Investors Are Waking Up To Golden Rule

There are signs that investors are realizing the real value of gold -- and that gold stocks are like owning a piece of the moneymaking machine.

Gold stocks are too often the market's whipping boys. To the delight of yellow-dog devotees, however, that changed May 25.

That's when gold stocks were the port in the storm, in a session otherwise devoted to the selling of equities generically.

How to beat inflation

As I have noted repeatedly, part of the reason gold stocks have been held back is because of worries that the price of gold itself will ultimately, and perhaps soon, head way back below $1,000 an ounce, from about $1,200 now. But I have also pointed out that when this mindset changes, gold stocks should perform better. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids=b2c5ac8f-e047-49ac-8b85-ef505f42bb1d,5ea1aaeb-d6e8-42c2-8ee7-dd0de5e69d9a,f8d6b816-543a-4079-a443-db12c3637e30,af979901-b560-4640-a2c7-a83cbb462c62,55c0c5b5-b463-40c9-a27e-6eb42555ca7e,95cd63a2-cf76-4db8-b7ae-dbd3fa30a913,7ed20ecd-ac19-4ea7-bb11-8217ac80bf8e,60154769-c116-40d7-87ff-74f08267c2eb,c27a29a2-e267-489a-829d-6375691637e1,9ad22bc1-dada-48a6-851a-5c1893ca184a,adf36c6b-4dd8-4179-8fb9-78f2f0dee2df,95445297-2402-4f77-aa86-314b5d9bd94b,9add67be-7fb0-4474-a8c3-628305a8a75d", "player.fr": "iv2_en-us_money_article_Investing-ContrarianChronicles-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=b2c5ac8f-e047-49ac-8b85-ef505f42bb1d,5ea1aaeb-d6e8-42c2-8ee7-dd0de5e69d9a,f8d6b816-543a-4079-a443-db12c3637e30,af979901-b560-4640-a2c7-a83cbb462c62,55c0c5b5-b463-40c9-a27e-6eb42555ca7e,95cd63a2-cf76-4db8-b7ae-dbd3fa30a913,7ed20ecd-ac19-4ea7-bb11-8217ac80bf8e,60154769-c116-40d7-87ff-74f08267c2eb,c27a29a2-e267-489a-829d-6375691637e1,9ad22bc1-dada-48a6-851a-5c1893ca184a,adf36c6b-4dd8-4179-8fb9-78f2f0dee2df,95445297-2402-4f77-aa86-314b5d9bd94b,9add67be-7fb0-4474-a8c3-628305a8a75d;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');In any case, I find the teeth-gnashing odd, given that gold has been a longer-surviving monetary asset, by a factor of almost 100, compared with the short life span of the average paper-currency regime.

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Gold is the standard; paper is fleeting It's interesting that our speech is riddled with references to gold as a very desirable asset to possess. People talk about such-and-such being "as good as gold" (while you never hear "as good as colored paper"). They'll describe some great business as "a gold mine" or talk about "the golden rule" as though it's an ironclad law. Yet most people continue to treat gold like dirt, or worse.

As an asset, gold has helped protect and deliver gains versus paper money for 10 years running, yet the popular media heap nothing but scorn on it. Even people who own gold seem to regularly suffer angst, based on the questions I receive in the "Ask Fleck" section of my website (registration required).

Meantime, Bubblevision and other media outlets persist in telling you how great stocks are, although that asset class has cost people money for a decade.

The current level of skepticism is nicely illustrated by the recent short-interest surge in SPDR Gold Shares (GLD, news, msgs), the gold exchange-traded fund. The number of bets that gold will go down has now doubled, standing at about 30 million shares (the equivalent of about 3 million ounces).

Meanwhile, when the gold market recently fell out of bed, ETF holders at the margin liquidated no ounces and in the past couple of days invested enough new cash in the fund to equal a whopping 50 tons of gold. (This trend toward gold is occurring in other places around the planet as well.) Thus, as a wise commodity-trading friend said many years ago, you can be with the trend and still be contrary.

