Is Gold A Sucker's Bet? 150 comments
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World stock markets seem to indicate the coming collapse of the global economy. Credit is unavailable to individuals, companies and nations. Commodities of all types are plunging. Deflation appears to be inevitable, yet gold prices remain near their all-time highs from earlier this year.
Why does gold trade at $850-$900 when it should trade below $600? Old-school economic thinking.
Gold participated in the overall commodity bubble. There were all sorts of rationale for the surging prices of oil, copper, agricultural products (mostly related to the emerging world's economic elevation), but I think gold just went along for the ride.
As the dollar depreciated so significantly, especially early in the year, demand for gold went up as an inflation hedge. I grew up reading about the long-term "store of value" argument for gold, but I realized years ago that gold isn't what it used to be.
I wasn't surprised when gold stopped going up earlier this year despite the continued decline in the dollar. People around the world began melting their gold in response and selling it for scrap. With so much fear in the market and a historical tendency for gold to serve as a safe haven, I am not that surprised that gold has failed to follow other commodities down (still up in 2008). Stay tuned, though, because in a world where every asset seems to be worth less today than it was yesterday, gold too should crumble soon.
I don't mean to pick on gold, as I could make similar statements about art, stamps, fine wines, antiques or any other "collectible". We already know stocks, non-government bonds, and commercial and residential real estate are under intense pressure.
As one can see in the chart below, commodities have done a complete 180 and have wiped out all of the gains of the past four years in just three months (similar to stocks). I understand that unlike many of these commodities that tend to correlate to levels of economic activity, gold is not as "industrial" as other metals.
Well, gold sure seems to correlate well with the CRB. Maybe it doesn't get to the $400 it saw four years ago, but I will be surprised if it doesn't drop significantly soon. It rose as inflation fears went up, and it has been sustained by investors who apparently don't look forward or who mistakenly assume that it serves the same role in today's world as it always has without examining that notion. If anything should be the ultimate store of value, it seems like perhaps it should be a barrel of oil (though it is harder to store!).
(click to enlarge)
While it is down just 15% from its peak, it has indeed begun to roll over. Gold fans blame the move primarily on the strengthening of the dollar.
Looking forward, I expect to see a lot of sources of selling, whether it is individuals that need cash or central banks. As I review the articles on Seeking Alpha, there seems to be a unanimity in the optimistic views.
The most "bearish" view I found was that silver is a lot cheaper. I question the whole economic notion. If it were just the United States alone and not the entire world wrapped up in this deflationary spiral of deleveraging, I might not question the sustainability of this high price, but this is a global problem.
If gold really still were the safe haven that it has traditionally been, it sure seems like it would be a lot higher (as many have shared in comments on articles contributed to Seeking Alpha). I have learned when something doesn't act the way one expects, one is usually wrong.
Maybe I underestimate the amount of thought that gold bulls have put into their investment thesis, but individuals with whom I have spoken seem to fall into the camp of blind faith. I majored in economics and am quite familiar with the theories surrounding gold, currencies, etc., and I also realize that many of the principles we were taught don't necessarily work in the real world.
If you are investing in gold as a safe haven or inflation protection vehicle, I suggest that you reexamine your reasons. Silver, palladium and platinum are all plunging. Why shouldn't gold?
Disclosure: No current position, but considering shorting an ETF
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This article has 150 comments:
Remember gold is not money (nor is oil). As real money becomes more valuable gold and oil will be sold. Gold cant even be used to power your car. Its useless except to gaze at.
The next and final bubble to burst will be gold. History says it will. Gold is neat but you can't do anything with it except cash it in for money to do something else with. When people start to head for the cash register, the price will plummet as viciously as the stock market . It always has. It always will. The slower ones will be left holding the losses and the gold bug rhetoric. I'd rather take my chances with inflation.
This is why the USD held up but it is it's last hurrah. Within the next 4 weeks there will be a run out of the USD, the British pound and I am not sure there are enough Yen and Euros buyers to make a case for gold bears. What you do not want to do though is buy gold futures or stocks as they will have distortions caused by still unwinding positions. My advice is to buy a gold bullion fund with a very low MER (management expense ratio). I use the canadian CEF.A. (Central Fund of Canada). I play it 6 times in the last 24 months buying below 12 and selling above 14.55. I do believe that this time gold will reach 1500 dollars as the US system is about to crumble.
Perhaps your credibility needs to increase a little before much faith can be put in your predictions.
The Bailout is a tool for the mass reallocation and consoldation of wealth to buy everything up after the fall.
If you want to know the truth of things study austrain free market economics and Ron Paul. www.campaignforliberty.../
So if everything is dropping in value including a barrel of oil which is now almost 50% below its high from just a few month ago, where do folks stash their savings/wealth to protect themselves? It may well be a question of what drops the least but for sure, there is not a single person on the face of this planet that knows the answer. At some point in the future when a dollar is valued far less than it is today, gold may be down or may be up from where it is today but since the alchemists still haven't figured out how to make gold out of something of little value, (ie: paper) , I tend to "feel" that 10,000 years of human history that has always valued this precious metal is a better bet than paper.
The other alternative is to go to Vegas and gamble all your dollars there in hopes of maybe a 100 to 1 winning record so that you have enough dollars to weather out any storm. Probably about them same probability as guessing what will happen to the market in the next few years.
If things go really bad gold will have no use because gold coins are easily counterfeited, the trust issue will prohibit gold use. You can't eat it, it won't keep you warm on cold nights, it won't guard your safety, but every moron in the world will want to rob you of it without regard to your life.
Gold coins can be a reasonable investment if you derive value of your collection and have the means to display and examine them properly, bringing you pirate lord's joy. Just don't ever expect to make an actual profit from them because most probably you were the greatest fool.
I suspect a fool proof coin analyzer exists or soon will. But keep talking, I haven't stocked up yet.
Gold is whack and it's never going back.
I think you have the wrong concept on gold, it's not a commodity, it's an alternate currency. Just like the dollar value, it fluctuates on demand.
www.bloomberg.com/mark...
Even oil sold off before gold. Strange, no?
1)Chevron: Good Choice for Conservative Growth Investor, on Jul 23;
2)A Perfect Storm: Retail Is a Buy, on Sep 02;
3)Will the Energy Exodus Fuel a Consumer Stock Frenzy? on Sep 11;
4)Time to Look At Conservative Growth Stocks, on Sep 22;
and my personal favorite!
