Why I Won My Gold Bet With Harry Dent

Inside May’s Newsletter: A video from Mike Maloney on the SDR… Jeff Clark shares the 3 reasons why gold went higher after his bet with Harry Dent and why it’s still a buy today… Updates on ongoing newsletter themes… and a review of all our recent offers and releases.
How long will every other nation on Earth allow the US to rake up incredible debts and also own the world reserve currency? In this video, Mike explains how the exponential growth of debt and currency could usher in the SDR.

Why I Won My Gold Bet With Harry Dent

By Jeff Clark, Senior Precious Metals Analyst

Two years ago I bet economist Harry Dent an ounce of gold that the price wouldn’t fall to his prediction of $750/ounce.

He had made some noise in the gold community that year about how gold was going to crater. He advised selling your gold and buying dollars. He even stated that $750 wasn’t the stopping point, that the price would fall to as low as $250.

I couldn’t pass it up. I wrote an open letter to him, citing why I thought he was wrong, and offered to bet him a one-ounce gold Eagle. I even raised the target to $800 and gave his prediction two full years to come to fruition. He accepted.

My bet was a bold one at the time… if you remember early 2015, the gold price had been falling for two years, and showed little sign of stabilizing. Almost no one thought the bottom was in. Market participants had been decimated. Gold showed some life in January that year, but by the time we finalized our agreement in March the price had fallen another 12%. It dropped below $1,100 that summer, and by December hit $1,049. My wager was not looking so good.

But gold never fell to $800—never even cracked three figures. I won. And yes, he paid up. (He kept his word and sent me a check for the proceeds, including a little extra for a purchase premium; you may not agree with his predictions, but this speaks highly of his character).

So why did I win?

Three reasons, which are some of the same reasons gold is still a must-buy asset today…

#1 Gold is Not a Commodity

One of Mr. Dent’s arguments was, as he put it, “gold is largely just a commodity today.”

That was a softball pitch. The largest source of demand for gold is clearly as money, not as a commodity. This has been the case for literally thousands of years.

Jewelry is the second-biggest use of gold, but even much of that is disguised as monetary demand, too. In Asia, for example, where the size of the jewelry market is much bigger than North America, gold jewelry is bought not as just an adornment but as a store of value. We buy gold Eagles and store them; they buy gold necklaces and wear them. Several Indian women I’ve interviewed told me they view their gold necklaces are “collateral,” an investment they can sell as a last resort. They’re much more than just pretty necklaces.

The smallest use of gold is industrial demand. Commodities are most often used as inputs in the production of other goods or services—gold serves this purpose but only on a small scale.

Here’s the industrial use of some of the most common commodities, compared to the industrial use of gold.

Is gold really a commodity when only 11% of it is used as an industrial input? Hardly.

History clearly shows that gold has been used, first and foremost, as money. At the time I sensed this was the crux of our disagreement. If I viewed gold as a commodity, I’d own less. If he viewed gold as money, he’d own more.

So, since he saw gold primarily as a commodity, its price would suffer in a debt or deflationary crisis, which makes sense. But if we did get a crisis, I believed that gold’s role as a safe haven would draw investors to it and push its price higher (or at least keep its price from crashing).

What is gold to you? How you view it will dictate how much you think you need to own.

#2 Deflation is Not Necessarily Bad for Gold

You might be surprised to know that Harry and Mike agree a massive deflation is coming. If they’re right, gold would likely fall initially, just like it did in 2008. But that wouldn’t be the end of the story…

In a true deflation, all prices fall dramatically, including gold. But if banks begin to fail again, or we enter another recession, or geopolitical conflicts escalate, or [insert your reason here], many investors would see gold as the safe haven it is. In other words, the consequences from a deflationary event could serve as the very catalysts that push people to buy gold.

Let’s be honest; gold is largely known as the fear metal. If fear and worry grows about the economy, markets, currencies, or geopolitics, gold is likely to be pursued and its price rise in response.

What does history say about gold and deflation? Here’s how gold has performed during the two biggest deflations of the past 100 years…

Great Depression: As most of you know, the US was on a gold standard at the time and the price fixed at $20.67/ounce. However…

  • After Roosevelt nationalized gold, he raised the price to $35 just nine months later. In other words, the US government—during one of history’s worst deflations—raised the gold price 69%!
  • The only gold citizens were permitted to hold during the Depression were gold stocks. And they were runaway winners, doubling and tripling in price. They did sell off with the stock market in 1929, but Homestake Mining, the largest gold miner in the US at the time, rose 474% by 1933. And Dome Mines, Canada’s biggest producer, soared a whopping 558%! Junior gold stocks rose even more.

This all occurred while the US economy suffered with soup lines, soaring unemployment, and crashing markets. Gold served as the ultimate safe haven at the time.

2008/2009 Financial Crisis: Gold fell in 2008 largely because investors needed liquidity. It wasn’t that gold was no longer a safe haven; it’s that for a short period of time the need for liquidity skyrocketed, and gold holdings were available.

Recall that in spite of the massive selloff in October that year, gold ended the year 5.5% higher. And by the end of 2009, it was up another 24%. This while stock markets continued to flounder and unemployment soared. Virtually no other investment class logged gains during this period.

