9 Cures for Gold Fever 51 comments
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The Only Valid Reasons to Buy Gold
If you feel that Financial Armageddon is coming or they just delivered crates of automatic weapons to your town, and none of the crates is addressed to you, then by all means, buy gold. If owning a significant amount of gold is the only way you can sleep at night, then buy gold. But don't expect gold to be a terrific long-term investment.
Fellow Seeking Alpha author Vitaliy Katsenelson recently wrote a hilarious article titled Five Reasons to Avoid the Gold Rush. There are many valid concerns about the future of the dollar, the economy and all global currencies. As I have written previously, I share many of those concerns. To give equal time to the gold bugs, the following is a list of commonly-used rationales for owning gold.
Common Rationales for Owning Gold
- The Federal Reserve is printing money furiously this will cause inflation.
- The government is has borrowed more than at any time in its history. The government will continue to borrow, devaluing the dollar.
- While the dollar is devaluing, all other global currencies will devalue to stay competitive. No currency will be safe. (valid point made by Andy Xie)
- Gold has tripled in price over the past decade.
- Governments can't be trusted to keep the currency and other assets safe.
- Gold is a good diversifier.
- Worldwide (or country wide) collapse of governmental and/or financial institutions is coming.
- Smart hedge fund managers are buying gold.
- Pundits are saying there will be a rally in gold.
Except for reason #7, every one of the above arguments is either true or a valid concern.
As my readers well know, I am not a gold bug. I agree with most but not all of Vitaliy Katsenelson's points. To counter-act "gold fever" I have added a several well-known arguments as cures for the gold fever.
Nine Cures for Gold Fever
- The price of gold is highly volatile. The numbers of dollars an ounce of gold buys each year varies wildly. This is an erratic way to store your wealth. Less volatile instruments are available.
- Owning gold has little utilitarian value. It is not like owning an oil well which produces fuel or owning a factory which can produce widgets at a profit. I can do without gold, but I cannot do without my fuel or my widgets. Like a work of fine art, gold is only worth what others perceive it to be worth. Amazingly, gold has mysteriously kept its value through the millenia valued only in of itself.
- As I have written previously, there are far better ways to protect against inflation such as inflation-indexed bonds. These instruments track inflation very closely, and make the borrower whole. (Assuming that the official CPI is calculated somewhat accurately)
- Furthermore there are income-producing assets which are good inflation hedges, but don't necessarily track inflation from year to year such as commodities, equities, commercial real estate and residential real estate.
- Unlike stocks or bonds, gold does not generate a cash flow. gold just sits there, it does not earn interest or pay dividends. While gold may produce speculative profits or speculative losses, it does not generate real wealth.
- Some gold ETFs are shams in that they don't actually hold physical gold. Even the ETFs that are legitimate will have a hard time putting the physical gold in your hands once the Financial Armageddon arrives.
- There is a risk of theft when holding gold in its physical form. During Financial Armageddon, insurance claims will not be honored.
- Gold costs money to store and insure. It has a negative carrying cost.
- When compared to stocks, commodities, bonds, commercial real estate and residential real estate, over the last 200 years, gold has been by-far the worst-performing asset class.
| Gold Bug Rationales | Counter-Argument |
| Gold has tripled in price. | See cure #9 above. Over the long term other asset classes have far outperformed gold. |
| There will be a rally in gold. | This is merely speculation. No one knows the future price of gold. If they did, they wouldn't be telling the world. Avoid the hype. |
All global currencies will devalue. No currency will be safe. | See cures #3 & #4 above. There are far better ways to protect against inflation |
| Governments can't be trusted to keep assets safe | But can your neighbors or local thugs be trusted? Can the ETF issuer be trusted? See cures #6 and #7. Furthermore when you can't trust one government or institution, then diversify your assets among several governments and institutions. |
| Gold is a good diversifier. | Gold is a good diversifier, but there are other assets that diversify even better, and pay interest or nifty dividends. See cures #5 and #9. |
| Smart people buying gold | Just as many other smart managers are saying "Don't Buy Gold" |
| Worldwide / local collapse of governmental and / or financial institutions | Financial Armageddon is not coming. In the U.S., the rule of law is mostly intact. (except for the GM incident) |
Nine valid rationales used by the gold bugs have been counteracted using only six cures. The arguments for owning gold are outweighed by the arguments against it.
For the Investors
Since Financial Armageddon isn't coming, and the rule of law is still somewhat intact, put your money to work for you in other assets with a better rate of return, such as those mentioned below in my disclosure.
FULL DISCLOSURE: Long VNQ, U.S. Equities, Non-U.S. Equities, Emerging Markets Equities, US TIPS and WIP. No holdings of Gold or Silver Bullion. You should perform your own due diligence and consult with an investment advisor before investing.
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This article has 51 comments:
I suspect this sort of what's-around-the-corner analysis is behind gold-buying by canny investors like Paulson.
Since then, the state government funded and approved a host of expensive, ill-advised feel-good initiatives that drove up taxes and deficits. California’s out of control budget deficit has exploded due to both the expensive feel-good initiatives and the bloated payrolls and lavish retirement & health care benefits of its very own unionized state employees.
The Government of California is now trying to fix the budget deficit problem. That’s like asking the FOX to FIX the HEN HOUSE PROBLEM. How can a state government fix a problem when its OWN employee unions ARE the problem?
On Jun 21 06:10 AM Roger Knights wrote:
> Once California--our bellwether state--defaults, and other states
> start to teeter in its direction, China might hedge its bets on the
> dollar by moving a small portion of its reserves--say 1000 tonnes--into
> gold. It's hard to imagine China NOT doing so once conditions deteriorate
> enough, a year or two down the road. Even if China adds only 500
> tonnes to its reserves, it'll change the outlook for gold, and funds'
> perceptions of its long-term potential, enormously. That'll make
> gold outperform other investments dramatically. Gold, especially
> gold miners, can be a good investment at certain points in the business
> cycle--and now is a promising time.
>
> I suspect this sort of what's-around-the-corner analysis is behind
> gold-buying by canny investors like Paulson.
I'm afraid I have to laugh at this line........it's the reason I would NEVER use TIPS as an inflation hedge....they just don't work, as their yield is tied to the phony govt inflation numbers, which are almost universally seen as bogus.
-You can't eat it
-What goes up must come down
-All that glitters isn't gold
-Gold is a barbaric relic
-Since Financial Armageddon isn't coming-Nobody wants to see that,but I would not rule it out either.
-inflation-indexed bonds-No thanks
Other options: "Furthermore there are income-producing assets which are good inflation hedges, but don't necessarily track inflation from year to year such as commodities, equities, commercial real estate and residential real estate."
On Jun 21 08:11 AM billyboy54 wrote:
> "These instruments track inflation very closely, and make the borrower
> whole. (Assuming that the official CPI is calculated somewhat accurately)"
>
>
> I'm afraid I have to laugh at this line........it's the reason I
> would NEVER use TIPS as an inflation hedge....they just don't work,
> as their yield is tied to the phony govt inflation numbers, which
> are almost universally seen as bogus.
Questions:
1 what about the deed to your house? It is a piece of paper which grants you claim of ownership. Since you have physical possession, there is no counter-party risk per se.
2 what about stock certificates? they grant you claim of fractional ownership. is there counter-party risk?
What do the others think? Where do you draw the line on counter-party risk ?
Good point, Texpat !
On Jun 21 09:02 AM texpat wrote:
> The big point that you've omitted is that gold has no counterparty
> risk, whereas every paper asset does. That's why I maintain a bullion
> position of at least 20%, and even more during times like these.
Incidentally, one of the best explanations of fiat that I ever read used deeds to make the point. What's a deed worth? As a piece of paper, next to nothing. What gives it value is the fact that it represents ownership of a house. You can therefore trade it for a Rolls when you discover that the car dealer is interested in your house. The dealer later decides he wants a yacht instead, so he transfers the deed to the yacht salesman. The government sees this and thinks it's a good way to stimulate economic activity, but the problem is that not everyone has a deed. There's a lack of liquidity. The government therefore starts printing deeds for which no houses exist and decrees that these new deeds must be accepted in the same way as all others.
If you assume nonsense like that you might as well assume that when you put two gold bars in a safe and lock the door you will get a litter of nuggets 9 months later. So based on that why not invest in gold?
When you say the price of gold is highly volatile, it actually means that OTHER currencies are highly volatile when priced in Gold.
You have also said that "Owning gold has little utilitarian value". No! Since gold is currency (not a 'thing' or commodity), it can buy you things, which have utilitarian value (same as other paper currencies). You can't eat $ 100 bills, right?
And Inflation-indexed bonds? Well, these bonds are issued by governments who are themselves bankrupt. So you can imagine what value they have.
Gold costs money to store, insure and there is a risk of theft. Proves that Gold is valuable.
On Jun 21 09:54 AM ksmithdc wrote:
> Interesting read, thanks.
Sorry; none of those seem to have worked.... I still appear to be a rabid REGB - as the sneering Jon Nadler refers to Kitco's customers. [Why would anyone entrust their gold to a company that holds them in such open contempt...?]
Yes; many of your observations are valid points of view - but the crux of the difference between metal and paper is this question:-
"If those you have studied the science of money say that every fiat currency in history has failed; after an average of 18 years - what makes this one different...?"
In extremis; paper is truly worthless - see ZIM100T$ notes on e-bay - then tell me when gold was ever thrown away? You don't invest in gold - it's money. You insure with gold - against the most desperate and reckless financial experiment the world has ever seen..
I like what you wrote about the "fiat deeds" goods stuff. In fact, all currencies exist by government decree and are merely tiny slips of paper with the word IOU written on them. In reality when you hold a country’s currency, you hold the DEBT of the country. Currency does not represent wealth.
On Jun 21 10:00 AM texpat wrote:
> I wouldn't classify a deed as a paper asset. It represents something
> tangible that is no one else's promise. A stock certificate also
> represents something tangible, but firms can go bankrupt. So can
> your broker, which can be a minor or major problem if the stock is
> held in their name.
>
> Incidentally, one of the best explanations of fiat that I ever read
> used deeds to make the point. What's a deed worth? As a piece of
> paper, next to nothing. What gives it value is the fact that it represents
> ownership of a house. You can therefore trade it for a Rolls when
> you discover that the car dealer is interested in your house. The
> dealer later decides he wants a yacht instead, so he transfers the
> deed to the yacht salesman. The government sees this and thinks it's
> a good way to stimulate economic activity, but the problem is that
> not everyone has a deed. There's a lack of liquidity. The government
> therefore starts printing deeds for which no houses exist and decrees
> that these new deeds must be accepted in the same way as all others.
Damn! You guys added two rationales for gold - count is up to 11.
On Jun 21 10:15 AM hansdieter wrote:
> "Assuming that the official CPI is calculated somewhat accurately"
>
>
> If you assume nonsense like that you might as well assume that when
> you put two gold bars in a safe and lock the door you will get a
> litter of nuggets 9 months later. So based on that why not invest
> in gold?
On Jun 21 10:35 AM Chandragupta wrote:
>
> You have also said that "Owning gold has little utilitarian value".
> No! Since gold is currency (not a 'thing' or commodity), it can buy
> you things, which have utilitarian value (same as other paper currencies).
> You can't eat $ 100 bills, right?
>
I think you misunderstood my point - Gold has value. I said "amazingly, gold has mysteriously kept its value through the millenia valued only in of itself."(read my earlier articles on the metal) I think it is a beautiful metal. Only thing I use for dental crowns - (by the way that is one it's utilitarian values) Utilitarian is defined as having regard to utility or usefulness rather than beauty, ornamentation, etc. given the choice between no fuel for my car or no gold crowns, I'll take the fuel. I wear nothing but gold jewelry. (non utilitarian).
Am I against Gold? Hardly. As a store of wealth - it has consistently kept it's real value throughout the millenia . This article was merely debating the merits of gold AS AN INVESTMENT.
well, i disagree. houses in my city have all recently devalued by ten percent. so, my no counter-party risk asset is worth about thirty thousand less, since i bought it two years ago. cars are going for less, eating out costs less, goods and services cost less, too. holding bonds would have been more advantageous, regardless of what cpi says. '
anyone who cannot negotiate is paying more, but those of us who recognize the increasing value of dollars are hoarding them in our bank accounts. as gold, stocks, houses, cars and other goods come down in price, we will consider buying them, but not before then. haven't you noticed that starbucks charges less, that mcd's will give you a better product for less, even madison avenue is demanding more tv time for less money. everywhere you turn, prices are going down, not up. that means gold prices, too. see you when we hit bottom.
One step further: article did not say to buy nominal bonds - these are silly when a fiat regime is in power. We have suffered under the tyranny of fiat for the last 60+ years.
In a world of only two choices dollar or gold, I'd buy gold. In the real world, their are other options.
On Jun 21 11:24 AM Screwloose wrote:
> Liv4Div
>
> Sorry; none of those seem to have worked.... I still appear to be
> a rabid REGB - as the sneering Jon Nadler refers to Kitco's customers.
> [Why would anyone entrust their gold to a company that holds them
> in such open contempt...?]
>
> Yes; many of your observations are valid points of view - but the
> crux of the difference between metal and paper is this question:-
>
>
> "If those you have studied the science of money say that every fiat
> currency in history has failed; after an average of 18 years - what
> makes this one different...?"
>
> In extremis; paper is truly worthless - see ZIM100T$ notes on e-bay
> - then tell me when gold was ever thrown away? You don't invest
> in gold - it's money. You insure with gold - against the most desperate
> and reckless financial experiment the world has ever seen..
On Jun 21 11:49 AM Living4Dividends wrote:
> Chandragupta - I try to answer ALL the posts directed to me.
>
> On Jun 21 10:35 AM Chandragupta wrote:
A stock certificate is only as good as the company that offers the share. How can there not be risk? Bear Sterns...
On March 15, Cioffi wrote a colleague by e-mail, "I'm fearful of these markets. Matt [Tannin] said it's either a meltdown or the greatest buying opportunity ever. I'm leaning more towards the former."
On the very same day, Tannin portrayed the funds in a different light, telling an investor, "We are seeing opportunities now and are excited about what is possible. I am adding capital to the Fund. If you guys are in a position to do the same I think this is a good opportunity," and he added that "it was a very bad time to redeem."
Tannin never did invest more of his own money in the funds.
--
March 16th, 2008 – Paulson: "We've got strong financial institutions . . . Our markets are the envy of the world. They're resilient, they're...innovative, they're flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong."
March 18th, 2008 - Bear Stearns Bailout Announced
---
You don't think there's risk?
Guess you aren't scared enough yet to fully contemplate these realities. That's ok. I'm kind of envious of that attitude.
Gold will not buy happiness but it will pay for alot of grief.
Good points by the way. I like the way you summed it all up.
Living4Dividends, thanks for your elucidation. I suppose I would be considered a "gold bug" by others, but I really don't feel a particular attrraction in and for itself. It is nice to see your position staked out such that it is not inflammatory; it is important for folks on both sides of the "gold issue" (why is this an issue?!) to understand the logic of the other, in order to stay balanced.
Myself, Cameroni made a succinct statement which sums me up very nicely. I like PMs as a way of "voting with my wallet".
Same thing with a barrel of oil, or a bushel of corn, or a pound of uranium - all commodities I believe have more long-term upside and more utility, but far less portability.
Will other asset classes out-shine gold (or silver, which I am beginning to lean towards because of superior utility and accessibility in the event of a price surge) over the next 10 years? Undoubtedly - perhaps mining stocks themselves. But the beautiful thing about commodities is that you don't have to pick the right company or brand; and in an increasingly 'virtual' world the perceived value of something that one can actually OWN (i.e. hold or wear) will be of great comfort to literally billions of people. This is the ultimate utility.
I like your Paulson timeline - very good.
Goldbugs assume that governments are stronger than markets and can force an inflation whenever they want to. But in a heavily indebted economy, markets may be able to set interest rates high enough in anticipation of severe inflation that the stimulative effect of inflation is more than offset by the impact of higher rates.
I think that markets are stronger than governments and the inflationary attempt will fail. In such a scenario, there would be no alternative to debt liquidation and severe deflation would follow.
On Jun 21 12:42 PM Living4Dividends wrote:
>
> >
> In a world of only two choices dollar or gold, I'd buy gold. In the
> real world, their are other options.
>
On Jun 21 07:12 PM buddhabill wrote:
> I cannot see a reasonable argument that in, say, 10 years an ounce
> of gold will have less purchasing power than it does today. Next
> month, next year, who knows.
>
And if you don't like gold, don't buy it (which you have already stated is the case for you personally).
Most of the 'debate' in the comment stream boils down to personal preference. Several posters make good factual points, which are always useful when one weighs options for deploying any savings.
Any number of financial publications outline a sensible plan for personal finances in order of importance:
1) Build savings for emergencies (cash usually)
2) Buy secured debt (CDs, bonds, etc.) to earn a return
3) Invest in productive enterprises (stocks, businesses, etc.)
4) Accumulate undervalued tangible assets with an eye toward selling at a profit (speculating), or to hold as a store of value.
Living4Dividends has been commenting on steps 2) and 3) and his observations are spot on in that context. One should remember however, that until you have step 1) covered, you are only taking on excess risk when moving to any of the following steps. Shares of IBM won't do you any good on a Sunday if you don't have money on hand to feed your family.
Angel, it's nice to see someone with such a positive outlook. I sincerely hope our economic troubles can return to "normal", but my study of Austrian economic theory and history lead me to a different conclusion. While I cannot tell you exactly what will transpire in the future, I can say that I believe we will either experience extreme inflation or a recession/depression. The odds of a happy ending are incredibly thin.
By the way, the value of the dollar has declined by 96% since the FED was established in 1913. Seems like they've been pretty successful at creating inflation over the long run.
Thank you for your article.
Tunc K.
On Jun 21 04:23 PM cameroni wrote:
> Owning gold and silver coins and bullion is an expression of the
> lack of faith many of us have in government policy. It is money.
> It is also a defacto vote on destructive policies. It represents
> real savings and although it may not earn interest we are hopeful
> it will retain buying power for the future. Like squirrels storing
> up food for the winter, gold bugs want to know there is something
> of value on the shelf should truly bad days ever arrive. I err on
> the side of caution ensuring I have some just for insurance purposes.
>
>
> Good points by the way. I like the way you summed it all up.
There are sensible investing paradigms which have withstood the test of time. The paradigms are hard to isolate from the clutter. I make my judgements based upon the evidence and the fact at the time.
On Jun 21 03:09 PM User 384743 wrote:
> Your article portrays many of the modern day analysts theories and
> these will soon be shown incorrect. Todays liberal/progressive ideas
> will be cast into reality soon and only then will the truth unfold.
> We now live in a totally corrupt world where our governments and
> markets simply spin the shambles of reality into that environment
> we wish were occuring.
On Jun 21 03:36 PM Gold Barron wrote:
> Im sorry but your article is silly and you contradicted your own
> points numerous times.
>
> Gold will not buy happiness but it will pay for alot of grief.
Speaking of GOLD BUG - how about the first image of my article? Did anyone not get it?
On Jun 21 05:26 PM badScooter wrote:
> Cameroni, I appreciate your above comments, well said.
>
> Living4Dividends, thanks for your elucidation. I suppose I would
> be considered a "gold bug" by others, but I really don't feel a particular
> attrraction in and for itself. It is nice to see your position staked
> out such that it is not inflammatory; it is important for folks on
> both sides of the "gold issue" (why is this an issue?!) to understand
> the logic of the other, in order to stay balanced.
>
> Myself, Cameroni made a succinct statement which sums me up very
> nicely. I like PMs as a way of "voting with my wallet".
On Jun 21 07:12 PM buddhabill wrote:
> I cannot see a reasonable argument that in, say, 10 years an ounce
> of gold will have less purchasing power than it does today. Next
> month, next year, who knows.
>
> Same thing with a barrel of oil, or a bushel of corn, or a pound
> of uranium - all commodities I believe have more long-term upside
> and more utility, but far less portability.
>
> Will other asset classes out-shine gold (or silver, which I am beginning
> to lean towards because of superior utility and accessibility in
> the event of a price surge) over the next 10 years? Undoubtedly -
> perhaps mining stocks themselves. But the beautiful thing about commodities
> is that you don't have to pick the right company or brand; and in
> an increasingly 'virtual' world the perceived value of something
> that one can actually OWN (i.e. hold or wear) will be of great comfort
> to literally billions of people. This is the ultimate utility.<br/>
>
seekingalpha.com/artic...
On Jun 21 08:21 PM Nathaniel C wrote:
> Marc Faber said it best "when you own gold, you become your own central
> bank." Meaning that you do not have to rely on the full faith and
> credit of the Federal Reserve or Bank of England. It gives you a
> certain amount of independence from the criminal central banks who
> intentionally devalue their currencies every year. You are correct
> that gold is not a great investment, but that it because gold is
> a store of value--big difference. You dont get rich quick by owning
> gold, instead you maintain your purchasing power. That is the best
> thing about gold.
The United States, who during the war sold armaments "stuff" to everyone became the true winner. England, France, Germay, etc., became beholding to the US. We held the debt, we made the stuff, and we became the World's SuperPower.
I look at China as "us" after WWI. Now the perception is that China needs us because we buy their stuff, but did we need the world after WWI? Yes and No. The world needed us far more. Remember that every dollar that goes to China is funneled through Norinco (Chinese Military industrial complex) first, and war is the only true recession proof business.
The true price of Gold is whatever anyone is willing to pay for it, but in the '20's, I would not have wanted to be holding onto Deutch-Marks unless I could bite down on a gold one.
However in terms of creating inflation, you are sadly wrong. Under the tyranny of the current fiat regime, if a Government wants to create inflation, it will create inflation.
Smarty_Pants comments put it succinctly. Thank You, Smarty_Pants
On Jun 21 10:04 PM Angel Martin wrote:
>
> I think that markets are stronger than governments and the inflationary
> attempt will fail. In such a scenario, there would be no alternative
> to debt liquidation and severe deflation would follow.
On Jun 22 10:46 AM Living4Dividends wrote:
> Angel - Yes. In many but not all ways, the markets are stronger than
...
> > Smarty_Pants comments put it succinctly. Thank You, Smarty_Pants
>
On Jun 22 10:29 AM Robert262 wrote:
> I also believe that history has a habit of repeating itself. >
...
Although there was a sense of false prosperity in the '20's, when
> the depression hit, Germany suffered far worse than everyone else.
> The Wiemar Republic was printing money as fast as they could, but
> evenually a German needed a wheel barrel to carry enough currency
> to buy a loaf of bread.
>
1b. "See cure #9 above. Over the long term other asset classes have far outperformed gold."
Resp: Only because gold has been manipulated down.
2a. "There will be a rally in gold."
2b. "This is merely speculation. No one knows the future price of gold. If they did, they wouldn't be telling the world. Avoid the hype."
Resp: The 'price' of gold is not nearly as important as its store of value. Why do you assume that people who know gold would keep quiet and not share the good news?
3a. "All global currencies will devalue. No currency will be safe."
3b. "See cures #3 & #4 above. There are far better ways to protect against inflation"
Resp: Is any other commodity as liquid as gold? Why do you think central banks hoard gold?
4a. "Governments can't be trusted to keep assets safe"
4b. "But can your neighbors or local thugs be trusted? Can the ETF issuer be trusted? See cures #6 and #7. Furthermore when you can't trust one government or institution, then diversify your assets among several governments and institutions."
Resp: Why should anyone trust any of them, when there's gold and silver to trust in. (And why are ALL of them against people investing in gold and silver? Because they see it as competition!)
5a. "Gold is a good diversifier."
5b. "Gold is a good diversifier, but there are other assets that diversify even better, and pay interest or nifty dividends. See cures #5 and #9."
Resp: It's not a matter of diversification as much as which asset is deemed safer. There is safety in physical gold and silver.
6a. "Smart people buying gold"
6b. "Just as many other smart managers are saying "Don't Buy Gold""
Resp: Name 6 'smart' people who are saying "Don't Buy Gold", and we'll all be the judge of how smart they are.
7a. "Worldwide / local collapse of governmental and / or financial institutions"
7b. "Financial Armageddon is not coming. In the U.S., the rule of law is mostly intact. (except for the GM incident)"
Resp: Study history and learn the truth, that's all that needs to be said.
Something changed since then. US went OFF the Gold Standard, specifically to fight deflation during recessions/depressions.
We haven't had a deflationary recession/depression since then, thanks to the power of fiat currency.
On Jun 22 12:25 PM Angel Martin wrote:
> I agree that governments have created inflation to the tune of 90-95%
> loss of purchasing power over the last 100 years. My comment about
> markets more powerful than government was more directed to a debt
> crisis, where the government may want to inflate away an unsustainable
> debt, but bondholders want to preserve their wealth. Hyperinflations
> do happen, but I think everyone should ponder why all prior depressions
> have taken a deflationary course.
Re-read the first paragraph: "The Only Valid Reasons to Buy Gold"
Then, stop reading.
You have already made up your mind.
On Jun 22 06:22 PM Plebian wrote:
> 1a. "Gold has tripled in price."
> 1b. "See cure #9 above. Over the long term other asset classes have
> far outperformed gold."
> Resp: Only because gold has been manipulated down.
>
> 2a. "There will be a rally in gold."
> 2b. "This is merely speculation. No one knows the future price of
> gold. If they did, they wouldn't be telling the world. Avoid the
> hype."
> Resp: The 'price' of gold is not nearly as important as its store
> of value. Why do you assume that people who know gold would keep
> quiet and not share the good news?
>
> 3a. "All global currencies will devalue. No currency will be safe."
>
> 3b. "See cures #3 & #4 above. There are far better ways to protect
> against inflation"
> Resp: Is any other commodity as liquid as gold? Why do you think
> central banks hoard gold?
>
> 4a. "Governments can't be trusted to keep assets safe"
> 4b. "But can your neighbors or local thugs be trusted? Can the ETF
> issuer be trusted? See cures #6 and #7. Furthermore when you can't
> trust one government or institution, then diversify your assets among
> several governments and institutions."
> Resp: Why should anyone trust any of them, when there's gold and
> silver to trust in. (And why are ALL of them against people investing
> in gold and silver? Because they see it as competition!)
>
> 5a. "Gold is a good diversifier."
> 5b. "Gold is a good diversifier, but there are other assets that
> diversify even better, and pay interest or nifty dividends. See cures
> #5 and #9."
> Resp: It's not a matter of diversification as much as which asset
> is deemed safer. There is safety in physical gold and silver.
>
> 6a. "Smart people buying gold"
> 6b. "Just as many other smart managers are saying "Don't Buy Gold""
>
> Resp: Name 6 'smart' people who are saying "Don't Buy Gold", and
> we'll all be the judge of how smart they are.
>
> 7a. "Worldwide / local collapse of governmental and / or financial
> institutions"
> 7b. "Financial Armageddon is not coming. In the U.S., the rule of
> law is mostly intact. (except for the GM incident)"
> Resp: Study history and learn the truth, that's all that needs to
> be said.
Plebian - In the same sense that it futile for you to continue reading the rest of the article, it is futile for me to argue with your particular brand of logic. Therefore, I stop the dialogue.
I think the deflation is explained by the behavior of investors to avoid losses due to either default or inflation.
"Flight to quality" causes credit market lockup and deflation.
"Flight from inflation" causes a spike in interest rates that MAY cause so much economic pain (worse in a more heavily indebted economy) that the stimulative effect from inflating away the debt burden gets cancelled out.
On Jun 22 09:44 PM Living4Dividends wrote:
> Angel - All Depressions WERE deflationary, up until the last depression
> one 29-early 30's. Depression = severe recession.
>
> Something changed since then. US went OFF the Gold Standard, specifically
> to fight deflation during recessions/depressions.
>
> We haven't had a deflationary recession/depression since then, thanks
> to the power of fiat currency.
>
On Jun 23 12:15 PM Angel Martin wrote:
> I don't think the link to gold explains the deflation. The UK went
> off the gold standard in Sept 1931, yet had significant deflation
> in subsequent years. Japan had significant deflation in the 1990s
> without any link to gold.
>
> I think the deflation is explained by the behavior of investors to
> avoid losses due to either default or inflation.
>
> "Flight to quality" causes credit market lockup and deflation.
>
>
> "Flight from inflation" causes a spike in interest rates that MAY
> cause so much economic pain (worse in a more heavily indebted economy)
> that the stimulative effect from inflating away the debt burden gets
> cancelled out.
If gold is an inflation hedge can anyone tell me why the price has been dropping lately?