5)9 Reasons Why We Are Close to, If Not Past, the Bottom, on Sep 28.
Note that in one of his articles he admits to owning Fannie Mae (FMN) as it fell under conservatorship. I'm not sure about this guy.
You predict gold will fall, and it may. But your prediction is correlation to other commodities, which have industrial or consumptive value, that of course are tradeable for those pieces of paper, and in hard times, supply exceeds demand. Every governments response to such circumstance is the same. Print more paper to make people feel wealthy so they borrow and spend. But human behavior is different than that. In deflationary times, people avoid debt, consume less, and spend more time with family. Good for humanity, bad for economy.
The problem is, over time, the public grows to mistrust governments everywhere who use the printing press as a solution to bail out the corrupt. Gold is the one thing that equalizes the equation of citizens against their government. That's why it was illegal to own in the free USA for so many years.
Yes, governments through their central banks, because they know that as nation to nation, just as citizen to government, gold is money. It's why the Nazi's robbed very central bank in WW2. DO you think the Swiss were going to make tanks and ship them to Germany for marks?
Nope. Only gold shines in hard times.
There are times when I may choose not to go long gold, but I would NEVER short it. (neither would I short energy or food). Step aside if you think it is overvalued. But shorting any of these 3 is Russian roulette. It gold falls to 800, I'm bying. I'll buy more at 750. At 650, I'll gladly trade all my dollars in for gold. Because the government always responds to deflation the same way. print print print print
Gold is definitely a safe haven, may or may not be an inflation hedge. What asset class you can invest in today’s market – not stocks, not bonds, not real estate, not copper or oil – so gold is the only thing left. Gold has withstood the test of time as a store of value and as a means of trade/currency.
Deflation will hit a lot of asset classes – but all the “fiat’ money will have to find a home.
In times like these gold will thrive. Author’s essence of the argument is wrong. Recent downward pressure on gold prices (including Friday) is due to redemptions – the same hedge funds etc were levered into gold.
Gold is not a sucker’s bet it is the smart choice – diversification, risk aversion.
Yes buy gold, most analysts suggest 5-10% of your portfolio should be gold- in these times you should actually be over weight in gold.
1970 median house in dollars $17,000
1970 gold in dollars $38
1970 house priced in gold: 447+ oz
2000 median house in dollars $119,000
2000 gold in dollars $279
2000 house in gold: 426+ oz
2008 median house in dollars $219,000
2008 gold in dollars $800 (I rounded down a bit)
2008 house in gold: 273+ oz
Based on the above FACTS regarding the relative values of gold and the dollar anyone with a functioning brain cell left in their head would have to conclude that:
(at least better than the dollar has proven to be)
Not so if I have $17,000
Those dollar bills in your wallet will buy just as much 10 years from now as they do today.
That being said, I just sold all my gold since I am guessing that we are in a deflationary period right now. Historically, the first thing that happens in a deflation is that money "disappears" (ie is horded). I believe that this is what is happening at the retail level with gold and at the banking level with US dollars.
The growth in the money supply is massive right now. It is not leading to rises in consumer prices because the banks are hoarding money. If Paulson and company don't have a plan to get all that money back we could be in for a severe inflationary shock once money gets flowing again.
If I don't see the monetary base dropping when credit starts flowing again I'll be back into gold all the way.
Gary D, your accusation that I am altering the charts to fulfill my own biases is wrong. Thanks for calling me young, though, as I don't feel so young at 43. My database doesn't allow more than 30 years. Ultimately, as you say, gold could rise again, but the game plan now is indeed deflation.
30Yrs: gold up 4.6%, t-bills median return 5.6%
20Yrs: gold up 3.8%, t-bills median return 4.9%
15 years: gold up 5.9%, t-bills median return 4.8%
So, over a very long time-frame, riskless T-Bills have proven to be superior. If one looks at shorter time-frames, which obviously look good due to the run-up over the past several years, the difference isn't so compelling.
Your words have the ring of truth.
Comparing returns of Gold to Tbills from 1971 to 2008:
Gold up 24 times going from $35 to $850, while money invested in Tbills has gone up 3 or 4 times.
OUCH!!
I fear you fail to apreciate the precariousness of the current monetary arrangement. Just as the closing of the Gold window by President Nixon signalled the end of Bretton Woods, the recent credit crunch could well usher in the end of our current monetary arrangement.
Trusting government sanctioned paper money at a time like this is never a wise decision.
Don't forget that even in the Great Depression the targetted value of Gold was raised from $20.67 to $35. So should deflation actually gain a foothold, currency devaluation will be part of the governments solution.
Have you looked at the price of gold in Euro's? I bet it's still making new highs and the temporary strength of the dollar is what is causing gold to hoover around $850 over here. Congress just approved a trillion dollars of bailout spending on top of the 3 trillion dollar budget. So we are increasing government spending by 1/3 and at the same time the Federal Reserve and the Dep. of Tresuary are trying to flood the banks with money to bring interest rates down and make credit easy again. Don't you think this is going to be inflationary about this time next year? Why not? Do your really expect to see $50 oil?
I agree with the poster Facts who suggests that our current monetary system, what some have called Bretton Woods II, is not writ in stone. It wil collapse and something new will rise from its ashes. A new gold standard or some other way of reigning in currency inflation will have to be established before faith in the system will be restored. Credit bubbles only occur when credit expands without a commensurate expansion of tangible collateral. Whatever the new system is it will have to make printing money much harder.
"Gold quietly preserves wealth through time"
Really? You don't have any storage costs, insurance costs etc.. You will be hiding your gold in the "pirates of the Caribbean style" in some secret caves, leaving a secret map to you family in case you pass away?
Or maybe you keep your gold at home, then how about your level of anxiety? Would you be willing to go on vacation..Your mind will be restless when you will be away from your home and that will undermine your health. Can you give a dollar value to your health and psychological well-being?
Don't forget to add all those hidden costs for your calculation.
"DOW is up 8.5 times and Gold is up 25 times"
Maybe, but did you factor in the dividends and all the wages, retirements, health plans, and of course corporate taxes e paid by the Dow companies over time? Do the math properly and don't be narrow minded.
"1970 median house in dollars $17,000 etc."
Ok, but then again you fail to take into account the net rental generated by a home over time and the costs that you will have to store the equivalent in gold for the same period of time. Please do the math correctly !!!
