Jul 19 2010 1:49PM

When I did a recent radio interview, the host who was basically friendly, said, “You’ve always liked gold.” My response? “No, no, no. I have been bearish for most of two decades before December, 2003. I have been bullish on gold 12 years out of the 34 years I have been publishing The Ruff Times. I have been bearish or neutral for 22 years. I’m now bullish since December, 2003. But I guess I can never shake the label of “gold bug” the media gave me way back in the ‘70s.

If you are a realistic optimist like me, you are always looking for the silver (or gold) linings in the gathering clouds, if that is reality. I just want to be right, not because my ego requires it, but because in my profession, being wrong costs me subscribers, or missed opportunities for them. True optimism includes realistically looking for opportunities among bad developments. That is why gold and silver are bad-news bulls!

You won’t be bullish about gold and silver if you think everything will be hunky dory in the world at large. You would have to believe in Obamanomics or that trillion-dollar bailouts have no inflationary implications. Or that Social Security and Medicare will be cured without printing money.

The things that drive the metals are unpleasant for the status quo. I can only be bullish on gold and silver if I believe the dollar will be sinking, inflation will be on the march, the stock market will probably decline, and scary things are happening in the world that will get worse. In that case, a true optimist must look for the aforementioned silver linings.

If the world should suddenly turn sane and the metals should tube, the true optimist will cut his potential losses and look for new opportunities, as I finally did after the gold bull market of the ‘70s. When this gold bull market has run its course, if the currency and the economy have hung together, we should be able to put the Wall street Journal on the wall, throw darts at it, and invest in the holes. But for now, we must buy silver and gold until it is stock-dart time. That will probably be years from now.

Ironically, gold bugs can be just as ideologically blind as stock brokers. Many of those who were ideologically turned on to gold because of its insurance uses, or their crusade to reinstall the gold standard, confused those things with gold’s periodic merits as an investment. I had loved gold for six years in the ‘70s, and found it hard to turn seriously bearish in the ‘80s. Lesson well learned!

Ideology is the enemy of investment, because it obscures reality. You can be a Pollyanna on gold and silver, and may be right or wrong, but not because of your optimism or pessimism. You need to be an optimist to perceive opportunity when things don’t measure up to the world you would like to see, as opposed to a realistic view of the world and the markets as they really are. A real optimist knows when to bet the farm when everybody else is expecting a drought, and when not to. Although optimism and pessimism are states of mind, and have nothing to do with truth, they have a lot to do with guts – the ability to be comfortable looking north when everyone else is looking south. I may be wrong about a lot of things, but I try to be driven by realism and objective truth, not some socially approved state of mind.

Nuts and Bolts

So let’s lay out the alternatives for you.

Everything denominated in dollars, except gold and silver, should be avoided.

You have to become a maverick. Remember, a maverick is a cow that leaves the herd. Those who do not leave the herd will be turned into hamburger with the rest of them.

Precious Metals and Other Inflation Hedges

There is one basic rule – always compare prices. They can vary dramatically from dealer to dealer and from hour to hour, even with my recommended firms.

What kind of metals should you buy?

1) “Junk silver.” These are pre-1965 dimes, dollars and halves sold by the bag. Price is determined by their silver value; it has nothing to do with the face value. A bag is approximately 715 ounces, but you can also buy a half bag. Everyone investing in metals should start there. I suggest you have as much as a bag for each member of your family. If that’s too much for your pocketbook, do what you can, even if it’s just a roll of 90-percent silver dimes.

2) Gold and silver coins which are bought, sold and priced strictly for their metal content. There is a big variety of gold and silver coins available on the market. I like bullion coins like krugerrands, eagles, or any of the popular internationally accepted coins. Remember that the value of gold coins is several times higher than silver coins, so think of gold-bullion coins as $100 bills silver coins as small change. You need a variety of both.

3) Silver rounds.nuts These are coin-like silver or gold tokens that are created by some dealers. You will pay the bullion value plus a small premium.

After you have accumulated a few thousand dollars worth of those, if you have money left over (many of you will not) you can look at mining stocks. Gold and silver mining stocks fit into several categories, from big “Blue Chip” producers, clear down to “holes in the ground surrounded by liars.”

Most money will be made over the years by investors in gold Exploration Companies. There is a possibility that the stock market might collapse, in which case you will find no place to exchange your mining stocks into dollars until the market reestablishes itself. Be cautious, with a bias towards owning the physical metals.

4)There are bullion bars, ranging from 100 to 1,000 ounces. If you buy bars and take them home, however, and you want to sell them, they will have to be assayed with additional costs, and probably insured. I am not as interested in them. I prefer coins, which need no assay.

5) Also as the price of gas goes up, there will be a growing trend towards nuclear power. The environmentalists who have fought against it will suddenly have a rush of brains to the head and realize that nuclear power plants don’t contribute to their big bugaboo –  alleged “global warming.”

There are 35 nuclear plants on the drawing board or under construction right now. There is only about half enough uranium above ground to meet their needs. So I like uranium mining stocks. You will find a list in the Investment Menu in Appendix A of this book.

If I really looked for it, I’m sure I would find other alternatives, but these are the easy ones. Your investment program should be based in coins and bullion.

How About Real Estate?

I am often asked when it will be time to buy real estate again. An old adage says, “Never try to catch a falling safe.” The Wall Street variation is “never try to catch a falling knife.” Real estate is still in decline, and there is still a huge overhang of foreclosed and unsold properties. Until these have been worked through and the market has rebalanced itself, residential and commercial real estate will not bottom out.

Inflation hedges only make sense if they have an upside. At these prices, the upside is a long ways away, if not non-existent.

By Howard Ruff
The Ruff Times

*****

Howard J. Ruff, the legendary author and financial advisor, has re-edited and re-issued his 1978 mega best seller, How to Prosper During the Coming Bad Years, still the biggest-selling financial book in history, with 2.6 million copies in print. He is founder and editor of The Ruff Times financial newsletter. The newsletter is much more comprehensive and deals with a broad spectrum of middle-class financial issues and includes an Investment Menu from which you can build your portfolio.