I’ve been pro gold my entire adult life. Back in the early seventies I was one of a handful who fought for gold’s legalization, and since that time I’ve invested in gold on and off, written about it constantly, devoted this site to resource investing and political commentary, and written a book about gold and its importance. Yet through all of this I have been at odds with gold bugs.
 

There were few gold bugs in the sixties and seventies. But to the extent they existed they did alert the average American to both the cause and dangers of inflation, and touted the ownership of precious metals and precious metal stocks as a way for individuals to protect themselves from it. I was part of that movement but that’s as close to becoming a gold bug that I ever got.
 

The first book I read on gold was Death of the Dollar, written in 1968. To this day, that same proclamation has been made year after year by gold bugs. And that's my problem with most gold bugs—they utter the same mantra whether the dollar is going up or going down. The same pessimistic view is held toward the economy whether its booming or slumping. Like Perma-Bears, gold bugs never seem to change their tune.
 

With the inauguration of Ronald Reagan in 1980 and his move toward what is now known as Reaganomics, I parted markedly with those that believed the huge deficits Reagan chose to run would lead to runaway inflation and a crack-up boom. In fact, I sold my gold stocks and bought common stocks in anticipation of the technological revolution I believed was coming. Meanwhile, gold bugs prepared for Armageddon.
 

During those years gold dropped continuously and gold bugs mutated from gold investors into political attackers disgruntled with “the system", and conspiracy theories developed trying to explain 20 years of declining gold prices. Gold’s failure to rise was blamed on everything from "banksters", "manipulators",  and "cabals" to "the powers that be" who were somehow keeping the price of gold down. A new breed of bug had evolved.
 

Most gold bugs believe the economic system of America—if not the world—will either end in hyper-inflation and depression or devastating deflation and depression. To them this isn’t theory but inevitability. Cures for economic woes are considered naive at best and useless at worst. The only “cure” acceptable to gold bugs it seems is to let the system fail. After collapse, we can start from scratch and build again. Justice to a gold bug means not lifting a finger to try and avert catastrophe. “Bring it on” is their rally cry. Constructive problem solving is not in their vocabulary.
 

Even when collapse of the system as we know it was finally at hand in 2008 and 2009, and the worst financial crisis in our life time actually occurred, it wasn't enough for the gold bugs. After much repair, as the market rose from that ominous S&P 666, gold bugs steadfastly continued to predict the total demise of the US economy. “That was just the beginning," they cried. And they are still making the same doomsday warnings today.
 

Gold bugs claim to have a monopoly on reality and thus dismiss rational economic solutions as being counterproductive. They “know” what the future will bring—chaos and collapse—what they have been preparing for all their lives. Who knows, maybe this time they’ll get “lucky.” We are certainly vulnerable.
 

This brings us to their investment philosophy. Gold bugs are "true believers," and rarely sell. During the sixties they began to buy and during the inflationary seventies they continued buying. As economic policy under Reagan turned from socialistic to capitalistic they held. For 25 long years they held. While technology boomed, they held onto gold and gold stocks all the way from $800 down to $255 an ounce.
 

My portfolio always contains a small percentage of gold which I hold as a permanent insurance policy. I advise everyone to do the same. But as policy changes I change with it. I even short gold from time to time. Read HERE to see why I just did so recently. This of course is considered blasphemy by gold bugs. To them, gold is sacred and anyone who shorts it, or gold stocks, is a traitor and infidel!
 

But in the last couple of months I've witnessed something that is very, very rare. I've noticed some capitulation within the gold bug camp. Gold bugs that were 100% confident just six months ago that gold was going to the moon are dumping their gold stocks. Yes, they are holding their physical gold, and I applaud them for that, now more than ever is a time to hold gold. But it is extremely interesting to me that they have been throwing in the towel on gold stocks and resource stocks in general, many of which are down 40 to 80%. Meanwhile, I have moved "all in" on resource stocks.
 

I understand the bear case made by gold bugs and their fear of a monetary breakdown. A monetary breakdown is no longer something lurking in the shadows of theory—it is staring us in the face. As I recently pointed out in A Renewed Surge Into Gold, my view is that if the worst happens I will own physical gold and gold in the ground by holding my core position in gold stocks. But if the worst does not materialize, and things get better or even stay the same, I believe this will also cause resource stocks to rise. Consider:
 

-The housing market has stabilized; it is even beginning to grow while prices rise.

-The auto industry is going gangbusters

-We have an oil & gas boom that we haven't seen since they struck oil in Oklahoma over a hundred years ago.

-Gas prices are falling.

-Many food prices are falling.

-Interest rates are at historic lows.

-American innovation continues to be the envy of the world.

-Mere demographics alone suggest the world will be in need of all commodities and resources in the years to come.

 


The state of the world, both financially and fiscally, is dismal. But resource stocks are cheap regardless. Recent consumer sentiment numbers were released and were higher than any time since 2007! Obviously, more is going on than just the Euro crisis. America’s creative undertow is making itself felt.
 

I’m on record predicting the end of the Euro as we know it and have written extensively about both our monetary and fiscal problems and their cures. But unlike gold bugs, I believe that as a nation we still have the power of choice. We can choose to do what’s necessary to solve our problems, or we can chose to ignore them; which is the path we are presently on.
 

A case in point was the victory of Scott Walker, governor of Wisconsin. In the midst of national denial, including the Congress and the President turning a blind eye toward our fiscal mess; Wisconsin ratified austerity and rejected bloated entitlements. The same choice will be presented to the nation this November. Rational solutions are possible.

For the most part, the problems we face are not economic, as much as they are political. They can be solved. So as the gold bugs once again run for the hills trying to avoid impending doom, I will again take the other side of that trade and predict that we will muddle through at a zero to 2% GDP rate. But I am constructive on gold and gold stocks because even as we stagnate, governments are buying more gold and gold is once again being demanded as collateral. At the same time, investors and institutions worldwide continue to accumulate it as well. This should support gold for years to come.
 

A lot is up in the air. The economic and political choices we make in the next 12 months, as well as Europe, will determine the direction of the economies of the world and the direction of our investments. But there is one sure bet. Gold bugs will be bears on the economy regardless of what happens. You can put money on that.