"dollar has already dropped somewhere around 90% in the last 50 years"
Maybe, although I remember a figure greater than 50 years, check again ! Anyway, and so ? When you buy a car you expect that its value will drop over time, yeah? It is a consumer product, you consume the value of the car because a car provides you with valuable services. Then shouldn't we consider that providing us with the conveniency of using paper money, electronic money, being able to withdraw a few dollars from an ATM anywhere HAS to come with some costs ? Just consider that using paper money for transactions IS a service and maybe you will see the thing differently!
Did somebody check the expenses ratio of CEF ? You will see that over the long term the quantity of your gold holding will also diminish.
Yeah, how about we pay for this up front with checking account charges instead of assuming that the reduction in purchasing power is a just payment for this?
To be sure the banking and monetary system has thrown us a few crumbs but in return they have given us the boom/bust cycle, depressions, and WWII. And socialism as a poor sop for what has been stolen (via inflation) from us.
The US, European,Chinese,Japan... Russian governments will do everything to safeguard the financial system. Do they have the means? Yes they do. They can confiscate your gold, close the stock markets, takeover the banks etc..They have unlimited power and they WILL work together to stabilize the system because in such extreme situation nobody can afford to play the "everyone for himself" game, that is not an option, be realistic !!
Later, they may amend the financial system with another "Bretton Woods" The world will go through a few years of severe recession, but that will not be the end of the world.
Will we go back to a gold system ? Certainly not. Why would we constrain our economic growth to the existing quantity of gold, that would be silly! We are not anymore living in a middle age economy when people used to trade physical goods for physical goods. We are in a scientific and knowledge based economy. The amount of scientific knowledge double every 4 years!! The average Joe and Jane are living a much more comfortable and longer life than the Kings and Queens of the past centuries even if those Kings owned tons of gold and precious metal, they couldn't have a root canal treatment or a face lift..!! How about that?? No dear gold bugs we will never go back again to the gold standard because it would simply be a losing proposition for all of us. Of course we will have to better manage our 'fiat' monetary system but it is only "fiat"(confidence in latin) that can propel human activities to higher level. If there is a beginning of bubble in gold you can safely bet that every government of this world will do anything to crush it right away.
If I had a million what would I do ? Certainly not hoard gold at this moment. I will wait a few months then start to look to buy a nice home at under replacement value, then for what is left, I will start to look for beaten down value stocks with great franchise,strong balance sheets and paying reasonable dividends that will keep up with inflation (in case). That way, ten years from now I think that I will do better than the gold bugs not to mention that I will be able to hug my wife in my new home and see my kids grow up. What about that ?
I am certain to not only hold on to my gold position but increase it should I get lucky enough to take advantage of a momentary price decline.
Gold has and will remain the quintessential icon of wealth, impervious to the passage of time. It's moronic to ignore the compelling record gold holds against any other man-made wealth metric.
Good advice. But I disagree that a fiat currency is needed for progress. Competing currencies would be both 100% fair and able to grow as needed.
Trying to Measure the return that *I* see (of that leverage based work) once my deposit is made, is really an interesting endeavor, and (as you indicate) *has* to be part of the equation. I have no idea how much indirect value I see, but the same history that supports gold, shows that communities prosper greatly because of this leverage.
As right as I believe you are, I have to counter that right now, the rational performance investor has to assume an irrational market environment exists, and look to history and human nature, as well as the forces that might manipulate the markets to counter history and human nature... and 'bet' accordingly.
deflation - some.
inflation - some.
panic to safe havens - some.
hedges dumping holdings - some.
governments nudging markets to prevent currency crisis - probably some.
All of this makes sense from the various viewing points, so it becomes a gamble of timing and staying power. Alan is right if we consider the commodity aspect. Brewtul is right if we consider the historic flow of these sorts of breakdowns. Ghostbuster is right if we consider the value of responsible leverage.
I don't think everybody running around with satchels of gold dust would be efficient. Having you bank be told that it must lend *our* money to insolvent borrowers is equally absurd, yet we have seen the latter, and many are panicking into the former.
I've cashed out except for some GLD (emotional choice) and am using this mess as an excuse to re-assess everything I buy and believe in. When the dust settles, of course.
vote wisely, and be good to each other.
--ikk
Actually, our economic growth is determined by the amount of capital we have saved. Money represents capital but is not equal to it.
But wouldn't excessive fiat currencies just result in unproductive speculation that creates bubble/bust? Wouldn't the "constrain" imposed by gold curb such tendency?
Having many competing currencies system sounds nice but at the end will be rather messy, costly and counterproductive. We live in a globalized world and there is no way to turn back to that and therefore we cannot escape a financial system that has to be negotiated with our trading partners (ie.foreign governments). No system is perfect, we have to find one that accomodates the human activities and not seek something that would look perfect (gold) but one that we will have to pay in the form lower economic growth. If you go back in time you will see that a gold or silver system did not avoid either inflation or depression. When the conquistadors came back to Europe with all the precious metal they have stolen from South American Indians that created a bout of inflation (too much money chasing few goods again) On the other hand, the first big financial collapse was triggered by the Lombard bankers of Venice (in today's Italy) then later on we frequently had economic depression in the 18th and 19th century. It is the human greed that is behind financial turmoils not because of a gold or silver or fiat system.
Now I read a lot of people who say that the US has a worthless currency backed by nothing blah,blah , once again I think that they are narrow minded, the US$ is backed not by gold but first by an unparallel military might, and please don't point to Afghanistan or Irak, I mean if they want the US military could obliterate all those countries in a few minutes but of course it will be rather uncivilized!
From the present crisis, it is clear that we will have to move from a speculative economy to an economy that is producing real goods and sevices in the years ahead. That is why I don't believe in the gold bug scenario which is still a speculative one. Mining gold to allow other to put it back in a hole in their backyard is rather silly and does not create any real wealth. The gold bugs consider gold as wealth because they have a rather narrow conception of what real wealth is in our present time. Wealth is not the gold that you put in your backyard, wealth is a sound education system, a sound health care system, a good infrastructure (road, raiways,bridges), safer streets, a productive, creative and stable economy, a balanced international relations. For all those reasons, I don't see why the price of gold should go way beyond the marginal cost of production. If that should occur, the jewelry market will instantly disappear not only because gold will be expensive to buy but also because it would become too risky wear gold, you will have to leave your wedding ring at home for fear that some thugs will cut-off your finger!!
I do not believe in a 1929 type of depression nor do I believe in a hyper-inflation. We see a massive deleveraging which is rather disinflationary. All the commodity prices are coming down, especially oil so that will help the economy and the trade deficit will narrow down as a result, that is why we see the dollar going up. Also the people cannot afford to borrow and spend money as before so I don't see how this situation could be inflationary.
