A Fair Amount of Economic Warnings Being Sounded Today
Recently there has been a lot written about the mounting amount of debt in Western and Japanese economies. California has just again taken emergency steps. Republicans are faulting President Obama with mounting deficits (although it was a Republican administration that started this unprecedented amount of money creation), and repeated warnings of impending economic disaster.
Regardless of who is blamed for the printing press, the fact is that the printing press has been running overtime. A recent published study reported in most newspapers credits the spending, the Tarp program, the support of the car industry, the spending programs to support householders, and all the rest, with avoiding a much deeper recession. Isn’t it interesting how there are so many opinions at the opposite ends of the opinion spectrum? As an aside, if one goes into American history, there have been repeated periods when governments printed money in a roughly equivalent way to the amounts percentage-wise that are being printed today, but those details are for another blog.
The Impending Financial Meltdown
I have read and heard some very knowledgeable people citing statistics and irrefutable evidence that we are headed for a meltdown. Some say soon. Some say in 2 or 3 years.
In fact I have a wager with someone who has far more evidence than I, and who can cite far more sources and reports than I, that the meltdown will have occurred by three years from today no matter what is done to attempt to cure or mitigate the situation. Obviously I believe otherwise. But we are in the midst of a credit contraction.
How to take advantage of the gold bull market
The real opportunity for wealth creation in the years ahead lies in the business of gold mining.
The world is in the midst of a credit contraction, of the kind that always follows credit expansions. Historically these contractions in credit tend to run about twenty years. During prior credit contraction, the real price of gold, as measured against all commodities and assets, has increased.
This increase in the real price of gold represents expansion in profit margin for the gold mining industry. If you believe, as I do, that somehow the world will survive the current malaise, that there is a future for us all, then you have to follow history and take advantage of this tremendous buying opportunity.
The Price of Gold Compared to the Average Value of Shares in Gold Companies
I read recently that shares of gold mining producers, explorers, and processers are something like 2,000 times undervalued. This is because as the price of an ounce of gold increased, then doubled, then doubled again, the price of the shares of these gold companies did not increase, but rather fell. If one measures the average price of shares of these companies against the price of pure gold, the price of these shares has lagged tremendously.
I read this week that the accumulated market value of all gold companies is now less than 1% of the value of the shares of all companies listed in the markets. This compares to figures as high as 20% in the past, but certainly however one calculates this comparison, the current market cap of all of these companies is at an historical low.
Pretty obvious isn’t it. By the metric of human history, economies always recover. If you believe that things happen faster in our day and age, then recoveries happen faster also.
This is What to Believe
If you believe in historical valuations and believe that everything always returns to the historical norm, give or take, then gold is the place to be.
If you believe the doomsayers, you have to believe their call to return to the Gold Standard, so you have to believe in gold.
If you believe that there is an enormous credit crunch underway, then you have to believe all those that warn us to hold gold as protection against this economic problem.
If you believe that inflation will rear its ugly head and rise enormously (which I do not believe), then gold is always the protection against currencies constantly losing their value.
If you believe that every commodity reaches its previous high at some time or other, and that gold reached $800 per ounce decades ago, then you believe that the true inflated value of an ounce of gold today is roughly $2,300.
If you believe, then it is only a question of how to invest in gold.
Larry Cyna –
About the Author:
For more articles on investing visit his blog: http://cymorfund.com
Lawrence Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele.