Ignore the Hype - Gold as Currency is Dead 49 comments
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Every time the market fluctuates to the down-side, we seem to get inundated with Gold advertisements - with all sorts of theories including:
a. That gold’s price - after accounting for inflation is at a fraction of (your favorite year here)’s quotation.
b. The Dow/Gold theory that one unit of gold will equal the DJIA - in other words, either gold is worth ten fold what it is now, or the DJIA is worth 10x less than where it is now. Both scenarios are not just unlikely, but stupid, and sophomoric at best.
Let’s get to the specifics of gold. A good seventy percent of gold production is used for the manufacture of jewelry - with my fellow Indians being the single largest purchasers of auric adornments. A smaller fraction is used by China for similar purposes. A mere 20% of this world’s production is used in industry - where heat and electricity need to be conducted as rapidly as possible [electronics and the automotive industries is where it is used extensively]. Thanks to gold being a NOBLE metal, it reacts with almost nothing, and dissolves in cyanide and aqua-regia - making the extraction [to spec] of Gold, one of the most difficult and toxic processes in the whole world.
Since gold is a noble metal, it is never consumed by industrial processes. It is used to bond chips to packages [bond-wire] - and conduct electrical signals from silicon to the external pins of a chip. It is used in exotic cars for radiating heat from engines/exhaust systems, etc. None of this “consumes” the gold. In fact a lot of chips are processed - to re-extract the gold contained in them.
For centuries, gold was the standard by which all else would be measured. In fact most currencies were pegged to the amount of gold that their treasury had in store. But all of that changed when FDR signed an executive order to ban U.S. Citizens from owning/hoarding gold - and mandated them to use fiat currency [the dollar]. The Bank of England followed and in the early 1900’s, stopped the conversion of pounds to gold.
Thanks to a liquid market, gold prices are quoted every day [bid and ask], and are actively traded on the Nymex [now a division of the CME]. While buying gold stocks and gold mining companies is easy, buying and storing gold [as an investment] is in my books, a lose-lose proposition.
First, you pay a large bid/ask spread for the commodity - which in this case is HUGE. Second, you often pay for storage and insurance of the gold that you bought. Third, you wait years for it to go up - while stocks out-pace your returns, and often, pay dividends. Fourth - there is not much leverage you can use - unless you are “playing” with options or futures, and that is not the same as investing in gold. It is more of speculating in gold.
Fifth, it is the fact that if you randomly pick ten year horizons, only the most carefully chosen time-frames will result in a better outcome than an investment in the S&P [or DJIA].
Sixth, and most importantly, if currency were pegged to gold, sure there will be little inflation, but it definitely would have frozen the flow of capital, and the expansion of capital markets [which has been a good thing in the last half a century despite some recent setbacks]. Since this is an academic detail at this point, and the latest misguided attempt to create a gold-based islamic currency was a failure, I declare gold - as a currency, dead. It is a commodity, and in the past month, the U.S. dollar has been deemed by markets as a safer haven than gold. Long live the dollar - and the full faith and credit of the U.S.
Bottom-line: Wear it, enjoy it, buy it for fun, but do not invest in gold. It is NOT an investment now, nor is it in the future.
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This article has 49 comments:
"Long live the dollar - and the full faith and credit of the U.S."
wow, that is either the bravest or most foolish statement I have ever seen. I guess only time and Ben will tell which it is.
It was MY understanding that widely acceptable commodities made the first good monies in history.
I imagine grains, salt and metals etc. traded very well and were very useful in eliminating the stubling block of dual coincidences of wants in less efficient barter.
Widely accepted monies, were the "fuel" for the advances of division of labor and comparative advantage.
Until the goldsmith / shylocks learned they could loan out money receipts in excess of metals on deposit at interest at a profit, as long as depositors didn't want to redeem all their receipts at once, they remained "solvent", albiet in a manner deemed fraudulent in any other realm of commerce.
They did it to profit off other's money they did not own. These shylocks soon had rulers and kings in their fiat indebtedness worldwide, but with a few exceptions. Most notably the Czars - they didn't want their money controlled by the bankers who wanted in the worst way to control it. Hence the bankers financed the Bolshevik Revolution as well as WW1 they were agitating for as early as 1909!
