then borrow, with which to buy the government debt, which gives the money to the government to spend! It is at this point where the thought, "We're freaking doomed!" flashed across my mind, and I instinctively crouched into a defensive posture in panic and alarm.

Fortunately, it was quickly followed by the thought, "But only in the collective sense of 'we' are we doomed, but not me personally because I own gold and silver, and I will be fine, better than fine, great, terrific, wonderful and completely ecstatic as a result, whereas the news media will, from now on, feature heartbreaking stories of pathos and pitiful drama as the misery of inflation inflicts the aforementioned 'collective we', who do not own gold and silver, and in fact have spent damned near every dime they ever got their greedy mitts on, and then borrowed more when that proved insufficient to stanch their gluttony, whereas the slick tabloids will be full of sensationalist stories and prurient photos of the 'new rich', which will be those people who bought gold when it was a cheap, like it is now, and commodities when they are as cheap, as they are now, and we will call ourselves 'the Filthy Stinking Rich (FSR)' as we cavort and frolic in an orgy of spending our obscene wealth." Then I was calm again when I thought of these things.

And the prospects for silver are screaming, "Buy me, Buy me!" by virtue of its low price in relation to gold. Gold is at almost $900 an ounce, while silver is still a measly $16 and change per ounce, which gives a gold/silver ratio of over 50! What should the ratio be?

Well, the answer is about 15:1, but the gold story is so compelling that people want to talk of nothing else. Like how SteveQuayle.com carried the LA Times story, "Gold Run Rolls on; Next Stop $1,000", which opened with the fact that, "So-called spot gold reached an all-time record."

The reason it has reached that record is that, "Investors have poured money into the precious metal as the dollar has declined against other currencies." How much money? Well, in one ETF alone, "Investment in the StreetTracks Gold Trust, an exchange-traded fund backed by bullion," inflows of new gold surged 39% last year to a record 628 metric tons." Wow!

Anyway, the salient point is that the LA Times is part of the conspiracy to silence The Truth Of The Mogambo (TTOTM), which explains why you never read a word about how The Mogambo Portfolio (TMP), containing exclusively gold and oil, makes The Mogambo The Greatest Freaking Money Manager In The Whole Freaking World (TGFMMITWFW), winning again for the zillionth year in a row, even though such a supreme accomplishment ties in perfectly with the story. But they never called to interview me one stinking time!

Instead, they note how, in 2007, "as the dollar reached a record low against the euro, gold gained 31%", which means that owners of gold, such as The Mogambo Portfolio (TMP), gained 31% on bullion holdings.

I am making a note to myself to call up the LA Times and clue them into the fact that they are a bunch of morons who missed the Big Story which is that The Mogambo Portfolio (TMP) is kicking investment butt around here, when suddenly I am surprised to read in the article, out of seemingly nowhere, without fanfare, Michael Pento, senior market strategist for Delta Global Advisors, saying, "The most salient buzzword in 2008 is going to be inflation. The Fed is lowering interest rates and vastly increasing the money supply. They're further fueling inflationary expectations."

Then… Poof! It was back to the story about how, "Gold's gain last year was the biggest since 1979", which started me cheering again.

By this time, Bill Bonner here at The Daily Reckoning comes out to see who is doing all the cheering and why, and then joins in by saying, "Pretty soon, speculators are going to start buying gold because they think it has some magic of its own. They're going to start believing that they can get rich by owning gold…and they're probably going to drive the price up beyond $2,000."

Well, since speculators are everywhere and they actually believe that there is such a thing as "investing for the long term" and that everybody can get out of the stock market more wealth than they put in, it is easy to think that they will believe such a thing. "So," Mr. Bonner says, "buckle your seat belts…it's going to be a wild ride."

And The Mogambo says, "And for those who own gold and silver, a fun ride, too!"

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.


-- Posted Monday, 21 January 2008 | Digg This Article | Source: GoldSeek.com


Visit The Daily Reckoning's website.



 



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