Bullion? He Prefers Mining Shares…

[In a guest commentary here yesterday, our friend Erich Simon used grocery prices from the good old days to buttress his conclusion that $2100 was the “right” price for an ounce of gold. The essay provoked a lively discussion, including the interesting note below from “Radek,” who’d rather own bullion shares than the actual metal. To find out why, read on. RA]

I think $2100 gold will just be a point in time when we can officially call the beginning of a “gold bubble” – i.e., where perceived value is greater than fundamental value. It will only go up from there for a few years (more or less), ahead of the pace of inflation while the herd gets in. It will go parabolic to heights that [another who posted to this forum] suggested. Then it will pop, and settle down, probably back to the $2100 that Mr. Simon suggested, and rise continuously at a more “steady” rate thereafter.

This is why I have decided not to purchase any bullion of any kind. Instead I am going to take advantage of the leverage that quality gold/silver stocks offer during the run-up; hopefully, sell at or near the top; wait a year; and then let everything crash and “settle down.” This will allow me to purchase more bullion due to the additional gains from leverage (as long as fees and taxes don’t make it financially unsound, as ‘Ricecake’ noted [above] ).

Why would anyone in their right mind want to purchase bullion (never mind the losses due to fees, premiums, insurance, and potential future government interventions) unless they believe the “end game” is a total and utter collapse of the financial system that forces us to revert to local bartering with said bullion? I see bullion ownership as an “all or nothing” scenario: either you believe the whole thing will come down and we’ll have gold/silver as the final remaining currency, or the government will step in and halt the rise/inflation at some point. If you believe the latter, then owning gold will only lower your potential profit due to the above-mentioned profit-siphoning effects.