Why billionaires are buying gold: Confidence

By now we should all know that traders like Soros, Paulsen and Einhorn are piling into gold while the talking heads on CNBC, FOX NEWS, and Talk radio are all warning of a bubble.

What do the billionaires understand that the professional spokesmodels don't get?

Well, let billionaire Tom Kaplan explain why he's rushing into gold. Kaplan’s family office, Tigris Financial Group, has close to $2 billion in gold assets. Kaplan, an Oxford-trained historian, believes gold is going to revert to being the world’s currency as it was for 5,000 years.

Why? Kaplan explains:

"People make the wrong assumptions about gold. People will tell you that gold is an inflation hedge because of the 1970s, but Gold performs even better in deflationary periods. The power of gold is that it acts as a hedge when people lose faith in their public institutions. Gold performs great in both inflation and deflation, when people lose confidence in governments and central banks.”

The thing that these guys understand is that confidence props up the entire financial system. Confidence that financial institutions mean what they say and say what they mean. Confidence that financial institutions will do what they say they will do. Confidence that financial institutions are run with a certain amount of probity, honor, and transparency.

People who work on Wall Street will cheerfully admit that the anything an investment pro tells you is meant to confuse you and obfuscate his real intentions. This is a big joke as long as only they know it. Ironically, those who are best at the art of dissembling are those that are now protecting themselves from the results of this practice.

But when this becomes common knowledge - which incredibly is not yet the case - but as the investing public begins to realize they're being perpetually and systematically duped, confidence will be shattered. And once this happens it will take a very long time for confidence to be restored.

Think of it this way: If you can't take it for granted that there are Corn Flakes in that box of Corn Flakes - if you have to open every damn box and inspect the contents for yourself before you purchase any, well, you're just not going to buy anything from Kelloggs anymore.