You have probably heard this term many times. You may know someone who you would say is this type of person. Perhaps you are or have been called so, even though you are not. Goldbug – it’s very common term in the financial sector, sometimes used as a belittling pejorative. Rightly so? Not necessarily. You see, the problem is that the term is used to describe several interconnected yet distinct aspects.
Goldbug as Supporter of Gold Standard
One definition of the goldbug is a supporter of the gold standard. Is this something discrediting?
Not at all! We also support the gold standard. Why wouldn’t we? After all, the classic gold standard was a period of great prosperity. The classic gold standard with full convertibility, not the diluted post-WWI one. There were brief deflation periods, yet fast economic growth characterized those times. Of course, there are several political and technical problems related to the return to the gold standard, but the history of fiat money plagued with credit cycle-induced booms and busts spilling over into business cycles and financial crises leaves no doubt which system to choose. Even Alan Greenspan praised the gold standard in his 1966 essay.
Goldbug as Gold Investors
According to the second definition, goldbug is a person who invests in or hoards gold. They basically buy gold as an safe-haven asset or insurance against the economic crisis, or a hedge against inflation. Gold also serves as a regular savings vehicle for such a person. Again, we would say that it is not only normal, but smart behavior. Gold is a great portfolio diversifier, so including it to the investment portfolio enables for increasing returns per unit of risks.
Goldbug as Permabull
The third definition states that goldbug is a person who is notoriously bullish on gold. In the long-run, we are also bullish on bullion. However, what is problematic here, is that this type of goldbug believes that the price of gold can go only up. If the price goes down, then it is only because of manipulation.
This mindset is created and reinforced by some pundits or, actually, by the gold sellers under the guise of the objective analysts. They want to sell as much retail gold products as possible, so they argue that the price of gold can go only up. They sow fear that we are on the verge of the collapse, so you should purchase gold. Now. Just One Click Away. Buy It Now! And if you don’t have enough money on hand with which to buy gold, just take on that second mortgage or max out that credit card – just buy already! Confiscation-proof “rare” numismatic coins, Gold Eagles, anyone?
Unfortunately, many people blindly trust the gold promotional materials instead of looking for objective analyses. After all, the premises are correct. The current monetary system based on fiat currencies generates a lot of instability. Gold has been money for thousands of years and the gold standard was the period of general prosperity and living standards increase. Gold standard restrains deficit spending and that’s exactly why it has been abandoned to finance the WWI efforts. Gold is a great addition to the investors’ portfolio. Yes, all this is correct. But it does not follow from this that the price of gold can only go up. On the contrary, just as in other markets, the gold prices fluctuate in accordance with the law of supply and demand. We have seen both bull and bear markets, as the chart below shows.
Chart 1: Gold bull and bear markets since April 1968 to April 2019.
The bottom line is that gold is great, but its price can also fluctuate widely. Hence, do not listen to the biased gold promoters. We also love gold, but we have one important advantage: we will always tell you the objective truth as it stands at each moment in time, even the unpleasant one. Even that, for example, the bear market in gold is coming. It does not mean that we do not respect gold. We do. But we respect our clients even more.
Aristotle allegedly once said that Plato is his friend, but truth is a better friend. Luckily, we are in a better position as we don’t have to choose. There is no contradiction between our friends – you – and the truth. Just look at the chart above: being bullish on gold in the 1990s would not be the best idea. And we would tell you that, just like we told our subscribers to get out of the gold market with their long-term investments in April 2013. This is our job: to show you how to preserve and gain capital in all market circumstances, no matter what the gold prices are doing. And yes, we do think that gold will move much higher in the following years (writing this in mid-2019), but not necessarily in the following months. Does that make us goldbugs? Even better question – if we help our clients succeed in their gold investments, does the exact name sticker really matter? And does it matter if other investors and traders call anyone goldbug if the latter are actually going to outperform them? It doesn’t, but latter is likely to happen only if goldbugs value objectivity more than gold sellers’ one-sided sales materials.