We have long argued that the reason why there is no inflation evident in the Western world is because its being concealed by 'asset inflation'. We are close to a fall in asset prices judging by the Dow Jones Index. Just looking for the Dow to break that 15800 pt level convincingly. I like that the Dow failed to achieve a new high recently. So we have 2 positives:
(i) Gold is the only cheap asset class, unless you can find a dodgy third world economy to invest with 'good fundamentals,
(ii) Asset prices look like falling, so you can expect to see rising 'cost-of-living' inflation.
The appeal of gold or in fact any precious metal equity is that they represent 'cheap asset' when every other asset class is dodgy; that is overpriced at a time when inflationary pressures are building. The inflationary pressures are arising because of the collapse of over-priced assets themselves. Most people think asset prices are just the 'things we consume', but investments are 'products'. When we preferentially spend on securities, and consequently bid up the price of securities, we create one type of inflation, even if there is no blow-out in cost of living inflation, i.e. the price of fuel, vegetables and computers. If the only spending being done is on investments, that's because we are creating non-productive assets, or trading in secondary assets, and not creating new assets to serve as a foundation for the creation of new money. This is why, if money is divested from securities, either new securities need to be created, or debt needs to be liquidated. This derivative trading is netted off, but it leave a very real scar on the 'physical economy' where most spenders live, and this is where we are destined to see the inflation.
You need not buy gold though. In fact whilst gold is trading at $1260/oz, the price of gold equities is very cheap. I have long suggested a company like Gryphon Minerals (GRY.ASX) because it has $62mil in cash and investments useful for financing a gold mine development, as well as 4-5Mil oz of gold to underpin that investment. So we have an asset of $6-7 billion in-situ, that can be mined for say an Net Present Value of $0.5-1 billion, depending on your outlook for gold prices, and this company is trading at an enterprise value of zero as we speak (14c). It just doesn't seem fair. Where is the downside? None is imminent. That's not to say there are not future risks, say of political risk. I've not seen a nationalisation of assets for years now; the closest being Iran and Venezuela. But you might be scared of a gold project in Africa. I'm rather satisfied instead by the low mining costs and the lack of impact of Western largesse on the traditional values of Africans who could probably care less that Western financial markets are going through upheaval. Catch our stock picks on our mining 'SPEC' page, or you can find us on Facebook.
Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
Profit from mining with Global Mining Investing eBook
(i) Gold is the only cheap asset class, unless you can find a dodgy third world economy to invest with 'good fundamentals,
(ii) Asset prices look like falling, so you can expect to see rising 'cost-of-living' inflation.
The appeal of gold or in fact any precious metal equity is that they represent 'cheap asset' when every other asset class is dodgy; that is overpriced at a time when inflationary pressures are building. The inflationary pressures are arising because of the collapse of over-priced assets themselves. Most people think asset prices are just the 'things we consume', but investments are 'products'. When we preferentially spend on securities, and consequently bid up the price of securities, we create one type of inflation, even if there is no blow-out in cost of living inflation, i.e. the price of fuel, vegetables and computers. If the only spending being done is on investments, that's because we are creating non-productive assets, or trading in secondary assets, and not creating new assets to serve as a foundation for the creation of new money. This is why, if money is divested from securities, either new securities need to be created, or debt needs to be liquidated. This derivative trading is netted off, but it leave a very real scar on the 'physical economy' where most spenders live, and this is where we are destined to see the inflation.
You need not buy gold though. In fact whilst gold is trading at $1260/oz, the price of gold equities is very cheap. I have long suggested a company like Gryphon Minerals (GRY.ASX) because it has $62mil in cash and investments useful for financing a gold mine development, as well as 4-5Mil oz of gold to underpin that investment. So we have an asset of $6-7 billion in-situ, that can be mined for say an Net Present Value of $0.5-1 billion, depending on your outlook for gold prices, and this company is trading at an enterprise value of zero as we speak (14c). It just doesn't seem fair. Where is the downside? None is imminent. That's not to say there are not future risks, say of political risk. I've not seen a nationalisation of assets for years now; the closest being Iran and Venezuela. But you might be scared of a gold project in Africa. I'm rather satisfied instead by the low mining costs and the lack of impact of Western largesse on the traditional values of Africans who could probably care less that Western financial markets are going through upheaval. Catch our stock picks on our mining 'SPEC' page, or you can find us on Facebook.
Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
Profit from mining with Global Mining Investing eBook
Posts
