I love doubters.

I assume anybody with a modicum of ambition would, too. Doubters always doubt but they rarely provide answers. Proving them wrong is both fun and profitable.

Since the bull market in gold began, and especially in the years since the financial crisis, gold advocates have been attacked and maligned.  Dismissed in the mainstream press as “Gold Bugs” (although some embrace the term), these investors have had to defend gold even as it rose to record highs for more than a decade.

But the doubters kept on doubting. And they kept proclaiming “the end is near.” 

Today they are still asking why gold will go higher. But they are asking the wrong question.

The real question isn’t why gold will go higher but why not?

Occam’s Razor

The argument brings to mind Occam’s Razor. This philosophical principle states that among competing theories it is the one that makes the fewest assumptions that should be chosen.

Keep it simple stupid. And when it comes to gold it is generally the doubters that have the more complicated theories.

The doubters believe that Mr. Bernanke and his minions have superpowers. When the time is right they will simply flick the switch on their magical monetary vacuum cleaner that will suck up all the excess liquidity that has been created in order to “fix” the economy.

Well, that theory would win only if I believed in magic. More to the point, it would take a lot more than a magic vacuum cleaner to “fix” things, if the day ever comes. Because it’s not just the US’s poor policies that are driving up the price of gold. Gold is rising in value around the world. 

Hopefully I don’t need to go into detail about the Gold Bug positions because I’m not.  I’m sure you know most of the words to that song anyway. But it is the disbelief in magical vacuum cleaners and an understanding of loose monetary policy and massive debt creation that fuels the Gold Bug theory.

The US is in uncharted waters, but so is the rest of the world. The very perception of “money” is radically different in 2013 than it was in 2008. And it is radically different everywhere.

Even the most uninformed investors of today know about gold and “fiat” currency and worry that their savings may be worthless in the future. They didn’t think about it 10 years ago. Average Jane’s and Joe’s are buying, and keeping, gold.

Governments around the world are buying gold to hedge against currency exposure.  Global trade in US dollars is slowly on the decline. And there’s this thing called a “Currency War”…

Argument from Ignorance

The second philosophical principle that comes to mind is the “Argument from Ignorance,” which is the erroneous idea that something is true because it has yet to be proved false. 

I suppose both sides of the gold debate could try to claim this one. But I’ll refer back to my introduction. The doubters want the gold bugs to prove gold will go higher before it does.

Now I do not refer to myself as a Gold Bug but I do think the bull market will resume.  But that is a calculated presumption. 

You see, when entering into uncharted waters it is distinctly unwise to assume anything but to anticipate everything, both good and bad. Considering current monetary policy and the US debt, the largest debt of any nation in all of human history, it is appropriate to say we are officially in uncharted waters. 

Investors should be prepared for anything and everything. 

Imagine captaining a boat into an iceberg; a boat that was supposed to be unsinkable.

If instead of gold they were debating the existence of God the doubters would be the atheists and they’d be demanding “proof” of God’s existence. I’m not taking sides on the God issue, but if there is a God I’m sure there is no proof that any mortal man could bring to the table to satisfy an atheist.

The gold doubters are the same way. There is no proof that gold will go higher. We can argue about it. But we’ll have to wait to find out which side is right.

Gold Investments

Now, I can be a risk taker, but I only take risks where I can identify a likelihood of success that leans in my favor. Therefore, I do not gamble in casinos (even though I live near a bunch).

With gold I could be wrong, but probably not. The theory that best matches Occam’s Razor is the theory that says that loose monetary policy (currency devaluation) will continue and will eventually drive gold higher.

But if I am wrong, so what? I’ll manage the risk as I did when gold lost 30 percent in 2008. I was told repeatedly then that the bull market was over. It wasn’t.

And five years later it looks like déjà vu all over again.

All investors must own some gold. That’s hard to argue with. So make sure you have some. And consider gold mining stocks as well. 

They have been beaten up more than gold. And you can easily invest in the sector with exchange-traded funds (ETF), such as Market Vectors Gold Miners ETF (NYSE: GDX) and the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ).

These funds provide diversified exposure to a wide range of companies and have decent dividend yields. Plus you can manage your risk very easily by applying trailing stop-loss orders…just in case that vacuum cleaner works.

What did you think of this article? Please post your comments below!

Steven Orlowski is a 20-year veteran of the investment business. He has worked for some of the most prestigious firms in the world in a variety of capacities, including portfolio manager, trader and high net worth financial planner.