Is gold a bargain?

In Monday's The Daily Reckoning, Richard Daughty notes that annually, the US is creating 24 times more new money than the world is producing in new gold at current prices, and he comes to the obvious conclusion: "Planetary Super Bargain".

But there are other ways to do the figures. The same edition of TDR reveals that we already have 150,000 tonnes of gold above ground, so 2,500 new-mined tonnes per year represents 1.67% p.a., compared with the 12% increase in the US M3 money supply. Okay, that looks like a mismatch of supply and potential demand, but this particular ratio is 7.2 times, rather than 24.

Another thought: gold and paper notes are not the only two things in the economy. People have other things to spend their money on, such as their rapidly-growing debts. And if we accept the worst-case future scenario, maybe tins of baked beans and boxes of ammunition will be in even greater demand.

Also, how far has the gold price already factored-in inflation? Using figures from Kitco.com's website, I've compared the average London PM fix in June 2002 with today's New York spot price. Per ounce, gold has gone from $356.53 to $642.50 in 5 years, a rise of around 80% overall. This equates to some 12.5% compound per annum - rather similar to the M3 figure previously quoted. So maybe gold is doing its traditional thing of storing value, more or less, rather than being a sort of asset Cinderella about to hit the big time.

But then again, I could be wrong.

Making money out of disaster?

The Contrarian Investors' Journal concludes its series on exploiting the possibility of a crash, by suggesting a series of short-term bets on the drop. It's a gamble, of course, but appeals to the Black Swan types who look for an "asymmetric outcome" - a disproportionately large payoff if the unlikely event happens. In other words, if the event has 100-1 odds against occurring, but the bet is offering 500-1, it seems worth taking - if you're a gambler.

But there's another risk involved: the "bookie" may not be willing, or able, to pay out. A prudent investor should consider counterparty risk.

A contrarian's advice on crash-proofing

The Contrarian Investors' Journal is also waiting for a crash and considering strategies.

Contrarian update

Let's take a look at the 6 contrarians favoured by Investment U:

Jim Rogers reportedly (today) likes farmland in Latin America, because of the water supply (I think Bill Bonner has gotten into this, too)

Marc Faber is sounding very cautious and cash-oriented at the moment, though I have previously quoted a report of his investments

John Templeton is quoted as stating the principle “invest at the point of absolute pessimism,” a point which surely hasn't yet been reached

Sam Zell has sold a real estate business (Equity Office Partners) to Blackstone - which makes the Chinese a part owner of New York, and the Daily Reckoning thinks Zell did rather better out of the deal than Blackstone. Zell is reportedly buying the Tribune media group

Eduardo Elsztain is in Argentine real estate

George Soros' recent portfolio is reported here and the same source reports his purchase of rail companies recently - an indication of moving towards more conservative value investing?

... and Steve Sjuggerud, also mentioned in the Investment U article that named the above, is tipping shares in a gold mining venture.