While I don't believe gold is a totally contrarian concept, it is contrary from the following standpoint: There are few avid believers, even though the list of high-quality investors who now hold gold has become quite impressive (they include John Paulson, David Einhorn, George Soros, Marc Faber, Felix Zulauf, Paul Jones and Fred Hickey).

I keep waiting for the day when folks realize that if you invest in the shares of a gold-mining company, you basically own a piece of the money-creation machine. It's sort of like owning a piece of a central bank that isn't staffed by losers.A new gold standard? On the subject of central banks, an interesting development has occurred. To wit, world markets have been sending a message -- contrary to what then-Federal Reserve chief Alan Greenspan tried to refute for 20 years -- that they are in fact bigger. He and other charlatan central bankers everywhere have wreaked massive havoc on the world for two decades. The sooner they're seen for the clueless incompetents that they were and are, the sooner the world can start thinking about how best to pursue sounder policies, including a new gold standard.

A final word, with respect to the upgrade accorded to some of the mining companies last week (by the aforementioned analyst, who works at Deutsche Bank, no small bucket shop): I don't want to make too much out of a single data point, but I believe that this upgrade may be a harbinger of future action, as the naysayers embrace gold at some point. That will be a sight to behold.

At the time of publication, Bill Fleckenstein did not own shares of any equity mentioned in this column. He does own gold.More from MSN Money

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Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=7.669065; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=139;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Contrarian Chronicles ArticlesEurope's dilemma: Print money or cut debt? 05/21/2010In Europe, recklessness wins again 05/14/2010Euro trouble won't end with Greece 05/07/2010More . . .Contrarian ChroniclesAbout Contrarian ChroniclesLearn the Contrarian Chronicles lingoSubscribe to Market Rap on Fleckenstein CapitalFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='kedi5j0bm8kkfwdxvy3y5ysu8wfempdm';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 5 of 5PreviousNextLynn X #1Friday, May 28, 2010 8:16:51 PM       Gold might be good, but I think Silver is even better.  Silver is the only thing that I have more than doubled my money on in the last few years.ReplyReport Abusebizown #2Saturday, May 29, 2010 4:20:49 PM Silver, gold and oil, all valued in colored paper will do well as the value of the paper declines. Most disturbing was this week's news that for the first time in US history, (personal) income from government exceeded that of the private sector. That is terrifying on many levels. Chris Dodd and Barney Frank head up the financial reform bill. That is terrifying on so many more levels - Chris Dodd and Barney Frank!! Now Obama steps up and takes responsibility for this oil tragedy when the odds are in his favor that BP has found some mitigation. Obama's only previous "leadership" was ramming a healthcare tax scheme down the throats of protesting Americans. The energy "cap and tax" scheme seemed to have lost it's impetus. I now fear it's resurrection or at least some other anti-productive energy  taxation scheme.

All the while, our President  applauds our neighboring Mexican President (the one that heads a government so corrupt, so vile that its' citizens risk life, liberty and property to escape it) while he critiques American laws on sovereignty.

 Government control of Income, Healthcare and Energy, while remaining impotent on sovereignty - feels very much like a (jack)boot descending on the throat of AMERICA. We live in dangerous times.

ReplyReport Abusebuzz in the bunker #3Sunday, May 30, 2010 11:44:04 AM

bizown,

Cap and tax is NOT dead. It is now called the "Power America Act".

