Gold...Real Money

Investor/hedge fund manager extraordinaire George Soros recently called gold an "asset bubble." While I certainly feel Soros is a very smart guy, I'm really certain he got this one wrong. I think he's implying that gold is overpriced, but in my opinion he's making the same mistake everyone makes when talking about gold. He's measuring gold in terms of the value of gold in U.S. dollars as if the U.S. dollar was – what an appropriate term – the "gold standard" of value. To me this is backward thinking. The issue for me isn't the price of gold in U.S. dollars, but the value of the U.S. dollar in terms of gold.

Let's look at the long-term facts. And the stone-cold hard fact is that in the long term the U.S. dollar has consistently and significantly deteriorated in value. What's the cheapest price you remember for a gallon of gas? I remember in the early 1960s when gas was 29 cents a gallon and would go down a little lower during "gas wars." As a high schooler, we would give rides to the beach to anyone who could contribute a quarter for gas money even if we didn't like them because if you had 75 cents you had enough money to get from Santa Ana to Newport Beach and back and still have enough money left over to buy two Der Weinerschnitzel hot dogs with chili, cheese and onions for 15 cents each.

Continue the exercise. What price did your parents pay for a house in the 1950s or 1960s? My parents bought a semi-decent house (2,500 sq. ft. plus a real swimming pool) in Santa Ana, California for $14,000 in 1960. Even though California real estate has come down pretty hard that house is still worth $400,000 or so today. I remember the 3 cent stamp for first class mail. And I remember movies at 25 cents and popcorn at a dime. I'm not trying to sound like an old timer here but the fact is that the dollar buys less now than it did 40 years, 30 years ago, 20 years ago and, in many cases, yesterday.

And what is our government doing? They are printing more money... or sticking it in computer accounts or however they expand the money supply today. Record deficits, healthcare plans, wars, bailouts... spend, spend, spend. As my commodity trading friends would say, this is an obvious trade.

It is guaranteed that the dollar will continue to lose value long term unless U.S. fiscal policy is dramatically changed and you and I know that's not going to happen. The value of the dollar will decline and real things... land, oil, real businesses, milk, pasta our favorite... rare coins... and of course gold, will increase in value when measured in depreciating U.S. dollars.

So what do we do? First, everyone needs to get their head on straight about how to measure value. I own some ounces of gold... U.S. eagles and a few other things. I have to tell you I don't fret about the price of gold measured in U.S. dollars. If the price of gold goes up, then the coin market is good and the gold I own is "worth" more so I'm happy. If the price of gold goes down, I'm also happy because then I get to buy more ounces of Oro Puro and I know the decline is only big picture temporary.

My advice to you, if you want to buy gold, go for it! But don't try to pick the right time, because a lot of people who are way smarter than you and me only get market timing right 50% or so of the time. And don't worry about the price. Buy your ounces of gold, put them away and forget about them. The only number you should think about is the number I focus on. I don't think about the price of gold... that's not the number. I think about how many ounces of gold I own... now that's the number I think about and the number I want to grow, no matter what the price of gold is in terms of U.S. dollars.

So buy gold if you like it... and of course have fun with your coins.