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Gold and the Pursuit of Happiness

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Published : July 01st, 2011
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Category : Gold and Silver





Individual ownership of physical gold is a most enlightened manifestation of the pursuit of happiness.  Gold acquired with after-tax income is a personal, political, and even spiritual achievement.  Holding physical gold in ones hand is as precious as a new grandparent holding their newborn grandchild, the hand of a high school sweetheart, or clasping one’s own hands in thankfulness of not getting what one may deserve.  In short, ownership of physical gold may be, in the moment, appreciated for its beauty and meaning, tangible evidence of the enjoyment of free will, and an indicator or measurement of lifetime achievement.

Frederic Bastiat wrote eloquently on the subject of life, liberty and property in The Law.  Bastiat opined in the mid nineteenth century, ahead of Marx’s Communist Manifesto, but soon enough following the American and French revolutions, to ascertain the differences in the laboratory of human experience.  The Law detailed the moderating affects of bottom-up or individual liberty over the violent top-down social justice and promise of collective salvation.  Simply put, Bastiat believed all could agree that people are entitled to the right to live, the right to pursue life as they choose, and the right to reap the outcome of their actions, both good and bad.  In our opinion, the ownership of physical gold is the ultimate test of Bastiat’s exercise of inalienable rights.

Bastiat’s outside-the-box assessment of the mid-nineteenth century was not without criticisms of early America, namely human slavery and tariffs, restricting the right to life, liberty and property.  Notwithstanding these criticisms, he lauded the achievements of early America, as did Alexis de Tocqueville, a land of liberty to be held up as a standard of moderation and happiness.

Bastiat argued that a just government would enact and enforce laws to protect these basic rights of the individual, and offer protection from those that would seek to terminate life, enslave, or steal property.  Governments that do not protect these rights, even popularly elected under the guise of charity, participate in a form of legal plunder, in our opinion sowing the seeds of moral hazard.  Taxing or outright theft of gold from individuals by kings or popularly elected governments have been the means by which the narcissistic elite have maintained and financed control of their countrymen and others. 

We believe that the upward march of civilization can be measured by the increasing ownership of physical gold by individuals, evidence of freer and more egalitarian societies.  While some totalitarian regimes (Roosevelt’s confiscation of gold included as a brazen example of legal plunder) sought to deny individual ownership, the progress of liberalizing societies is distinguished by individual ownership of gold; free, unfettered and unsubsidized. 

Gold a Standard of Value for All Time: In Gold We Trust

Some say it is absurd to expend excessive amounts of capital and effort to take gold out of the ground and to place it in a vault (or hide it under a mattress or bury it in your back yard).  Truth be known, like defining happiness, “it ain’t nobody’s business but their own.”  These critics are typically the very same elites that regularly hold others achievements in low regard.  They seek to separate the results of the fruit of the labors of both the rich and poor in ordering their version of a “fair” or “socially just” society.  John Lennon was right, this is not hard to Imagine, it’s easy if you try.

Consider gold as a measure of value against the increase in food-stamp recipients, increasing 50% during the Bush administration, and from 26 million in 2007 to 44 million today.  This issuing of script having the full faith of the U.S. government has increased from $33 billion in 2007 to over $77 billion.  The system is susceptible to fraud with only 40 inspectors overseeing about 200,000 merchants. 

The benefit cards have become de facto currency with trading exchanges on Facebook and Craigslist.  These solid citizens of the republic, in common with the űber rich in assets, pay little or no personal taxes on taxable income.  Ironically, this weapon of the war on poverty has been turned on itself, as it robs both recipients and donors of productivity, good health, and virtue, all important elements of happiness recognized by Benjamin Franklin.  H.L. Mencken said the New Deal divided America into “those who work for a living and those who vote for a living.”

We would argue that in the liberalization of societies, physical ownership of gold is now even more precious than the right to vote.  Prosecuting voter fraud and border protection hardly reflects the value or integrity of the hard-fought-for universal suffrage.  If not printing ballots or food stamps, the printing of currency, backed only by the promise of a government, to pay above-market salaries, subsidize careers and buy votes through entitlements, enslaves the population. 

Individual ownership of gold, the purest form in which an individual may choose an altogether unique course, opposed to state control and direction, is essential for achieving personal happiness.  It is obvious that gold, in its recognized rarity and purity, has allowed it to maintain its position as a trusted store of value over the eons.  Modern liberal governments are acting like ancient Rome, guilty of balancing its books by increasing the base metal content of silver coins over its final centuries, yet gold remains a trusted store of value.

Newsflash! Bernanke Conference Call, Meets Own Expectations

We are now approaching the centennial of the founding of the Federal Reserve System.  Ostensibly, the Federal Reserve was developed in the years following the Panic of 1907 to avoid relying on the goodwill of a single individual, J. P. Morgan, to ensure the health of the national economy.  The primary function of the Federal Reserve was to provide an elastic currency, to mitigate shocks to the system (the San Francisco earthquake of 1906) to seasonal expansions and contractions to the money supply under a gold standard.  Mission creep of the Federal Reserve over the last century has stretched beyond recognition, much like the growth of federalism under abuse of the commerce clause of the U.S. Constitution.  The dual role for the Federal Reserve, which became law under Humphrey-Hawkins, for maintaining a stable currency and full employment, is now achieving neither.

