Truth and Two Different Conclusions
October 03, 2008
I checked precious metals prices first thing after I came in this morning. It is a habit acquired in recent months due to the wild fluctuations.
In the present environment thinking about where prices might be in a month is almost like long-term planning. However, I was temporarily brought back to the existence of the real long term by a short note hand written on a sheet from a legal pad.
The writer of the note sent to me by snail mail wanted to know what the price of gold and silver would be in 15 years - not an investment forecast, you understand - just an estimate of what I think.
I laughed after I had read it.
Yes, I know that the 15-year period will pass and gold and silver will be trading at some future price, but there is no way I can know the rest.
I thought of John Kamin, editor of the Forecaster investment newsletter. He was interviewed by colleague Debbie Bradley this week.
He has made a career of forecasting the future, but his methodology is straightforward enough. He extrapolates on trends to the far distant future.
It is one thing to know that inflation is running four percent or five percent a year. It another thing to say this is the price of a house in the year 2050 at that rate of inflation.
It is one thing to say that there are 300 million Americans. It is another to extend the growth trend to 2050 to find that there will be 450 million of us.
Obviously, with more people to chase precious metals and inflation continuing through future years, the bias to prices is always upwards.
However, this bias does not prevent falling into holes now and again. Gold was $835 a troy ounce as I write this. If I use Jan. 21, 1980, as the base, I can truthfully write that gold is lower after almost 29 years. If I move the base to just a couple of months later, I can truthfully write that gold has doubled in that span.
Or, I can look at the bottom in 2001 and truthfully write that gold has more than tripled from the $255 low in just seven years.
Which point do I use to extend this 15 years?
If I am trying to sell you gold, I know which one I would pick. If I am trying to caution against a headstrong investment plunge, I would pick another.
Either way, the facts I use will be true, but what is the true picture?
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