An outright deflation is not likely, central bankers have learned their lesson and it is clear that they will not let big banks to fail anymore. Paulson made a big mistake with Lehman and will not do it again.
The game has changed! It's a global problem, not a domestic one. Another thing that has changed is the way we live, which I can tell you appreciate this point. Ludwig von Mises didn't email his theories to his cohorts in India to whom he was outsourcing the production of his books, if you know what I mean! I mentioned in the original article that the response to gold hitting $1000 was an around-the-world meltdown. Not of bonds, stocks or anything else - of gold itself, literally. Even here in the USA, pawn shops were flooded by a river of gold (Disclosure: I own EZPW as one of my largest holdings having replaced what I sold at 18 and then some from 14 down to 11+). If you go into a pawnshop, you begin to understand that gold is no different from used tools or used musical instruments. It USED to be different, and it still is apparently in the minds of some people, but the amount of gold globally relative to wealth in general is an odd-lot. The amount of gold held by monetary authorities is trivial relative to the currencies or the potential annual tax intake.
Again, thanks for sharing your views...
Many good thoughts you have written. But as I said I am not in favor of a gold standard or ANY government enforced standard. Competing currencies messy? Yes, for a while. A few favorite currencies would emerge; some based on gold, some based on silver, some similar to stock certificates.
Don't give up on an completely fair money system. Competition and liberty are essential. Plus, I would argue that an unfair system is ultimately unstable as ours has proven to be. As a example, the poor may soon have ipods to listen to but not enough to eat. How has this perverse consequence arrived? Ans: Fractional reserve banking and a monopoly currency essentially steals from the poor and savers and "invests" for them by lending to businesses, for instance. Will those "investments" always justly compensate those whose purchasing power was taken to make the "investments"?
The thoughts I have expressed are not original. Ron Paul is in favor of competing currencies as are many other economists of the Austrian School. This is not a "baty" idea.
I don't see gold as an investment just a store of wealth. A personal gold reserve just like central banks. Gold is also a store of labor. The labor cost to print a $1 bill and a $1000 dollar bill is the same, but the labor to produce 100 ounces of gold vs. 1 ounce is significant. And, that is the main problem with fiat currencies, they are so easy to debase.
If this economic crisis causes the world to abandon the USD as the reserve currency then we should expect hyperinflation. And your printed money will be worthless.
Yes you are right excessive fiat currencies lead to speculation and bubbles, but the real question is why a fiat currency system should be left unchecked in the first place? This is the real question, and after this crisis we will a have to build a fiat system that will probably be more controlled than before. We are facing this problem not because there is a fiat system but because the US Central bank surrendered its responsibilities to private hands the so call shadow banking system
(hedge funds, Siv, etc.) which then were able to manipulate the fiat system to inflate all kind of assets and blow bubbles.
A fiat system is not bad per se, and in my view an international fiat system should never be put in private hands, it is a public good. The problem take roots in the US ideology where everything should be run by private entities, there is no reason that this should happen. The next amended fiat system will be more stronger as a result but there is no way that we will ever go back to a gold system simply because it would not provide the kind of flexibility that a fiat system has to accomodate the world economy. Having said that why do you want a monetary system absolutely based on gold? And why not a system based on oil/copper/molybdenum or whatever? Are those commodities useless? don't a barrel of oil has some value for you ?
All currencies are initially backed by something but when the power to create money is unhinged from that collateral abuse is inevitable. Unbridled greed leads to printing money which is nothing but debt, also called leverage. Great - makes a mint on the way up, as long as assets keep inflating. The masses see assets rising and buy assuming that "trees grow to the sky". But that leverage desrtoys even faster on the way down (fear is a more powerful emotion than greed or euphoria)
The reason gold is the ultimate store of value is because it can't be printed or destroyed. Yes, it's inflexible. That's the point. It constrains the natural tendency for humans to exhibit herd behaviour at the extremes of greed and panic. You see what happens when human emotion is left unchecked. Trillions of dollars of wealth evaporated in a few months, millions of baby boomers facing retirment severely underfunded if not destitute. Is that what proponents of fiat currency think is desireable? How about Weimar Germany? How about Zimbabwe? If printing money was the way to prosperity Zimbabwe would be the wealthiest nation on earth. Damping, not amplification, of human impulses is what is needed.
Other commodities all have their disadvantages comapred to gold. For instance, oil isn't stable and will combust easily and chemically altered. Same goes to copper and many other metals. Moreover, they bulky to store.
Why isn't gold standard financial system not flexible enough for our global economy? I'll see a gold standard financial system more stable and eliminates unnecessary man-made fluctuation which is risk. This in turn eliminates necessity for hedging and other complicated instruments that takes care (but they don't) of this part of the risk.
Dang, there's some smart people on this site!
(Don't let it go to your head, it might displace some brains.)
M A N I P U L A T I O N !
Hey, all of you who consider Gold and Silver worthless go over to Ebay and see what plain old JUNK SILVER is getting. HA HA HA a pox on all you precious metal haters.
Kyle
That said, it is not too early to project that the new paradigm will include much more involvement by central governments in capital markets.
The consequences of that for gold, for currencies, for the entire range of asset classes, cannot be known.
The author is as clueless as the rest. Is his analysis right this time? Is it wrong? Who knows? His predictive record is so poor that it is essentially a random walk to act on his analysis.
And please, to say I majored in economics in college in order to establish my credentials is such a howler that it takes my breath away. What kind of sophomoric web site is this, to let such people have a prominent role on it?
If we put all our eggs in one basket we are speculating. That is fine as long as we realize none of us knows what the future will bring. When I was doing "what if models", I never really made the assumption that gold and bonds would be strong at the same time. But owning both gold and bonds in a portfolio seems to have worked out OK. Now, bonds and gold may be in the process of diverging, but they have done their job. If ever there was a doubt that gold must be part of a diversified portfolio recent events should have shown its value. Wouldn't some stock guys sitting on 40% losses be pretty happy selling some gold that has more or less held its value and those boring bonds and buying some "undervalued" stocks? Probably.
Not owning gold is like skipping the fire insurance - it saves you a few dollars per month at the risk of losing everything. I wonder if anybody is getting it yet.
