Sooner or later one of the magazine’s, financial guru’s, CNBC correspondents and others who say gold is a bubble will claim victory. Not everything goes straight up. Thus far however, they have all been wrong. The NY Times is the latest to join the crowd calling gold a bubble. Every time someone does, I am right there to refute their logic which in every case is flawed in one fashion or another. In this article I debunk their claim that higher interest rates are on the horizon and thus a lower price for gold.
Some Background On the NY Times Concern For Gold Investors
The NY Times had all this concern about the welfare of gold investors when they interviewed me for a story back in September 2010 on how gold dealers rip off their clients. That story never appeared. Why didn’t it appear? The only reason I can come up with is the main gold dealer in question, who still today is charging more than most other dealers for the same products, hired a fancy lobbying firm to shut congress up. It was Anthony Weiner’s office who at one point in time wanted me to testify before Congress because they liked what I wrote in Chapter 8 of my book, “Buy Gold and Silver Safely” about gold dealer tactics. In fact, they told me “everyone needs to read your book.”
What they did was send my book to the Energy and Commerce committee for review and Weiner’s office came back saying; “We decided to pass on your testimony.” They did so because someone in Congress, not a representative of course, but probably an aid, actually read the first four chapters where I criticize, Congress, the Fed and the entire Financial Services Industry.
Congress didn’t want that truth to be known. They were right in not letting me testify because I would have made a mockery of them. You see, gold dealers can charge what they want just as car dealerships can charge more in certain areas than others. If someone is foolish enough to buy a car at one dealership that is 30% higher than another, then it is the one doing the buying who is at fault for not doing their comparison shopping. There are plenty of places that mark things up. Just look at the cost to make certain drugs where the pharmaceutical company adds on 100% or more to the price of a drug versus their generic competitor. But many humans are lazy and simply trust the person on the other end of the line has their best interest. They don’t. They have their own best interest at heart.
But I wouldn’t have played the game, sitting in front of congress… whereby I gave them what they wanted to hear in criticizing a competitor. My book does that. I would have turned the conversation back on Congress by saying they are the reason why people are interested in gold to begin with. I would have said, none of us would be here today if you didn’t pass every spending bill in sight and not see past your nose as to what the consequences of doing so would be. It’s not gold dealers ripping people off, but the spending bills you continually pass, catering to the special interest lobbyists who shower you with the funds necessary so you can get elected for the next term.
So Here We Are Today
Anthony Weiner’s office has stopped their investigation into gold dealer tactics. The NY Times never printed the story I was interviewed for. The Santa Monica city attorney has stopped calling. People are left to educate themselves as to what gold and silver to buy, how to buy and where to buy.
So when I see a paper like the NY Times call a bubble, I have to laugh. Who are they trying to protect? Maybe it’s because they haven’t been receiving any advertising revenue from the gold dealers who rip people off like those who advertise on right wing radio, TV and print media. How do you think they can afford so much advertising? You see, it is mostly the right wing (Conservatives, Republicans, Tea Partiers) who buys gold, not the left (although I do have clients who are from the left).
To the NY Times Article…
In this particular NY Times article, titled; “A Surge in Gold Nears a Limit,” the speculation by the authors is that later this year or early next year, the Fed will raise interest rates. The assumption here of course is that the economy is rebounding. Nothing could be further from the truth as I pointed out recently in 4 Reasons There Will Be Future QE And A Higher Price For Gold and Silver.
What Would Higher Interest Rates Do To The Economy?
The Federal Reserve can talk all they want about the possibility of moving interest rates higher by the end of the year, but it’s not going to happen. To figure out whether interest rates will move higher anytime soon, we need look no further than Japan.
The Japanese example shows that in order to try and stimulate the economy, interest rates can be kept low for quite some time. At what expense has this been to the health of the Japanese economy? First, they have not stimulated anything after 15 year or so of trying. Second, the cost of keeping interest rates artificially low has resulted in Japan having the worlds largest debt to GDP ratio. This is the path the U.S. will take. Government spending and Quantitative Easing to infinity is their only solution. I first outlined this scenario in Is the U.S. Following in Japan’s Deflationary Footsteps?
Higher Interest Rates Would Destroy What Is Left of the Economy
Ask yourself some simple questions….
What would higher interest rates do to the real estate industry? Would more people be able to take out loans? Would more loan officers, salesmen and processors be out of a job?
What would higher interest rates do for those businesses who need to borrow to expand, make their products, ship products, or even to pay employees as they ride out the recession? Where would growth come from if businesses are just hanging on?
What would be the effect of higher interest rates on consumers? Would their credit card payments go higher? Car loan payments? Would there be more money or less to support the retail sector?
What would higher interest rates do for those who pay utilities?
What would this do to consumer confidence when they have less money to pay for things?
What would higher interest rates do to those who own bond mutual funds, including tax-free municipal bond funds?
What will higher interest rates mean to our national debt? Will our government have to pay out more from GDP to satisfy it’s leadership role as the world’s largest debtor nation?
The NY Times Shouldn’t Be Calling Gold A Bubble, But Should Call Congress, the Fed and the Dollar A Bubble
Congress has never been in your best interest. The Fed’s mandate of stable employment and prices is a failure. The Dollar is falling because spending is out of control. These are the real bubbles.
You bury a one ounce American Eagle Gold Coin in your back yard 10 years ago, dig it up today, and it’s still the same coin. How can it be in a bubble? It’s what it is priced in that is in a bubble. And you can thank Congress and the Fed for that. They are the bubble that needs to be pricked.
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Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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