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Why Value Investors Should Buy Gold

By Dan Ferris, editor, Extreme Value
Wednesday, November 10, 2010

For all the gold that's ever been mined, you could buy every acre of farmland in the U.S. and 10 companies the size of ExxonMobil... and still have $1 trillion left over.
Would you rather have a shiny cube of metal, 67 feet on a side... or trillions of dollars of assets that actually produce wealth?
That's essentially what Warren Buffett, the world's most successful and famous investor, wondered in a recent interview with Fortune.
Buffett doesn't like gold because it's got no intrinsic value.
In a way, he's right. Most of the gold in the world just sits around collecting dust. Very little of it is used for industrial purposes. With the price near $1,400 an ounce, industrial gold users will likely use as little of the stuff as possible.
But here's what he's not seeing...
A year ago, in an Extreme Value update, I wrote:
Never forget what's at the bottom of the banking system: the Federal Reserve as lender of last resort, with its unique ability to print as much money as it wants in order to have enough to lend into the banking system.
The money-printing I worried about is well underway... and it'll continue until at least next summer. Last week, the Federal Reserve issued a press release in which it said it would buy $75 billion of Treasury bills per month until June 2011. That's in addition to another $35 billion of mortgage bonds to replace maturing mortgage bonds.
The Fed pretends it's a sophisticated operation with an array of complex, surgical-grade financial tools. But it's really an imbecile with a hammer. The hammer is money-printing, and every economic problem is a nail.
So you should always own gold.
I'm not saying gold and silver are cheap, though relative to dollars, I believe they are cheap. I'm saying the world's most well-known, well-liked, and widely held standard of value (the U.S. dollar) is a poor standard of value. In fact, it's a phony standard of value.
It's easily created – at the touch of a button nowadays. Does that make sense to you? Have you ever in your life created anything of value without putting effort into it?
Value isn't created easily, on a whim. Value is created by employing capital productively... the way gold and silver are made. You should own gold and silver, because they're the ultimate standard of value.
Gold is the asset that can't be inflated, yields nothing, and is no one's liability. It's real wealth... pure wealth... the most enduring form of wealth in history.
Let's be clear. I'm not talking about exchange-traded funds, precious metals mutual funds, gold mining stocks, silver mining stocks, gold- or silver-indexed preferreds, or paper certificates of any kind. They have their place, but that's not what I want you to buy.
I'm talking about physical gold, in the form of bullion coins. I'm not talking about speculating on the price of the commodity. I'm talking about exiting paper dollars and putting your savings in real money.
For gold bullion coins, I buy and recommend Krugerrands. The premiums are usually low. There's plenty of supply. And it's the most widely circulated gold bullion coin in the world. For silver bullion, I buy whatever one-ounce, 0.999 fine silver rounds my coin dealer suggests. I've been going to the same guy for years. He knows me when I come in, and he knows I like the coins with low premiums.
I've occasionally recommended putting 5% of your investable assets in gold bullion. I'm raising that to 10% and recommending both gold and silver bullion. Buy it. Hide it somewhere you'll always have access. Buy physical gold and silver to preserve the purchasing power of the wealth you've created. Do it to protect yourself from the Fed's war against the dollar. Do it because gold is the ultimate standard of value.
The only reason most value investors don't like gold is that Warren Buffett doesn't like gold.
Believe me, I'm only human. I've fallen under the spell of a big name money manager a time or two. But if Buffett and his followers want me to believe that paper makes better money than gold, that paper keeps mischievous men from degrading my wealth better than gold, that gold isn't a more enduring standard of value than anything else that's ever been tried... they're going to have to keep talking, because I'm not anywhere near convinced.
Good investing,

Further Reading:

Our own Tom Dyson has uncovered an alternative gold investment that is cheap, has relentlessly gained in price for eight years, and is "the safest, lowest-risk, highest-reward gold investment in the world." With gold hovering around $1,400 an ounce right now, Tom says this is The Only Cheap Gold Investment Left.
Once you have your gold, you'll need to protect it from plundering delinquents. So Tom sat down with an international gold investment specialist. Together, they came up with four foolproof storage tips. Read them here: The Four Best Places to Keep Your Gold.

Market Notes


Yesterday, we showed you how Uranium Participation Corp has broken out of a long downtrend... which signals uranium investments are getting "less bad."
Today, we look at how fast the gains can come in mining stocks when their sector gets "less bad." We'll look at the soaring share price of Denison Mines (DNN).
Like big-cap uranium miner Cameco (CCJ), Denison is one of the premier names in the uranium complex. And like Cameco, Denison's share price suffered a long period of zero interest from investors. But as you can see from today's chart, the "less bad" nature of uranium has made a huge impact on the company's share price.
In late August, Denison traded for around $1.40 per share. Now... as investors are warming back up to the uranium sector, shares trade for around $2.80, a doubling of the share price in just over two months. You can make a fortune when a beaten up sector gets "less bad."

Denison gains 100% in 2 months because things are

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