Bankers ARE the war makers in history. They loan to all sides. Own shares in the merchants of death who supply all sides. And they NEVER fail to cleanup in the reconstructions or fail to loot the best from the vanquished. EVERY war can be traced back to banker machinations.
Bankers alone give money, the world's lifeblood of commerce and advancement, its bad name, for they are allowed to cheat in the realm of money, whenever its controlled by them and the rulers they collude with who sanction them - our lying, cheating, thieving, murdering politicians.
When the price of gold is low, the "paper markets", i.e. stocks, bonds, usually are doing pretty well. When the price of gold goes up, it indicates a distrust of those same markets. Gold is just another part of a well diversified portfolio for money you can't afford to lose.
Interestingly, I just read an article about a bride in India that could not afford to buy the traditional gold wedding set because the price of gold in rupees had hit an all time high and she couldn't afford it. So gold drops 30%+/- in dollars but goes to a new high in rupees. I would say it acted pretty well as a store of value, especially since so many of us aren't sophisticated enough to call moves in the currency markets, stock markets on five continents etc. Now, she wasn't selling mom's or grandma's bridal sets, but she was going to buy silver because it was so much cheaper.
I think investing in gold makes a large amount of sense because none of us know what the future will bring.
As a kid I once found my GrandMother's old purse in the hayloft. It was full of pre-WWII money. Millions and milliards of notes. It is probably used up by now lighting up the fireplace.
Now, if it had been full of goldcoins, where do you think it would be today?
And therein lies the fault in your reasoning. No, gold is not an investment. It is a store of value.
Stop thinking of things in terms of the number of fiat coupons you can trade it for and instead think of what other 'things' you can trade it for. Over a very long time you will find that gold outshines fiat coupons.
1970 gold price: $38
1970 median house: $17,000
1970 home in gold: 447+ oz
2000 gold price: $279
2000 median house: $119,000
2000 home in gold: 426+ oz
2008 gold price: $750
2008 median house: $219,000
2008 home in gold: 292+ oz
Over the course of nearly 30 years fiat coupons posing as money have lost nearly 12/13th of their purchasing power based on median housing values while gold has actually increased its purchasing power by roughly 50% over the same period.
Given the choice of having gold or an equivalent in fiat coupon money (at current prices) to stick in a safe deposit box for distant future purchases, I'll take gold any day of the week. That $17,000 in 1970 money won't get you anywhere near as far today as the 447 oz of gold will.
The author's problem is that he measures everything in fiat dollars which by their very nature do not hold value. Measure things by purchasing power instead and you will eventually realize that gold holds its purchasing power better than nearly any other medium over long periods of time, which was the whole reason for "money" in the first place.
Gold IS money.
www.stockresearchporta...-greenspan’s-failure-t...
great insight from a very knowledgeable professional in the Canadian Valuations industry
stockology.blogspot.co...
Read the above article!
Full faith and credit? When the government is committed to printing US dollars without limit?
Sure, dollar is king now, but for a perverse reason, people need trillions of dollars to unwind all the toxic derivatives.
On its fundamentals, the dollar is garbage, and we will see that once the credit markets have stabilized.
By the way, their are several things that will disolve gold. Plain old bleach, and mercury for example. Your writeing style is pretty good, but you should know something about your subject.
you have a total loss of credibility when you extoll the virtues of paper cash. anyone who believes the load of fecal matter you just put out, deserves to lose money in the markets, and in the almighty dollar.
which is circling the airport, looking for a place to crash & burn.
go for it dude, sell your gold to the rest of us. we will wave to you in the soup line.
i pity the fool.
The inflation adjusted performance of gold shows that historically it has underperformed equities and bonds. But that's as it should be. Holders of those instruments get paid a risk premium for their investment. Which simply highlights the fact that gold is MONEY. Not an investment or a speculation.
And what is money? A universally accepted medium of exchange. What is more universally accepted than gold? Don't fool yourself, dollar bills, or any fiat currency for that matter, are mearly claims on money. Much like bonds or bank notes. The problem is that sometimes the issuers of these instruments default and the owners of those claims never get their money. Fiat currencies are inherently unstable and therefore make a poor medium of exchange. In fact, every firm that does international business has to hire accountants and currency traders to manage their exchange rate risk.
