The real meaning of Ron Paul’s investments

The Wall Street Journal had a good post a week or two ago analyzing Ron Paul’s investment strategy, which is, um, a little out there.

Basically, the guy has a huge amount of stock in gold and silver mining companies, which is a big bet that the price of gold and silver will go up.

The article quotes William Bernstein, a money manager, who points out that gold and silver are good investments if society collapses completely: ”This portfolio is a half-step away from a cellar-full of canned goods and nine-millimeter rounds.”

But as I’ve pointed out before, while buying physical gold is a way to prepare for the apocalypse, paper ownership of gold, or of gold mines, is not. So while Paul may or may not have a cellar full of Spam and machine guns, the investments we know about show him preparing for a different future.

Which future? Bernstein accurately points out that Paul’s investments will pay off in spades if we have inflation and a collapse in the value of the dollar. And Paul believes that the Federal Reserve will someday print so many dollars that each one will no longer be worth anything. Thus, says Bernstein, Paul has the “courage of his convictions”: He’s putting his money where his mouth is.

But there’s another way that Paul could profit. Remember, Paul wants to put the dollar back on the gold standard. That would mean that the government would have to buy a whole lot of gold to back up the dollar. Gold that it would have to buy from the companies that Paul owns.

So: Paul buys gold stock, makes the government buy the gold, and makes out like a bandit. Not quite so courageous or admirable.

Yes, a gold standard is unlikely, even if Paul becomes president, but if people believe that a gold standard is possible, they’ll buy up gold, driving up the price. And given the strange logic of markets, if you think that other people will think this, you should still buy gold. From the companies that Paul owns.

So Paul has set himself up to profit if he can convince some fraction of the population that a gold standard is possible. Is he putting his money where his mouth is, or is he putting his mouth where his money is?