Bill Fleckenstein: Defend yourself with Gold

In his latest column of the Contrarian Chronicles series, Bill Flickenstein (yet another of the few money managers I highly regard) gives his explanation about why the price of gold has been declining last week and why this should be just temporary: short selling. He recommends buying Gold to protect yourself against government money-printing presses.

The funding problem is, however, a reason to own gold, as gold is the only defense against the money-printing press. Not that the gold market was too worried about the printing press last week.

I thought it might be worth making a couple of points about gold, given the rout it suffered last week. As gold dropped 8% (roughly $80 per ounce), the key gold exchange-traded fund, SPDR Gold Shares, saw no liquidation. But the double-short ETF ProShares UltraShort Gold experienced record volume.

Thus, the recent decline in the price of gold has been precipitated by some combination of short-selling in the gold ETF (where the short interest has been rising quite aggressively) and/or the short-selling and liquidation of gold futures.

Those of us who believe gold belongs in one's portfolio need to remember that the folks who don't like it really don't like it. After all, gold is easy to hate.

[...] there's quite a contingent that wants to bet against gold. However, those doing so have every government of the world fighting against them, in the form of printing money.

Meanwhile, the physical market continues to show signs of people wanting to exchange their colored pieces of paper for gold. Interestingly, Brinks said Wednesday that it had been seeing "a large spike in clients shipping gold and silver" from the New York Mercantile Exchange and Commodity Exchange, or Comex, over the past few months.

Thus the battle continues. Folks need to be aware that gold will remain volatile. But I don't believe the run in gold will be over for quite some time. Gold has been rising sort of quickly for eight years, and I expect it should continue to do so.