I do believe the central banks will do anything they can including unprecedented inflation, to avoid the end result of the massive deflation we are experiencing, i.e. the breaking of the system. They have show they will do whatever is needed. In a time of "firsts" and "biggests" and "worsts", a massive inflation beyond our comprehension may be what is needed to stave off disaster. I think "disaster" to us means standing in bread lines and losing our homes. I think "disaster" to the FED and the government is losing their power over us. If eliminating that possibility of "disaster" means gold goes to $5000 or $10000 or wherever then fine, the bankers could care less. Countries are no longer on the gold standard, it is a "barbarous relic" and its price is not meaningful except to those quaint enough to think that savings should maintain some semblance of their buying power. So sure, the Dow goes to 20000, gold is at $10000, a loaf of bread is $25, and gas is $12 a gallon. Are we going to be ahead? I doubt it.
Perhaps one of the reasons the savings rate is so low is because the populace realizes that money saved today will be worth less, perhaps far less, at some point in the future. Besides, lots of people have to spend whatever they have to eat and put gas in their cars. The Great Society ain't so great anymore.
I think I better go to bed before I am to afraid to sleep.
news.bbc.co.uk/1/hi/wo...
Gold can be clipped, but paper can be counterfeited and down right printed at will. So I would prefer world paper currency of choice to be backed by gold, silver, or even oil (I take that back not oil). The next question is that if the MAIN form of currency used to trade everything is to be backed by an asset .....will the asset base remain stable so that prices can be stable. With Gold it is at least as stable and seems more stable than what we have now. Especially if one considers that its getting harder to find and will always be getting harder from here on out. A huge gold find like the spanish conquest will not happen again so lets at least be intellictually honest in our arguments. I like the idea of competing currencies and we have that now in some respects except that we have one MAIN currency that we use for everyday life like buying groceries. It would be nice to be able to buy things in either pesos or dollars for example. Its the technology age certainly we can do this even in grocery stores.
Concerning and earlier discussion that I believe ghost pointed out about not letting our currency be managed by the shadow banks I would say that while I don't like them but I certainly don't trust the governments either. At least our current crooks have managed to keep this currency afloat for over 100 years. Governments have a pretty bad history of destroying currencies routinely within years. Both the shadow banks and governments are in fact are pressured by politicians to put short term economic gain before the stabilization of the currency (that is a currency that maintains a constant value) This is the whole point I've heard Ron Paul, Mises, and even Milton Friedman make. Humans no matter how much controls you put in place will corrupt anything over time. Even using a computer someone would argue about where to set the inflation target rate.....and then the downward spiral begins however slowly. Why not use gold or silver as a currency.
Imagine if that over time the primary currency actuall slowly gained value. No need for social security cause all you'd have to do is save a little bit when you were very young. Same for medicare. Keep in mind I'm talking about a slow deflation on the order of 1-2% per year. Not something that would cause people to hoard. Gold may not be the best thing since we need something a little more plentiful probably. Still gold is a store of value. Not comparable to stocks because it represents work done not work constantly being performed year after year.
I'm also not sure I buy the fractional leverage argument that it really makes things better. I haven't really put much thought into that but my gut tells me it probaly cost us much in the long run. At one point finanicals were something like 20% of the S&P 500. Financials in and of themselves produce nothing. I'm beginning to think the real scheme is that they've tricked us into one currency that is purposfully inflated forcing us to either put our money in CD's, savings accounts, stocks, bonds, treasuries, at brokers, insurance companies, etc....all in the name of trying to maintain our purchasing power. This money all ends up back at the same place basically now that we have huge financial conglomerates that are brokers, insurance, banks, all in one. The inflationary policies force people to speculate if they are intelligent, lose money while its under the mattress, or spend it without regard to future needs. If you are smart you speculate, if you are poor you remain forever poor cause there is no way to save yourself into prosperity. Bankrupts the bad speculators and only somewhat rewards the good ones. In the end we end up with a welfare state who like the inflationary monetary policy leads corrupts the morality of its people leading to tyranny.
So yeah I would prefer a hard asset backed currency versus Fiat currency anyday. One has to consider human nature, history, economics, and morality before making their decision. I'm not saying I know the answer since I'm only an engineer and haven't spent my life studying economics but there has got to be better than fiat currencies that have failed over and over again. What happens to the dollar once markets stablize. I think people go back into stocks and all the other competing currencies. Gold back up.
I have contributed to Seeking Alpha for almost two years now. I don't always get it right, and I am quick to admit so publicly when that is the case. Not being right 100% of the time shouldn't disqualify someone from sharing their views, especially if done so in a thoughtful way.
For those who do care to review my record of contributions (visit my author page and click to page 5. You will see from my first contribution about a company called Color Kinetics (that was bought out at a significant premium shortly thereafter), that I do get it right often. Many times I am not trying to be as predictive but rather informative. Recently I shared some information regarding earnings estimates for 2009 being WAY too optimistic, and this was before the crash (but not the reason and not my conclusion at all, regrettably). I will point out that in the articles in which I have been insulted, as is the case with this one, I have tended to be the most correct. In August of 2007, I predicted that TIE would get cut in half (and for all the right reasons). My error in that article is that I should have said by 75%. In late December, I suggested that three companies would plunge from the get-go when trading opened in January (deferred tax-gains) and set off a firestorm from the AAPL cult. Finally, I recall attacking WFMI's valuation many times and getting lots of emails. Why do I mention this (and I am happy to mention my many errors - they exist!)? Because I sense a cult-like devotion here as well. One of the lessons I have learned from 30 years in the market is that we are our own worst enemies when it comes to investing. We make all sorts of cognitive errors. Emotions don't help us but rather impair our decision-making abilities.
So, as I said in this article, check your thesis. I may be wrong. I certainly didn't intend to convey that gold is dead, only that the next major move is down not up. Is my conviction level high? No. As I disclosed (and always do disclose my position), I have no position in this case. While many things qualify me to contribute to Seeking Alpha, one of the things that readers should appreciate is that I am relatively unconflicted. I don't manage other people's money. I have no vested interest in stocks going up over time like most of the people in the profession, which allows me to tell it like it is (as I see it). Sometimes I get it wrong, but I can be very flexible due to my lack of inherent bias. I was extremely bearish from 8/07 until 3/08, and for all the right reasons. I tend to be early, which can end up looking stupid. I don't know yet if that is the case now (though I do feel stupid for failing to be in front of the crash of my lifetime after having been so bearish early on).
In any case, thank you for those who did share their thoughts in an considerate manner, whether you agreed with me or not. I learned a lot from your sharing your views, and I appreciate your insights.