  • The point is that the effects of deflation can push investors into gold. During a period of extreme crisis, gold is sought as a refuge. This has been bore out repeatedly throughout history.

Gold can be one of the most valuable assets to own when other investments are in decline. Although deflation has been muted over the past two years, this is another reason I won the bet. It’s why you and I should continue to accumulate gold today.

#3 Gold is the Ultimate Safe Haven

Mr. Dent also made the argument that gold has no currency value. He challenged me to take a gold coin to a grocery store and try to buy something with it. Since gold doesn’t circulate throughout the economy, he believed this was one reason its price would crash.

I took the bet because he confused money with currency.

Everyone knows you can’t pay for groceries with a gold coin—but gold clearly meets the definition of money. It’s a store of value… it can’t be created out of thin air… it’s durable, divisible, consistent, and portable… it’s recognized the world over… and it has high liquidity. (Gold has numerous advantages over most other investments.)

Contrast that with the dollar, or currency or your country… those are just pieces of paper with ink printed on them, with no fundamental value. Currency survives entirely on confidence, and that confidence erodes as debt climbs higher and if when central banks have to print again. The growth trajectory of our debt is unsustainable, just one of many crises gold can flourish under.

Most investors reading this understand these reasons. But it’s a good reminder of why you shouldn’t bet on gold falling, but rather on it retaining and even growing its purchasing power in whatever crises get thrown our way over the next few years.

Where will the gold price be two years from now? That depends on a lot of factors, but I’m personally betting not so much on the price but that I’ll be darn sure glad I own lots of it.

By the way, here’s what I bought with the money Harry Dent sent me.

I hope you’re joining us and preserving your financial future by buying physical gold.

Gold Theme Updates

Here are the latest updates on some of the themes we’ve covered in the newsletter (click on the link to read the original article).

Gold Demand in India

Our original article pointed out that due to government restrictions on gold in India, buyers may turn to silver. That may still happen, but check out these recent developments with gold in that country:

  • The first quarter of 2017 (January-March) saw the highest level of Indian gold imports in 4 years. Gold imports hit 230 tonnes, with over 100 tonnes arriving in March alone. The two middle quarters in 2016 had been only 264 tonnes. March imports were 582% higher than a year ago. The bottom line is that either gold or silver will be bought by the second largest consumer of precious metals in the world. Meanwhile, these analysts argue that India should have its own bullion bank to become a more dominant player in the global gold market.
  • Sberbank, Russia’s largest state-owned bank, is looking to finance the direct import of gold to India. The managing director of Sberbank’s Indian subsidiary said, “Direct gold trade between India and Russia would be immensely beneficial to both countries… We are also exploring the possibility of entering the gold loans sector as well.” China has made similar overtures, so Indian citizens may get the gold they want despite how their government may try to suppress it.

Bubbles, Bubbles Everywhere! The Only Undervalued Asset Class

  • According to the Conference Board’s latest consumer confidence report, investors haven’t been this upbeat about the US stock market since 2000. We all know what happened next—check any financial website to see how long it took the Nasdaq to return to its 2000 peak.
  • “The central bank liquidity supernova is coming to an end,” says Bank of America analyst Michael Hartnett. And that means “the period of excess returns in equities and corporate bonds is over, as is the period of suppressed volatility. His conclusion: “Our longest pictures argue for a treacherous period of potential manias, panics, or crashes, as policy makers try to normalize policy.” His best trade recommendation? “Buy gold.”

Gold Supply is Guaranteed to Fall

  • Government officials in Ghana suspended the issuance of new mining licenses across the country. They want to “restructure the sector” over the next five years to “improve the management of small scale mining to protect the environment.” Ghana is the second-largest gold producing country in Africa, and 11th globally, with output of 2.9 million ounces last year. Any major disruption here could impact the gold industry.
  • Gold sales at the UK Royal Mint jumped 20% in the first quarter of the year. In terms of volume, sales were a whopping 263% higher. Demand for gold in Europe is being driven by ongoing negative interest rate policies, as well as political instability. Recent gold demand has dipped in North America, but that’s not the case globally.
  • That spike in gold demand in India referenced above? It actually led to a shortfall of available gold in Dubai. Dubai is one of India’s major supply sources. A banker said that refiners in Dubai suddenly have “no metal to offer.” This shows that gold supply is a global issue; someday tightness in one market could affect how easily gold can be sourced where you live.
  • Gold production in China, the world’s top producer, was down 9.3% in the first quarter, with total supply 5.9% lower. And demand was up an impressive 14.7%. Why was new supply lower? For the reason our original article pointed to: “China Gold Association said the weaker performance in the first quarter reflected reduced output by domestic miners which have been affected by persistently low gold prices.” This trend of lower supply and higher demand is one many, including us, think will lead to a supply crunch.
  • Last, industry consultancy Metals Focus says gold recycling in the US will remain subdued, despite their own forecast that gold prices will rise. This is one of the points we made in our original article, that recycling won’t help supply until prices rise substantially—and stay there.