Finally, your decrying gold because you can't use leverage to invest in it shows that you have not been chastened by recent market fluctuations. The world is learning a painful lesson that leverage is a double edged sword that destroys as easily as it creates it. Gold is money and money is impossible to "leverage". Leverage is just a fancy name for debt, a claim on money. You can leverage claims on money as much as you want - make believe there is more money in the world than there really is - but money is a finite structure built from human capital. Not printed at will.
pro market=optimist
I know many wealthy people that are optimists, only a few that are pessimists, and they were optimists when they made their money.
I've seen film of your optimists jumping out of windows on Wall Street after their optimism got the best of them.
The USA's GDP grew faster while we were on a gold standard.
Pro gold = realist
Pro market = Larry Kudlow
Then you were around for '29. Way to live so long. USA was an emerging market when we were on the gold standard.
Pro market doesn't mean you have to be reckless. Balanced mix of growth stocks (to be lightened at high valuations) and Muni's, never use leverage, and you'll be fine.
I've read a few of your other posts. Must be miserable to be that negative.
The author is really rolling out the carpet for the NWO.
But seriously guys, stock up on food, water and provisions.
If you are still in the USA, get out... those fema coffins and concentration camps are meant for you.
You see I haven't lost any money in the past 12 months. In fact I have more now than I did 12 months ago excluding any new contributions to savings in that same time period.
It is amazing people like you just can't see how pathetically wrong you are. Is gold and silver perfect? Nope, but stocks are far worse. I'm sorry I take that back. I am going to sell all of my gold and purchase stocks, U.S. Treasuries, and bonds so my government can further devalue my savings through rampant spending and greed that is destroying not only our dollar, but the country! Get a Clue!
It is no secret that the US is a country driven by debt. It now takes approximately $3.25 of total debt in the US to generate $1 of GDP, a significant increase from 1952, when it took just $1.30 in debt to generate $1 of GDP. However, in 1952, government debt—federal, state and local— was $244 billion and accounted for 55.1% of the $443.6 billion in total debt outstanding in the US. Today, government debt stands at $7.2 trillion but accounts for just 15.7% of the $45 trillion in total debt. Household debt today has a much larger impact on economic growth than government debt— at $13.6 trillion, it is almost twice as much as government debt, while in 1952 it was just one-third of government debt.
The Fed pumping capital into the market is no more then the Govt. now assuming private debt. The end result will be debt ratios that will return to those of the 1950's. This phenomenon is not creating something new. It is returning the economy to where it was.
Faith in a nearly useless metal is only for nutcakes.
The latter two can virtually be regarded as non-expiring options on the miners at these prices (under $2), and returns can be exponential if and when these puppies take off.
Would you prefer worthless fiat money or Gold when the times comes...and it will.....fiat money has never once survived.....unless you can tell us more as he says....Tell me something I don't know.
Btw, I watched a documentary regarding the construction of the Panama Canal by U.S. interests. Lots and lots of heavy, expensive, state-of-art equipment (well, back then) were employed in dredging out a massive modern canal from the jungle. The gold standard was used then. I didn't see any capital flow problems while under the gold standard.
There are exactly 3 ways to consistently make money with gold:
1) Buy bullion, forge into coins, sell coins to goldbugs at 25% retail premium over spot prices (Best of all, this premium will convince them there is a shortage and heighten their panic!).
2) Create gold coins with non-gold cores. It's easier, cheaper, and less detectable than forging cash.
3) Write a book about "fiat currency," "fractional reserve banking," "real money," "god's honest money," "government manipulation of gold price," "mines running out," etc. and how individuals should put their entire life savings into this one commodity.
As you can see, most options involve dishonesty, which I am not recommending. But, after all, it has always been the quick-buck crowd that has been fascinated by gold. Don't get your feelers hurt and call me names. You're accountable for your own investments. I'll pay the taxes to support you when you squander what remains of your retirement. Maybe pork bellies will be the next fad.
