Buffet Badmouthing Gold is Like Geithner Talking Up U.S. Dollar

Lebron hasn't been taking financial advice from this guy, I hope? 

The fact that Warren Buffet is not a gold fan is old news.

I can't help but think about how, similar to the notion that it's never a positive sign for the currency when a finance minister feels compelled to publicly defend it, that perhaps it's a bullish signal for gold whenever Buffet feels the need to diss the yellow metal.

If you've studied Buffet you know that he chooses his words with extreme care. His financial empire is also so entrenched in the global economy that the only real risks he faces are existential ones. Such as the semi-quiet, steady run which has been taking place on the U.S. dollar since the turn of the century, when gold began its secular move upward.

Oh how it must just eat at the Oracle to know that a rock has been outperforming his precious equities for well over a decade!

Buffet was arguably the biggest single beneficiary from the 2008 government bailouts, a fact which hasn't received much airtime from Buffet-friendly business journalists (I'm talking about you, Becky). The steady devaluation of fiat currencies, like the U.S. dollar, against gold is something that this blog projects will continue. It is also something which clearly Warren would like to see slow down by badmouthing gold.

Gold Price: Full Steam Ahead to $2,000/oz.

Over a year ago, on May 6, 2010, this blog launched with a first post on the attractiveness of gold as an investment. On that day the price of gold was just under $1200/oz, and as it became clear that the Federal Reserve was about to embark on another large round of money printing, which later came to be known as QE2, I felt compelled to grab the keyboard and start typing (see articles tagged 'Gold' both here and on SeekingAlpha for further reference).

During this time it has been amusing to watch the professional punditry drone on about a  "gold bubble" and observe various blogger bets about how gold's run couldn't last. The biggest amusement of all, however, has been the disparaging remarks from those such as Berkshire Hathaway's Charlie Munger, who belongs to a group I've taken to calling the 'gold haters'.

Suggestions from credible policymakers, such as the World Bank's Robert Zoellick advocating a return to the gold standard, have lit a fire under the barbarous relic's price this past year. Today, with gold pressing above $1700, or nearly 50% higher in just over a year, I can't help but comment on how we've heard nary a peep of late from the anti-gold crowd.

Where to from here? As long as three key fundamental forces persist then the rise in the price of gold will continue unabated. Those forces are:

1. Low interest rates, a hallmark of the current program of financial repression, which is only just getting started and should extend for many years to come.
2. Continued central bank purchases of gold by countries such as South Korea, Thailand, Russia, etc.
3. More money printing, which we've seen in spades of late with Italian and Spanish bond buying, Bank of Japan and Swiss National Bank currency intervention, and the Fed's rumored QE3.

Continue reading the full article at SeekingAlpha here.

Video: The Dark Side of the Gold Boom (from Bloomberg TV)

Gold's Strange Bedfellows

Today Floyd Norris ponders the rise in the price of gold in a NY Times piece, which perhaps more accurately could be titled "Let's Hope the Price of Gold Crashes".

I encourage you to read it in full, but if you don't have time it can be simply summarized as yet another gold hit job by a major media organization. Wall Street Journal opinion makers had previously been leading the anti-gold media charge; in particular investing 'guru' Jason Zweig and Matt Phillips of the MarketBeat blog have both bad mouthed the barbarous relic. Perhaps the NY Times is now aiming to give the WSJ a run for its anti-yellow metal money?

What Zweig, Phillips and now Norris have perhaps all failed to realize is that in barbarous monetary times, relics do well.

However, the above journalists' dislike of gold doesn't compares with the vitriol from Warren Buffet's longtime partner at Berkshire Hathaway, Charlie Munger. In what is a clear case of hating on both the game and the playa, Munger calls all gold owners "jerks".

If the fiercely competitive and politically opposite WSJ and NY Times seem like strange anti-gold bedfellows, consider the following bizarre 'gold lovers': followers of media shock jock Glen Beck and the hedge fund investor he refers to as a "economic war criminal", George Soros, both own loads of gold; countries as culturally and economically diverse as Russia, Mauritius, India, Saudi Arabia, Sri Lanka, Iran, Bangladesh and China have all been increasing their gold reserves; citizens have been acquiring Au in both economically underperforming America and booming Germany, where Frankfurt university professor Wilhelm Hankel recently remarked:

"You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders"

Returning to Norris' article, he speculates that part of the appeal of gold is that it serves as a proxy ballot box for the general dissatisfaction people feel towards the inability of their political leaders to tackle economic problems.

In other words, the rising price of gold reflects an investor vote of no confidence in the world's economic leadership. But besides Munger, can anyone really blame investors for feeling this way?

Attention Gold Owners: You're All "Jerks"!

Charlie Munger

I'm having a hard time jiving Charlie Munger's well received parable published in Slate earlier this year about the all-to-easily recognizable Basicland (a thinly disguised critique of the U.S.'s current financial and regulatory framework) and some of his recent public statements.

First there was his widely reported comment to "suck it in and cope", aimed at the approximately 25 million unemployed Americans. Now he's fired a derogatory missile directly at gold owners. Skip six minutes into this clip for thoughts from the Oracle of Omaha's longtime business partner on what he thinks about those who own gold.

What's odd to me is that if you agree with the views Munger expressed in his Basicland piece you might very naturally and logically be drawn to invest in precious metals, particularly gold. But in contrast to Ice-T's famous quip, Munger says that when it comes to gold you should hate both the game and the playa.

Perhaps Munger's gold comment is not intended so much for the proverbial man in the street (although that's a bit hard to believe given his audience at the time he made the comment) but more for hedge fund titans and fellow billionaires such as George Soros and John Paulson, both of which hold huge gold positions. Maybe Munger feels his cohort should instead focus on trying to fix the financial system rather than taking advantage of its current weakness by investing in gold to make yet another buck?

A final historical oddity about Munger's comment has to do with a speech given in 1948 by Howard Buffett, a former U.S. Congressman and Warren Buffett's father. Perhaps times have changed, but back then Howard hardly found gold ownership a good reason to be dubbed a jerk. Quite the contrary in fact. An excerpt:

"But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty."