Ned Goodman backs gold

Ned Goodman, the founder of the Dundee group of companies, has a gloomy world outlook these days.

In early April, Goodman spoke at the National Club in Toronto and said that he didn’t like the direction the world was heading, nor did he have much confidence in our collective ability to pull ourselves out of it.

So what does one of Canada’s foremost investors think that we should do with our money given such bleak circumstances? In a word, he believes the answer is gold.

“Gold is the cleanest insurance against the world’s overconfidence that we can fix things,” he says.

But what is it exactly that needs fixing in Goodman’s mind?

Firstly he is inline with a growing consensus that sees the American economy’s rapid growth in debt as being unsustainable. 

And what’s more, the actions that the U.S. government is taking to ward off the ill-effects of such debt will only delay and increase the magnitude of the changes that will follow.

“We are living in an environment of Nassim Taleb’s The Black Swan,” he says. “It doesn’t matter how frequently we see that something has happened in the past, we need to be looking at the time ahead.”

And what are the black swans Goodman is referring to? 

He nominates the situation in the Middle East and its effect on oil prices along with European sovereign debt crisis as the two leading candidates.

“One thing I can predict is that the U.S. is in big trouble,” he argues. “I’ve been following the markets now since the 1960s and I’ve never been confronted by so many issues. The world is in a major transitional economic phase.”

One of his key reasons for doubting the stability of the U.S. is that he doesn’t concede that the consumer price index is an accurate measure of inflation.

“The stock market is flying blind because the statistics given to them are bogus,” he says. “They come from the government bureaucracies.”

So while those statistics are pointing to low inflation, Goodman reckons they are doing so out of a need to safeguard fiscal and monetary policies that seek to stimulate investment and increase employment.

To encourage the public to run along with such policies, Goodman says the U.S. Federal Reserve is “cheerleading” with regards to such headlines as the growth in equity markets, but such a positive spin is only obscuring what is really going on.

“We do have inflation in the U.S. and in Canada, but the current credit policies are keeping it pent up,” he says. “It will be unwound with dire consequences… It is my belief that we’re going into worldwide inflation that will make money useless.”

And if he is right, and paper money loses its value, then something will have to step in and replace it.

Such a scenario will have investors turning to hard assets for their ability to retain value.

And while there is already a quest for such assets, the key hard asset, according to Goodman, is gold.

Goodman adds that the metal’s exonerated status can be seen when adjusted for inflation, because gold is the only metal that has not been moving sideways.

“While I’m hoping for the best,” he says, “I’m also prepared for the worst. And gold is the oldest and simplest preparation.”