Your warnings about buying gold coin forgeries are really stupid since you can't tell us where these coins have shown up nor can you give us any specifications. Please give us some facts or examples instead of your paranoid theories.
If you really think it is a manufacturing impossibility for criminals to find a way to coat a correct-density non-magnetic core with pure gold for 100+% profits, perhaps you should consider that somebody went through the trouble of building your cell phone for maybe $10 profit. Consider that North Korea produces perfect forgeries of US currency, with all the security features. What I'm talking about is low tech in comparison, much higher in profit, and harder to trace. In an environment of manic demand for coins by unsophisticated buyers, where there is massive profit potential, you can expect to find fraud. It is naive to assume otherwise.
Maybe only 0.5% of collector coins are forged. My only point then is that gold is not risk free. It would only take the publicized discovery of a few of them to sink the value of such privately owned coins. I could care less if it happened, but for some reason I feel the need to warn all the faith-based investors out there that nothing is ever perfectly safe - much less precious metals.
Chris B has little or no metallurgical knowledge. I have refinery experience in both gold and silver. The basic technology may be available, but to take forgery to a high level of production and sophistication would be eonomically impossible. To even have a chance of passing forgeries, unlike Chris B's 50% "gold" coins, the amount "cheated' would have to be extremely small and the
quality of the coin strikes would have to be extremly good if not perfect.
His "warnings and advice" are based on conjecture and on paranoid speculation with absolutely no scientific support. Furthermore, he fails to give us any examples of any kind.
As I previously stated, at the turn of the century, many rare date U.S. gold coins were forged in Lebanon. But they were made of gold. The forgers couldn't get the "copperish color" right and they are easily detected by experts and collectors alike.
No one in their right mind should purchase anything of value without confirmation of the seller's reputation and warranty.
Chris, you're actually suggesting that 1 out of every 200 gold coins is a forgery? If it was one in every 20,000 (0.005%) it would be big news!
Forgeries are difficult to create and easy to detect.
Even a simple jeweler's scale, higly accurate to 1/100 ounce or better, can detect any change of metal.
I'm an amateur, but I've already used a digital scale it to tell the difference between silver plated medals and pure silver (not coins in this case, but "silver medals" I'd purchased that were actually silver plated). There's a much greater difference between the weight of gold and lesser metals, except lead or depleted uranium.
And as for minting coins, it's not that easy, you need not just equipment but artists to get it right -- it's an art.
Go ahead, take a chunk of lead and try to mint a coin, then plate it with gold -- you'd waste millions trying to perfect the process and the results would still get laughed at by any coin collector at first glance!
Or if a government tried it, the only way they could succeed is if they had one assembly line minting the REAL coins, and a separate SECRET assembly line minting one out of 100 with base metal cores -- and then when they got caught, they'd be out of business on both assembly lines.
Moreover, most true collector coins are graded by professional grading services (e.g. PCGS, NGC, ANACS, ICG), who are experts at detecting whether a coin is genuine.
Furthermore, the most likely type of "forgery" is to add or remove mintmarks from genuine gold coins in order to make them more valuable -- but then they are STILL gold coins, and still have the same bullion value. If you only invest in bullion coins, you don't care much about mintmarks and dates anyway, and if you're investing in RARE gold coins, then you'll take the trouble to get them professionally graded.
If someone is going to go to the trouble of forging or altering coins, they'd make a much better profit doing it on base metal RARE coins than on bullion coins -- for example, alter a 1909 VDB penny to make it a 1909 S VDB penny worth over a thousand dollars. But then again they'd get caught, thanks to professional grading services.
On Oct 31 11:24 AM Chris B wrote:
> OK, close your eyes to risk. Say it couldn't happen. Say it never
> happened before. Real estate never went down either, and people who
> warned that it could were once considered moonbat conspiracy theorists.
> Who were they to question the pros at Moody's with their mere common
> sense? After all, demand was through the roof!
>
> If you really think it is a manufacturing impossibility for criminals
> to find a way to coat a correct-density non-magnetic core with pure
> gold for 100+% profits, perhaps you should consider that somebody
> went through the trouble of building your cell phone for maybe $10
> profit. Consider that North Korea produces perfect forgeries of US
> currency, with all the security features. What I'm talking about
> is low tech in comparison, much higher in profit, and harder to trace.