A preservation of the status quo in a watered down period of stagflation appears acceptable given the June 22, 2011 press conference conducted by Federal Reserve Chair Ben Bernanke.  We noted that he is no longer concerned about deflation and additional quantitative easing through purchases of U.S. Treasuries is no longer imminent.  Interestingly, he stopped short of making confident or clear statements, regarding his timing to reduce their holdings of U.S. securities.  The tenor of communication was “mission accomplished,” turning responsibility for recovery over to an amorphous economy and political class, and washing his hands of the financial crisis.  Reduced expectations for a third quantitative easing program lowered inflation perceptions and took gold prices lower.

While Federal Reserve Chairman Bernanke noted little direct exposure to the Greek financial situation, he was altogether too brief on his quantification of risk to the U.S. with exposure to European banks.  This combined with his belief that reducing the deficit was something that could be pushed off for later decades.  The limitation of his visibility was reminiscent of pre-financial crisis ambivalence toward an apocalyptic shadow banking system.  Concerns about the systematic risk of a contraction in European write-downs have already been priced into stock prices, and potential extensions of debt with improved attempts at austerity have weakened both the U.S. Dollar relative to the Euro and demand for gold as a safe haven asset.

G*d D*#m the Pusher Man

The end of a three year binge of loose monetary policy feels more like a hangover compared to the clarity of a healthy growing economy.  While the Federal Reserve purchase of Treasuries increased liquidity, it also financed an addiction to government spending, adding about four trillion dollars in federal debt.  In effect, in the words of William McChesney Martin, Jr., the ninth Chairman of the Federal Reserve System, the job of the Federal Reserve was "to take away the punch bowl just as the party gets going."  Shockingly, the Federal Reserve has hosted the party and replaced the bowl with a bottomless trough. 

Bernanke was only a dealer feeding the addiction of deficit spending.  The pushers of debt are the lobbyists and politicians who politically engineered perceptions of protection, benefits and entitlements.  The tax code itself is a complex labyrinth of deeply entrenched deductions reinforcing the addiction.  Over seventy years of good intentions have weeded out individual responsibility and happiness, and substituted public careerism for public service.  These monsters developed moral hazard to such a degree, that moral hazard itself is now “Too Big to Fail.” 

As Greece and other PIIGS nations are subject to the European Union, so the U.S. will be subject to Chinese and other global investors who trusted the U.S. Dollar as the reserve currency.  Should growth slow in China, or defaults lead to increased demand for liquidity in Europe, either shocking the system, the dealer will be counted on to feed the addiction the pusher will be more than happy to provide.  One flashes back to the cult film Easy Rider, with Peter Fonda and Dennis Hopper, setting out on their journey to Steppenwolf’s version of Hoyt Axton’s, The Pusher: “G*d D*#m, G*d D*#m, G*d D*#m, the Pusher Man.”  With the endgame for lascivious fiscal and monetary policy in full view, individual physical ownership of gold provides a tangible separation of modern and classic liberalism.

Reiterate Gold Forecast for 2011 and the Pursuit of Happiness

We forecast gold prices in 2011 to range between $1300 and $1500 per ounce with the potential to reach $1600 by the end of the year with some catalyst.  While the price history for gold so far in 2011 suggests we were conservative, a late season correction in gold may be imminent.  We remain confident in our assessment for the year and anticipate seasonal influences to move gold prices higher toward year end. 

It is interesting that investors are nearly indifferent to mining stocks relative to the enthusiasm just a few short years ago when gold was half the price.  It feels much like the fall of 2008 when companies meeting guidance received little credit in the market.  Investors that held through the crisis or were buyers in the first quarter of 2009 participated in one on the best buying opportunities of a lifetime.  Should risk aversion carry from summer into the fall season, we anticipate low stock prices may lead to acquisitions by majors or buying by the Chinese or other non-traditional buyers working to build product pipelines, generating a strong finish to the end of 2011 for mining stocks.

We believe that emerging producers, purchased at discounts to production, with increasing potential for cash flow generation may be the most attractive.  There should also be a good opportunity for selective acquisition of exploration and advanced development companies.  There may be good opportunity to buy production or exploration ounces at a discount.  Should confidence return to the markets, and should inflation become a concern, this strategy may prevail in achieving above average returns.

For individuals looking for preservation of value and the happiness coming from exercising their own free will with confidence and joy, physical ownership of gold in this age is priceless.  We believe ownership of physical gold may provide a return over and above that which can be counted in financial rates of return.  The acquisition of physical gold that comes through liberty, making possible the opportunity to do good to oneself and others, is physical evidence of a life worth living in the pursuit of happiness.


Mike Niehuser

Beacon Rock




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Mike Niehuser is the founder of Beacon Rock Research, LLC which produces research for an institutional audience and focuses on precious, base and industrial metals, and substitutes, oil and gas, alternative energy, as well as communications and human resources. Mr. Niehuser was nominated to BrainstormNW magazine's list of the region's top financial professionals in 2007
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Mike, I like your trust in gold and its 'possessional link' to ultimate salvation and happiness. However, this confidence appears to be on the wane towards the latter and conclusive part of the post. Why so remains a mystery. I have a hunch that by year end gold will be much above $1500. How much, let that remain a myster too.
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Mike, I like your trust in gold and its 'possessional link' to ultimate salvation and happiness. However, this confidence appears to be on the wane towards the latter and conclusive part of the post. Why so remains a mystery. I have a hunch that by year  Read more
Papli - 7/2/2011 at 4:14 PM GMT
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