Besides, many of our industrial, scientific discoveries and innovations in history occurred while our nation was under the gold standard. Many of our math and physics geeks, who should have stayed in the industrial field and help our economy grow thru production of useful items, had defected to wall street and produced nothing of value except to make a very small circle of people very rich. The end result of all those mathematical calculations and derivatives used to churn out paper? A MASSIVE GOVERNMENT BAILOUT!!!!
Back around 2003 I had around 17,000 dollars to play with. Some suggested stock and bonds, t-bills, real estate to invest in. I did the research and concluded precious metals were the way to go. And I have been proven correct year after year, while watching those paper investments lose value, slowly, and then quickly.
Gold has done very well, and it never needed a government bailout to support it prices. Can a wall street firm, salivating at the prospect of receiving welfare money from the taxpayer, make that claim?
So many times I've heard in the last few years that gold will sink into nothingness and that real estate and stock and bonds will rise forever. And as if on cue, gold rose, despite their strident cries to the contrary.
I sincerely believe gold, much to the consternation of wall street and their ilk, will rise to a higher stage of awareness and attention among many people, particularly those of average means, and they will demand that it take center stage in their ever evolving economy.
Of course I am talking about a system where the currency
will be backed by some hard assets it is not for the individual to go to the central bank and exchange their banknotes against a few drops of oil or a few ounce of copper!
What the gold bugs don't understand is that for gold to become
a currency there has to be a POLITICAL WILL behind it. So far, there is no government on the surface of this world that said to be contemplating a gold standard system again. Therefore, without a political will there is no way that gold will extraordinarily decouple itself in value from the price of other hard assets and reach 5,000 or 10,000$ an ounce.
If, as the gold bugs believe, there will be hyper-inflation then the
price of everything will go up at the same time, but their relative value
will remain more or less the same. People will demand higher wages and so forth.
There will be nothing to gain from triggering a hyper inflation, the US government knows it too well. Furthermore in order to have hyper inflation the governemt has to print money in order to keep the value of things in nominal terms as they were, obviously, stock markets around the world has lost trillions in value so far as well as real estate
worldwide, therefore this accounts for the destruction of phoney money that has been created and I don't see the FED prepared to print money to bring back the former value of stocks and real estate so as to trigger hyper inflation.
The central banks provide liquidity to the system then take it back, so don't add the numbers it doesn't make sens. Next week there will be nationalization of the banking system, shareholders and bondholders will be wiped out and this is not really hyper inflationary. Then, they will be able to postponed foreclosures and evictions and work out the payment terms for the really needy people, the condo flippers will be left out and this is not hyper inflationary at all.
We will be lucky to escape 15 years of deflation like in Japan, but Central bankers and governments around the world know the mistake Japan made. Once the nationalization done, the confidence
will come back and the banks will start lending to each other again, this is POLITICAL, confidence will return. At the end once the messed cleaned the tax payer will pick up the bill over time and pay with real sweat!
It is also not very relevant to compare countries like Zimbabwe with the US, that country is just not boxing in the same ring, it doesn't have the same political clout! Oil is mostly traded in $ this is politics, in exchange the US can offer its military protection to the Saoud, oil is not traded in Zimbabwe currency, that's a big difference !
As Reader851 says, there will be a paradigm shift, a turning point I would say. It is clear that the US will lose some of its influence as America will have to negotiate with the surplus countries around the world especially China. However those countries will do everything to preserve our monetary system as all the major economies are connected, there is no decoupling in this matter. The system will be saved because of the political will of every government in the world. Central bankers talk to each other on a daily basis and there is no way that some Central Banks will start dumping US treasury suddenly because at that very moment they would suffer tremendous loss before they could finish selling. So this is not an option.
In exchange maybe the US will have to accept, for exemple, the reunification of Taiwan with China. There are different ways to trade things especially when it comes to high level politics, don't forget that.
The smart money knows it, that is why we have seen the price of gold and silver coming down very sharply. Whereas the little guys are panicking and rushing to buy some coins which is why the dealers are out of stock, it is not because there is no gold around. Also with this level of volatility, dealers are certainly reluctant to build huge
an inventory on which they may lose money that's why they cannot cope with the demand at this moment of high anxiety.
On the other hand, Hedge funds who were able to borrow zillions of phoney money to push up the price of commodities can no longer do it, so who will help prop up the prices from now on? the little joes who are buying coins from their dealers maybe? What a joke!
Remember when the price of oil was going up? every now and then some analysts from Goldman Sachs will come out to predict a higher price level. When the price was peaking at nearly 150 they put the next level higher at 200! They are very smart indeed, with their cons
friends from the hedge funds they were able to milk the whole world !! But now they are gone, the price of oil cannot escape the economic reality, beyond a certain level there is simply no demand even for a commodity as useful as oil ! so let alone for gold ! There is
absolutely no reason that gold should trade at a level far beyond its marginal cost of extraction, with the fall in energy price, the cost of extraction will be somewhat subdued for the time being, while the economic hardship that the whole world will have to endure will probably force a number of people to sell whatever gold scrap they have to make ends meet.
The geopolitical situation is also likely to improve in the coming years. The high price of oil has made many nations quite arrogant lately as they were able to get more money by pumping less oil. Now things are working in reverse mode, the more they pump the less money they will get. I wouldn't be surprised to see great improvement in the Iran/Us relations, as with oil way under 100 $ Iran will start to choke and beg for the removal of trade sanctions. Likewise Russia will start
to understand that it is time to diversify its economy from energy and therefore will be in dire needs of western technology. We will therefore see increased cooperation between Europe (Germany) and Russia.
Fiat system is certainly not perfect, but it should not be blamed for our collective mistakes. Yes Celcius it cost the same price to print a 1$ bill or a 100$ that is why a fiat system is far superior than a rigid gold based system. The monetary system is the backbone of the economy and, as such, it has to be flexible enough because at time the economy may encounter some turbulence for lots of reasons (natural disaster, geopolitical shock etc..) and the monetary system should be able to inject some liquidity (phony money) in the economy
so as to avoid a breakdown, which will be harder to achieve with a gold based system, then later that phony money can be taken back.
Our fiat system has been abused by the US for quite a long time with
the help of our trading partners (CHINA). They also have their fair share of responsibility in this mess.
However lets be fair and just look around at all the mankind achievement with this fiat system !! This is why the fiat system will never ever be replaced by gold standard again . We learn by trial and error, and in the the future I believe that the fiat system will be run more efficiently with shared responsibility.