ReplyReport Abusemarkjohn #4Monday, May 31, 2010 1:18:46 AMone fear that I have is that investors simply won't be allowed to win with gold stocks - the investor will wear any loss but the government will confiscate gains via special taxes.Australian mining stocks (which make up most of my portfolio) have been hit hard by prime minister Rudd's 40% "super-profits" tax (which when you add in company tax rates makes for an effective tax rate of around 60%).If the government of a first world "safe" jurisdiction is prepared to, in effect, confiscate a large chunk of mining companies assets, for ultra-short term political gain (and whilst the economy is doing well !!!!!!!!!) what do you think will happen when governments all over the world really get desperate for cash?   As  governments and the public feel real pain - riots and protests etc - they won't simply stand by and allow gold companies to keep their "obscene" profits.  It will make perfect sense that these gold companies be forced to pay their "fair share" of tax.  I'm not sure how an investor is supposed to get ahead. ReplyReport Abuseuvuvuv #5Monday, May 31, 2010 5:25:50 AMthis is confusing because the paper dollar is losing value, but he says buy gold stocks, which are really just paper also.  why doesn't he just say to buy the actual metal?  another problem is we could be facing deflation.  i'm not sure of the mechansim, but if someone borrows 100,000 to buy a house and then after paying back 20,000 he walks away, that leaves 80,000 unpaid.  the bank sells the house and gets 40,000 for a net of 40,000 that it will never see.  is this deflationary?  the mere fact that this house can now be bought for 40,000 instead of the original 100,000 seems deflationary to me.  and no one is whooping over how high his pay is, assuming he's even employed.ReplyReport Abuse1 - 5 of 5PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/waking-up-to-the-golden-rule.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*

Gold is the standard; paper is fleeting It's interesting that our speech is riddled with references to gold as a very desirable asset to possess. People talk about such-and-such being "as good as gold" (while you never hear "as good as colored paper"). They'll describe some great business as "a gold mine" or talk about "the golden rule" as though it's an ironclad law. Yet most people continue to treat gold like dirt, or worse.

As an asset, gold has helped protect and deliver gains versus paper money for 10 years running, yet the popular media heap nothing but scorn on it. Even people who own gold seem to regularly suffer angst, based on the questions I receive in the "Ask Fleck" section of my website (registration required).

Meantime, Bubblevision and other media outlets persist in telling you how great stocks are, although that asset class has cost people money for a decade.

The current level of skepticism is nicely illustrated by the recent short-interest surge in SPDR Gold Shares (GLD, news, msgs), the gold exchange-traded fund. The number of bets that gold will go down has now doubled, standing at about 30 million shares (the equivalent of about 3 million ounces).

Meanwhile, when the gold market recently fell out of bed, ETF holders at the margin liquidated no ounces and in the past couple of days invested enough new cash in the fund to equal a whopping 50 tons of gold. (This trend toward gold is occurring in other places around the planet as well.) Thus, as a wise commodity-trading friend said many years ago, you can be with the trend and still be contrary.

While I don't believe gold is a totally contrarian concept, it is contrary from the following standpoint: There are few avid believers, even though the list of high-quality investors who now hold gold has become quite impressive (they include John Paulson, David Einhorn, George Soros, Marc Faber, Felix Zulauf, Paul Jones and Fred Hickey).

I keep waiting for the day when folks realize that if you invest in the shares of a gold-mining company, you basically own a piece of the money-creation machine. It's sort of like owning a piece of a central bank that isn't staffed by losers.A new gold standard? On the subject of central banks, an interesting development has occurred. To wit, world markets have been sending a message -- contrary to what then-Federal Reserve chief Alan Greenspan tried to refute for 20 years -- that they are in fact bigger. He and other charlatan central bankers everywhere have wreaked massive havoc on the world for two decades. The sooner they're seen for the clueless incompetents that they were and are, the sooner the world can start thinking about how best to pursue sounder policies, including a new gold standard.

At the time of publication, Bill Fleckenstein did not own shares of any equity mentioned in this column. He does own gold.More from MSN Money

All the while, our President  applauds our neighboring Mexican President (the one that heads a government so corrupt, so vile that its' citizens risk life, liberty and property to escape it) while he critiques American laws on sovereignty.

 Government control of Income, Healthcare and Energy, while remaining impotent on sovereignty - feels very much like a (jack)boot descending on the throat of AMERICA. We live in dangerous times.

bizown,

Cap and tax is NOT dead. It is now called the "Power America Act".

Read Full Article »