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The Daily Reckoning

Gold will become money again

Until recently, it was unfathomable to many that gold would become a more preferable currency than the US dollar

(Page 2 of 2)

We’ll pause here to place it on a map, so you can get your bearings. (If you were a geography geek growing up, you might remember it as Upper Volta.)

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“I read these other quarterlies from these hedge fund managers,” Baker tells us, surrounded by family pictures, CDs of composers like Brahms and rafts of company research. “They’ll get really absorbed in the macroeconomic picture, but they don’t really know what they’re doing, so they just buy GLD [the gold ETF].

“Or they’ll hire two all-star Canadian analysts. Then I look at what they own, and they own Gabriel Resources because John Paulson owns it. It’s safe. Or they bought some big South African company because it’s cheap based on reserves in the ground when they ran it through their stock screener.

“They don’t have a coherent philosophy about really kicking the tires and really finding these companies that people don’t know about.”

Baker does. His firm, Gaineswood Investment Management, has taken sizeable positions in tiny gold miners working well off the beaten paths of the Americas, Australia and South Africa.

Burkina Faso is smack in the middle of a geological formation called the Birimian Trend…the richest source of growth for gold miners in recent years.

Even better is how many miners in West Africa have consolidated their holdings. “In Canada, you might have a district filled up with 12 companies. One company might have each block, or half a block. But in West Africa, these guys own all of it. They’ve got a lot of time, a lot of land, and now they’ve raised a lot more money, so they can keep going after it…and we’ll keep getting these upside surprises.

“That’s our philosophy, to find opportunity where, for example, this one outfit has found 1.2 million ounces of gold. But with all the new discoveries they’re making, they’ll probably come out and say we have 2, 2.5, and next year they’ll say, well, we have 3, 3.5, 4… and it isn’t over yet, because of this whole giant region that’s been unexplored.”

Before we go any further, we’d better make something clear: Bill Baker isn’t your typical gold bug. Nor is he your typical stock market bear.

“The timing or eventuality of financial calamity is unable to be forecast,” Baker writes in Endless Money. “At best, it might be like a hurricane warning: The tempest may strike here, it may hit there, it may be downgraded to a tropical storm or it may go elsewhere entirely.”

But that doesn’t mean investors should fail to prepare for financial calamities…or the demise of paper currencies. Financial calamities are becoming increasingly likely in this overly indebted world of ours…and the death of paper currencies is becoming increasingly certain. The best time to prepare is ahead of time.

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