Finally, when a bubble burst a lot of people suffer, but do we suffer in vain ? When the dot.com bubble burst we had a recession, lots of companies went bankrupt, investors lost a tons of money, but the infrastructure that allows today's digital world is still here for us to use. The scientific breakthroughs, the technological innovations are still around us and we use them daily! Likewise this last bubble has allowed China and many other countries to lift millions out of poverty, it also allowed China to build massive infrastructure, to train armies of scientists and engineers. All this will pave the way for the next stage in the Chinese economic expansion which will greatly
benefit the whole world. So we will suffer, but not in vain.
Yes Alan, I believe that, indeed, gold is a sucker's bet, especially when I see it losing 70$ in a single day whereas according to the gold bugs' theory it should had gone through the roof! Of course gold bugs will stay in denial blaming some obscure price suppression scheme. Gold bugs are somehow trapped in a medieval thinking and fail to understand the nature of today's economy, they also have a rather misplaced conception of wealth and value.
Thanks everybody for this very interesting discussion, I really enjoyed it!
John,
I knew their had to be a reason you make so much sense. Keep thinking buddy. There are many quotable lines in your comment.
Based on comments from people like you, I think the end is NOT yet upon us.
I don't believe this because this money is being printed and will replace some (not all) of the trillions of dollars of lost wealth. The inflationary effect from this is going to be minimal. This will be one of the reasons why Gold will not go up in value.
Css1971 thanks for the BBC link showing the grand'mas and pas trading cash for gold coins, it is an excellent contrarian indicator. We are probably hitting the bottom !
I assume the brain trust currently heading the Federal Reserve and the Treasury likewise majored in economics and have studied currencies and gold. I'd like to point out that this very same brain trust presided over the current train wreck.
I too have a BS in Economics....from the era where Keynesian quackery was taught as gospel. I realize my degree is in fact precisely what it claims to be: BS.
I also have an MS in Taxation and a JD......and over the course of the last two years I sold every bit of equity exposure I had and invested in gold. Instead of taking chances with inflation, I'll take my chances with gold.
Gold is finite , unlike any/all unbacked currencies ,
And in uncertain times just a bit of additions (globally) to gold holdings can spur quite a rally as a result.
Many assumptions of "what should happen next" have proved to play out otherwise . Anything can happen , and
A meteoric gold rise is certainly one possibility in a panic.
Here is the key point -
It would be foolish to put an inordinate percentage of a portfolio into gold .
But it would be just as foolish to put none into it.
Would a 5 or 10% portfolio stake be any more risky than the conventional investments that have rendered pension funds , municipalities , and investment gurus
penniless?
Gold is not a short.
It is an investment which should be held in a portfolio in a reasonable percentage per diversification along with utilities , industrials , etc.
If it does drop , it will only mirror what the more conventional arenas have done. (Why are losses in those "acceptable" , but if gold drops , not?)
If it skyrockets , it will offset some losses in other sectors.
By limiting gold , and all other sectors , to only a % of ones portfolio ,
one doesn't have to figure out what it "should do" at a certain point , but
rather benefit from a large price increase should it occur, and yet not get killed by a drop.
The huge drop in gold on Friday was due to a 'perfect storm' affecting gold. The first was the liquidation of gold by the mutual and hedge funds trying to raise cash to meet the redemption requests of thousands of investors. The second leg was those same funds selling their foreign investments and then trying to convert the foreign currency into dollars. This, of course, made the dollar spike up from demand for dollar being greater than the demand for the currencies they were trying to convert. Since gold is priced in dollars, this was reflected in the price of gold.
Finally, free market gold is a safe store of value whether there is inflation or deflation. If the currency is inflated gold will eventually find the same level when priced in that currency. Or, if the currency is deflated X%, then free market gold will eventually find the same $X level in the deflated currency. The main wild card is how much governments meddle in or intervene in the gold market.
[The same could be said for oil, and that is why oil and gold have such a close proportional relationship. It doesn't matter if oil is priced in inflated dollars or deflated dollars. One barrel of oil will produce the same number of miles traveled, or pieces of plastic, no matter how it is priced. So, owning stocks in companies where the vast majority of their value consists of oil reserves in the ground will eventually find its same free market price relative to the rest of the economy no matter whether it is priced in inflated or deflated dollars. This is assuming that the demand in terms of petroleum for those miles traveled or pieces of plastic remains constant. ]
Since the jury is still out as to whether governments will be able to inflate our way out of the current economic crisis, or if deflation will win over, or, for that matter, the total breakdown of the current monetary system which is then replaced by a new system, gold will eventually settle at relatively the same value in the new system as it was in the old one. There may some minor variations in the relative value of gold, but sooner or later it will once again settle back to its historic value.
The only question now is just exactly where is gold priced today in comparison to its historic value in relation to the rest of the economy. If it is lower, then sooner or later it will shoot up to find its historic value. If gold is priced higher than its historic value, then it will go down. It is up to each investor to determine where he or she thinks gold is price when compared to its historic value, and act accordingly.
Yes, UNDER FRACTIONAL RESERVE BANKING.
Please read MURRAY N. ROTHBARD'S book "The Mystery of Banking" available as a free download from:
mises.org/Books/myster...
Then you will understand why 19th century banking was unstable (though not as unstable as that following the founding of the Fed!).
These are going to be interesting times ahead for all of us and I think I'd rather have my money invested in things that will insure our comfortable survival; food, guns and fuel.
My diversified portfolio consists of gold, silver and lead. Yes, lead, "the other white metal," for the bankster cartel consolidating financial and political control for their New World Order. Stockpiling food so I will not be at their mercy when they stage their next crisis.
Hi. welcome to reality. paper is not "real money", as you call it. And you are another fool in an age of fools if you think that gold has lost it's status as money.
Paper money is a lie. Imagine trying to play monopoly with your friends, saving up and buying property the legitimate way, while the banker and his close friends are allowed to use a photo copier to print more bills and exchange heavily leveraged debt instruments to create an unlimited (and unregulated) supply of money. Not exactly fair is it.
then the debt instruments fall apart, and the whole leveraged steam machine collapses back into the few drips of capital water that they were before, and the banker is left owing much more than he has.
at that point he turns to the photocopier as a way of recapitalizing. The amount of bills in circulation within the game quickly quadruples.
now, imagine you were playing this game of monopoly with slightly different rules (more similar to the way we play in the real world), and instead of just buying properties for their written price you had to make bids against the other players. Once the money supply was quadrupled, don't you think the average bid for any given property would also quadruple?
