海角大神

A stitch in time鈥�

Okay鈥� We have left 2011 behind. We are rid of it forever. It won鈥檛 come back. Never. Not even if the universe lasts a million years, we will never see it again.

Or will we? One of the intriguing discoveries of 2011 came the giant particle accelerator in Switzerland. Those clever scientists set up a race, from Geneva to a finish line in Italy, 730 kilometers away. It was a race of neutrinos against light. Who do you think won?

The smart money was on light. Einstein said it was the fastest thing in the cosmos. Nothing could be faster, he believed. That鈥檚 why planets are 鈥渓ight years鈥� from Earth. For example, other scientists discovered a couple of distant planets 鈥� many light years away 鈥� that were about the right size and the right distance from their star. They could have liquid water鈥�and water-based life. But what we 鈥渟ee鈥� of these planets is already 950 years old. That鈥檚 how long it took the light to reach us.

So, if you want to see 2011 again, you could theoretically race ahead of light and watch it all over again. That is, if it were theoretically possible to go faster than light, which it wasn鈥檛鈥�until a few months ago.

When the scientists released their neutrinos in Geneva, the little critters quickly took the lead and then zipped along, beating light to the finish line. Barely. It was a photo finish. And some scientists think the photo was fumbled.

But unless we can hitch a ride on some souped-up neutrinos, 2011 is gone forever.

Will 2012 be better鈥�or worse? We don鈥檛 know.

From our point of view, there was nothing wrong with 2011. It did pretty much what it was supposed to do. We are in a Great Correction. The year just ended felt like a Great Correction is supposed to feel. High unemployment. Falling high prices. Financial crises. Stock prices losing ground. What more do you want?

On that last item, The Financial Times adds detail:

The FT cites a Bloomberg calculation that tells us the global stock markets lost a little more than 12%, dropping to total capitalization of $45 trillion.

While stocks lost 12%, gold rose about 10%. For the 11th year in a row (we鈥檝e lost track) our 鈥渟ell stocks/buy gold鈥� formula paid off. Between falling stocks and rising gold there鈥檚 a spread of 22%. Not bad.

Dear Readers deserve full disclosure. Towards that end, we didn鈥檛 make money on both sides of the trade in every single year. Gold went up every year. But stocks didn鈥檛 go down every year. Stocks haven鈥檛 had a losing year since 2008. That means they were going up鈥�alongside gold鈥�for 2009 and 2010. And it means that selling stocks wasn鈥檛 such a hot idea those years. You could have made more money by buying stocks and buying gold.

Still, if you had followed our approach you would have made solid money every year 鈥� even when other investors were getting killed. Let鈥檚 hope our good luck continues!

But today, we鈥檙e writing not about the known knowns of the past but about the unknown knowns of the future. We don鈥檛 know where prices are headed in 2012 鈥� and we know it!

Still, we don鈥檛 mind taking a guess. And let鈥檚 begin with our favorite investment 鈥� gold. Apparently, the smart money thinks gold鈥檚 run is over.

Well, what about it? The smart money thinks gold is washed up. It thinks the bull market in gold is over. The smart money is selling. It鈥檚 moving on.

But what about the rest of us? What about those of us who cherish good looks more than brains鈥�virtue more than money鈥�a good drink over a good deed? What do we think?

We don鈥檛 remember our bad guesses. But we remember our good ones. And you may recall too that when gold got to $1,900 we thought it had gotten ahead of itself. After all, we鈥檙e still in a Great Correction. And as near as we can tell, the correction is intensifying. Prices don鈥檛 go up in a correction; they go down. Investors don鈥檛 fear inflation; it鈥檚 the lack of it that makes them sweat.

Besides, it looked to us like gold was over-priced.

In the 1940s, gold sold for $35 an ounce. A new Buick cost about $750. Without putting too fine a point on it, you could get your new wheels for about 20 ounces of gold.

Today, a new Buick will set you back about $26,000. Divide by $1,550. What do you get? About 16. This tells us that an ounce of gold is worth more today than it was then.

How about oil? In 1940 you could get a gallon of gasoline for about 10 cents. Last week, it was $3.50 cents. An ounce of gold would have bought you 350 gallons in 1940 and 414 gallons today.

Conclusion: gold is not too cheap at $1,500. At $1,900 it was too expensive.

So we warned that gold would go down too. Since then, it鈥檚 lost almost 20% of its value.

But we鈥檙e looking ahead. And ahead what we see is more of the same鈥�more or less. Gold will eventually shock everyone by rising far above $1,900. When the real crisis hits鈥�the crisis coming in the US bond market鈥�gold will be the money that nobody doesn鈥檛 want.

But what we learned in 2011 was that when a Great Correction pinches, the dollar is the salve of choice 鈥� not gold. When investors fear losses, they turn to the dollar for protection.

Eventually, when they begin to fear inflation, the gold bugs鈥� day of glory will be at hand.

In the meantime, we鈥檒l probably see a further correction in the gold price鈥�perhaps down to $1,200. Or, perhaps it will stop at $1,400. We don鈥檛 know. And it doesn鈥檛 matter. Buy gold on dips; sell stocks on rallies.

This strategy may or may not pay off in 2012; but gold is insurance against financial disaster. And one is coming鈥�

Regards,

Bill Bonner