The Original Gold Bug

(Originally published in The Dines Letter - 13 January 2009)

LATEST FROM “THE ORIGINAL GOLDBUG”: WHAT IS THE BEST WAY TO MAKE MONEY WITH GOLD, SILVER AND URANIUM?

Gold is tried in fire, and acceptable men in the furnace of adversity.

George Santayana

We wrack our brains trying to reason out where to lead you in this challenging environment, and it can be exasperating because so many hazards lurk everywhere. We have never worked in a market this bearishly dangerous before, where there has been no place to hide, although the table on page 8 demonstrates that uranium metal’s having had the smallest loss makes it 2008’s winner.

Because of our pessimism toward real estate “that would affect the banks” we steered you away from all financial stocks, preferring instead to seek haven in “wealth-in-the- ground” metals, beyond the reach of troubled financial waters. But because we had also been near-term bearish on China, we were thus also negative on base metals, from copper to zinc.

One profitable exception has been uranium metal, because its shortage, and the long lead times to construct nuclear-power plants, minimize the impact of short-term economic fluctuations. Nuclear power will be favored in reducing global warming because of its near-zero carbon emissions, plus to prepare nations for when oil runs out – or is interrupted by geopolitical events. We figured that uranium metal would hold up better than any other metal and, as far as our chain of reasoning went, that was exactly what happened in 2008.

It was in our assumption that uranium-mining shares would hold up as well as uranium metal itself that we were foiled when crashing hedge funds dumped their best- performing stocks, due to forced selling from margin calls, and it devastated the whole Mining Sector. However, we still believe that uranium will continue to hold up in a relatively superior fashion and, when the market inevitably does turn up, uranium stocks will be among the leaders when it is realized that the baby had been thrown out with the bath water.

We also shepherded our TDLrs toward the precious metals. Yet again, gold bullion itself held up in superior fashion (see Table A, page 8) but gold-mining shares dropped with the rest of the stock market, also victims of hedge-fund dumping that should eventually follow uranium stocks higher. But the reasoning for gold is different because we base that bullishness on defending our TDLrs from “The Coming Currency Crisis.”

Many commentators in the press and media appear confused as to whether gold is a hedge against inflation or deflation without even contemplating the differences between the action of metals and their miners. In fact, during our own scholarly studies of what happened during the First Great Depression, we were dumbfounded to have discovered that not every stock crashed…

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