There will not be the deflation that you say will bring gold down. The system, if you haven't noticed, is being pumped daily with Multi-billion dollar injections.
Building our economy with leveraged debt instruments like they did is akin to building a structure filled with Great Stuff, that spray can foam insulation. Now that the foam insulation is degenerating, the powers that be are quickly replacing the leveraged illusory foam by filling the structure with cement, real un-leveraged money.
Doesn't sound a whole lot like this DEFLATION thing is really gonna take hold too well.
90 day gold lease rates pay 10 times what 90 day US Tbills pay. Why sell when you can lease it out?
Also, the gold price my be dropping in $US terms but it surley is rising in other currency valuations.
This is not your run-of-the-mill market.
I have looked at gold vs the yen and gold vs the euro. The consolidation looks tigher relative to the weakening euro than compared to the dollar (i.e. we are pretty close to the earlier highs), but it looks pretty weak vs the yen. In both cases, as with the U.S., I would characterize the chart action as neutral at best.
Yes. money disappeared when bubble bursts. That was because the wealth used in speculating in the assett has become useless and thus worthless. We have less liquid assets as a result. That is what we are seeing now. When more money is being infused into the market ease up credit. It is inflationary because more money will being chasing useful things that left minus all the defunct useless asset due to mis-investment. In short, no matter what, printing more paper money is inflationary.
The opposite is true in deflation. If prices next month will be lower than they are today, then currenct will be dearer down the road. So no one spends, believing goods will be cheaper next month than they are today. Cash is hoarded, since prices of goods are falling and next month that same unit of currency will buy more cans of soup than it can today. Since gold is money, it too is hoarded. With less on the open market for coin dealers and jewelry, the price skyrockets.
The author, in his ignorance, has it azz-backwards. But I'm not surprised...not here at SA. One of these days you ppl are going to shock me and actually do your homework.
I have yet to see anyone talk about what currency really is and how it is stored.. electronically.
Digi-Dollars: the current and future currency. Call it what you will from country to country. Kill off the current currency, rename it or create a 'new one'. Amusing as its just digital.
The future of currency is digital.. for what we'll call legitimate transactions or what is considered so at that time. Undergound and other activities will require a different currency, and that is where something solid in trade will be required.
For digital to be used on a personal transaction level, personal privacy and other freedoms will need to be labeled as outdated and superior level checks will need to be in place (ie scanning of personal traits, such as the ancient finger print to a modified DNA identifier and for current words we'll use the simple chip phrase).
Many will identify a tangible item such as gold as a representation of freedom and superior value in such a future.
To all those contrarian people who say "I'm doing the opposite of this guy because he's always wrong". I just simply say, now who is investing irrationally.
Lastly, to everyone who clearly showed that Gold has held up its value better than everything else since the 1970s, I agree with you, it has. But on the flip side of that argument, doesn't that mean that Gold is overvalued now? Simple economics 101 says that an item can not continue to grow past its true value with respect to other items. Gold is more valued than all the other goods? Why? Is more useful than it was in 1970, has there been some new SUSTAINABLE demand for it? Ponder those for a minute.
Can gold go up further? Sure, but can it go down spectacularly? Yes. I believe the risk reward on Gold is not good. With Gold you are simply betting that the system is going to fail. A possibility, but still a long shot. If the market stabilizes and the crisis relaxes, Gold will fall as people return to other investments. Someone will be left holding the bag.
Good luck all, lets see if this blind squirrel finds a nut this time. I think he will.
Really? Where's the evidence for that, the first of many false assumptions. The only comment of interest in the article is the point that under today's economic crisis, gold (if it is a safe haven) should be very much higher, and is not. The "safe haven theory" may be bunk.
What is money? It's an abstract concept without any value outside of the collective human psyche. Some may see money as a pile of promissory notes, but the majority of the worlds monetary supply is just a bunch of machine code buried in ubiquitous computer data bases at various unknown locations. What practical use do dollars have if people stop recognising them as IOU's? Ask anyone from Zimbabwe, or look back to Europe during the 1940's.
The Governments can keep printing more and more paper money and adding numerous zero's to computerised figures, but once the majority have ceased to accept the concept of exchanging their hard work for a pile of useless paper or digitised data, the world will need to look at bartering with physical assets or a more stable form of money with a finite supply and can't be printed willy-nilly. If a $1000 dollar note loses it's status as an IOU, what other uses does it have? ,you could burn it but it won't keep you warm for very long and would take a fair wad of them to cook an egg. Not many people would want to wipe their back-side with it more than once and there's no point in writing your shopping list on it if you have nothing to exchange for the goods you want.
Gold, silver and coins are the only forms of money to survive the test of time and I believe they will still be used as a store of wealth long after America's paper and imaginary/electronic money becomes synonymous with the German Reichsmark in the history books
p.s. re <i>"Gold cant even be used to power your car. Its useless except to gaze at"</i>
when the world says 'In dollars we no longer trust", your car won't run on dollars either but you could always gaze at your dollar if it makes you feel better.
Are you surprised that high prices in tough times don't bring out sellers?
For those who posted counter-examples to my dollar/gold/house info I have the following to say:
T-bills and stocks are not stores of value, they are investments which put the value of your capital to work (and at greater risk). Fiat money is a (purported) store of value and it's quite obvious that $17,000 won't buy as much of a house in 2008 as it did in 1970. The dollar failed to store value over that time.
Sure I could have bought T-bills and had more money over time, but what if you lived in Zimbabwe? Those Z$ T-bill equivalents wouldn't buy you a stick of gum now. Gold would still get you that house.
Or, I could have bought stocks in 1971. A 1971 quality company like Pan Am. That wouldn't buy you much either today as they went bankrupt in 1991. Oops, there's that risk again.
When I said 'store of value' I meant just that. Put it in an old sock and hide it in your closet. Take it out 30 years later and it will have retained its purchasing power, without interest, share splits, or dividends.
It would seem to me that saying you could do better in T-bills essentially proves my point. Fiat money requires interest (and the extra risk which comes with earning interest) to hold its purchasing power, gold doesn't.
A true store of value doesn't need any outside addition like interest or dividends to hold its purchasing power.
Gold is a store of value. Fiat money isn't.
Solomon asked for wisdom and got much more besides (OK, the women led him astray, just goes to show. Can't blame him much, though.)
What am I missing?