> In an environment of manic demand for coins by unsophisticated buyers,
> where there is massive profit potential, you can expect to find fraud.
> It is naive to assume otherwise.
>
> Maybe only 0.5% of collector coins are forged. My only point then
> is that gold is not risk free. It would only take the publicized
> discovery of a few of them to sink the value of such privately owned
> coins. I could care less if it happened, but for some reason I feel
> the need to warn all the faith-based investors out there that nothing
> is ever perfectly safe - much less precious metals.
I cant help but think if you really think the dollar will fall to zero you should not buy gold you should buy canned goods and guns and ammo. Skipping the "I needed the gun to protect my gold" as I trade it for apples and go directly to the "give me your apples and any gold you have stage". Its safe to assume you starving townfolk without gold will think of it. When the dollar becomes worthless the sheriffs paycheck is too.
Open your wallet and pull out a $20 you had in 1960.......
>The dollar has lost 23% of its purchasing power in the last 10 years.
>The dollar has lost 45% of its purchasing power in the last 20 years.
>The dollar has lost 71% of its purchasing power in the last 30 years.
>The dollar has lost 84% of its purchasing power in the last 40 years.
>There is really no limit to this.
But we make more of them so much for ½ sided arguement
Year WAGE
1951 2,799.16
1952 2,973.32
1953 3,139.44
1954 3,155.64
1955 3,301.44
1956 3,532.36
1957 3,641.72
1958 3,673.80
1959 3,855.80
1960 4,007.12
1961 4,086.76
1962 4,291.40
1963 4,396.64
1964 4,576.32
1965 4,658.72
1966 4,938.36
1967 5,213.44
1968 5,571.76
1969 5,893.76
1970 6,186.24
1971 6,497.08
1972 7,133.80
1973 7,580.16
1974 8,030.76
1975 8,630.92
1976 9,226.48
1977 9,779.44
1978 10,556.03
1979 11,479.46
1980 12,513.46
1981 13,773.10
1982 14,531.34
1983 15,239.24
1984 16,135.07
1985 16,822.51
1986 17,321.82
1987 18,426.51
1988 19,334.04
1989 20,099.55
1990 21,027.98
1991 21,811.60
1992 22,935.42
1993 23,132.67
1994 23,753.53
1995 24,705.66
1996 25,913.90
1997 27,426.00
1998 28,861.44
1999 30,469.84
2000 32,154.82
2001 32,921.92
2002 33,252.09
2003 34,064.95
2004 35,648.55
2005 36,952.94
2006 38,651.41
2007 40,405.48
There is really no limit to this.......... :>
If you took your 1951 full year wage and put in a box buried in your yard and pulled it out today your right “it lost value or purchasing power“
$2800 converted to gold in 1951 ( $34 oz ) would get you 83 oz at 2007s value that would be 650 X 83 = $53,950 mid 2007 or 800 X 83 = $66,400 Dec 2007
Wow looks like gold wins!
Put the same $2800 in DOW stocks and at 9% per year after 56 years you have $723,289.00
This divided by 83 is $8714 per oz to equal stock performance over near 60 years.
Gold does not look so good now.
> your yard and pulled it out today your right “it lost value or
> purchasing power“
>
> $2800 converted to gold in 1951 ( $34 oz ) would get you
> 83 oz at 2007s value that would be 650 X 83 = $53,950 mid
> 2007 or 800 X 83 = $66,400 Dec 2007
>
> Wow looks like gold wins!
>
> Put the same $2800 in DOW stocks and at 9% per year after
> 56 years you have $723,289.00
>
> This divided by 83 is $8714 per oz to equal stock
> performance over near 60 years.
>
> Gold does not look so good now.
First, 1.09^58 * 2800 = 414,853. You are off by an order of magnitude.
Second, I'd like to see somebody that has averaged returns of 9% a year for over 1/2 century including expenses and taxation in the stockmarket. Bernie Madoff maybe? Heck, I'd be impressed if you averaged 9% a year in the last decade, that would be pretty good.
You'd be very rare to be able to get that kind of average return, and people would be talking about you, not Warren Buffet.