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Misery loves company, and particularly the company, comfort and
security of gold. Since the financial breakdown of 2008, the Misery Index --
unemployment and inflation added together -- has been in a steep upward
trajectory, so has the demand for gold coins and bullion.
The Misery Index was first popularized by Ronald Reagan in the 1980
presidential campaign. Reagan used it as a barometer for how well the country
was doing economically. During Jimmy Carter's presidency the Misery Index hit
an all-time high -- almost 22%. Near the end of Reagan's tenure in the White
House, he had reduced the unemployment and inflation rates meaningfully -- to
7.7% by 1986. Barrack Obama's Misery Index now stands at almost 13% using
federal government statistics and we all know things are getting worse not
better. We also know that things might be quite a bit worse than what we are
led to believe. That's where Shadow Government Statistics -- an alternative,
and some say more realistic, rendition of economic statistics -- comes into
the picture.
Many question the government's version of the consumer price and
unemployment numbers saying they are politically motivated and reported on
the low side to quell public discontent. Shadow Government Statistics (SGS)
publishes its own version of the inflation and unemployment rates and its
number are considerably different from the U.S. Department of Labor's version.
SGS' inflation numbers reflect the same statistical methodology the DOL used
in 1980. Its unemployment numbers use the same methodology the government
used in 1994. (For details, please visit the Shadow Government Statistics website.) As you can see, if SGS stats are applied, the Obama
administration's Alternative Misery Index would be
around 34% -- far worse than the Carter administration's economic
performance, and over 2.5 times worse than the numbers used by the federal
government.
 
A recent Washington Post poll found 73% of Americans doubt
Washington's ability to solve economic problems. In a certain sense,
Americans have begun to take the matter into their own hands. Politically,
the general discontent among Americans has manifested itself in the electoral
successes of the Tea Party movement on the right, and on the left in the
Occupy Wall Street movement that has recently captured headlines.
Financially, that public concern has manifested itself in booming demand for
gold coins and bullion -- a phenomena that
transcends both the political spectrum and national borders. In fact, the
Alternative Misery Index and the demand for gold coins have risen in tandem
since 2008. (Please see the Gold Eagle Bullion Coin Sales chart below.)
Gallup Poll - Americans choose gold as the best long
term investment
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Reprinted with permission
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According to a surprising recent Gallup poll (shown above), Americans
view gold as the best long term investment over real estate, stocks, bonds
and savings accounts. "Gold," says Gallup, "is Americans' top
pick as the best long-term investment regardless of gender, age, income, or
party ID, but men, seniors, middle-income Americans, and Republicans are more
enamored with it than are other Americans." 34% of those polled chose
gold, 19% real estate, 17% stocks, 14% savings, 10% bonds. 41% of men rated
it the best investment.
"That one in three Americans see gold as the best long-term
investment," concludes Gallup,"may
indicate a bubble in the value of this precious metal -- something that may
be corroborated if gold continues to plunge as it did Wednesday. [Editor's
note: It has in fact turned to the upside.] At the same time, this sentiment
among many Americans may be related to the growing lack of confidence in the
U.S. economy. This is particularly the case among upper-income Americans, who
are now more pessimistic about the direction of the economy than their
middle- and lower-income counterparts. The last time this happened was during
the financial crisis of late 2008 and early 2009."
U.S. gold Eagle bullion coin sales, as shown in the chart below, are
representative of the trend. Note the substantial growth from the time of the
2008 financial crisis forward. Note also that the growth is in number of
ounces, not dollar volume. Bullion coin sales are seen generally by analysts
as a proxy for the overall market.
Gold market amassing a boatload of potential energy
The number of people who actually own investment gold in the United
States is miniscule when compared to those who own stocks -- no matter what
the polls say. 34% of Americans say gold is the best long-term investment,
but how many of that 34% actually own it in the form of coins and bullion? No
one has that figure, but my guess would be less than 1% (of the total
population) and I doubt I am all that far from the truth. Compare that with
the number of people who own stocks -- 10% of the population reportedly owns
85% of the stocks.
Consider for a moment what might happen to the gold price and the
supply of gold coins and bullion if, over the coming years, there was a
steady progression toward 10% of the population becoming gold owners. When
you consider that 34% of the population would like to own gold -- no matter
their present circumstances -- and less than 1% actually owns it, you begin
to understand why gold is not in a bubble at all, but in fact, in a long-term
secular bull market that still amassing considerable potential energy.
In fact, it would be difficult to measure the effect of current gold
owners doubling -- to let's say 2%, let alone to 10%. Let's not forget that
the inflation-adjusted price of gold is about $2300 per ounce -- a figure
which reflects past monetary growth without regard to a significant rise in
physical demand. Blend in a doubling or tripling of global investment demand
from current levels -- a distinct possibility -- and you paint a whole new
picture for gold.
What do you tell your mother when she asks where to
put her money?
In 2008, financial author Michael Lewis (Liars' Poker, The Big Short,
et al) interviewed Kyle Bass, the legendary hedge fund operator who made a fortune
betting against subprime mortgages. That interview triggered an inquiry that
would ultimately become Lewis' latest book, Boomerang - Travels in the new
third world.
In "Boomerang," Bass outlines a future debt crisis gone out
of control. He predicts that Greece would become the first country to succumb
to the crisis and eventually default -- just the first of many nation states
and financial institutions to be caught up in a general European financial
collapse.
This is the same Kyle Bass who persuaded the University of Texas to
make a $1 billion investment in gold bullion -- about 5% of the funds total assets. "Central banks are printing more
money than they ever have, so what's the value of money in terms of purchases
of goods and services," Bass told Bloomberg at the time. "I look at
gold as just another currency that they can't print any more of.
Here is an excerpt from that Bass interview as published in Lewis' Boomerang:
"What do you tell your mother when she asks you where to put her
money?" I asked.
"Guns and gold," he said simply.
"Guns and gold," I said. So he was nuts.
"But not gold futures," he said, paying no attention to my
thoughts. "You need physical gold." He explained that when the next
crisis struck, the gold futures market was likely to seize up, as there were
more outstanding futures contracts than available gold. People who thought
they owned gold would find they owned pieces of paper instead. He opened his
drawer, hauled out a giant gold brick and dropped it on the desk. "We bought a lot of this stuff."
Reprinted with permission
Michael J. Kosares is the
founder of USAGOLD-Centennial Precious Metals and the author of "The
ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold.
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