Posted on 12/01/2005 10:40:52 AM PST by .cnI redruM
NOTHING swells the breast so much as the thought that you have been proved right at last. After riding high at the start of the 1980s, gold bugs had a miserable couple of decades. The price declined relentlessly, mocking their credo that the security of the financial system ultimately depends upon the yellow metal. Lately, though, the faithful have enjoyed their reward. In the past five years the price of gold has doubled. This week in Asian trading it briefly surpassed $500 a troy ounce—a level last breached in 1987. You can almost feel the bugs' excitement as the message sinks in: gold is back.
This being gold, the resurgence has brought forth all manner of alarming prophecies. The price is an omen of rampant inflation; bonds are doomed; the dollar is about to fall prey to the United States' reckless deficits; the euro will shortly be revealed as a worthless creation of bureaucrats.
The world is an unpredictable place. But, with the possible exception of a fall in the dollar, not much of the above catalogue of doom looks likely; and none of it has much to do with gold's good run. The dull truth is much less bullish for gold. Investors have put money into a wide range of metals, and precious metals' prices, including gold's, have risen with the base. Meanwhile, gold remains fundamentally unattractive. It yields nothing and central banks are sitting on vaultfuls of the stuff that they want eventually to sell. Gold bugs hope that $500 is the threshold at which mainstream investors will start once again to take an interest in the metal. Caveat emptor.
Advertisement The fascination of gold lies in its being not only a commodity but also a store of value and means of exchange. The glamour and the mystique lie in the latter, monetary part. This is what draws gold bugs, but their story doesn't quite add up. The unbalanced world economy still faces risks. But the most recent rises in the gold price have come against a strong dollar, which is normally a sign of weaker gold and continues to confound warnings of a collapse in the greenback. Oil prices are plainly far higher than they were, but they have come off their peaks. Moreover, there have been few signs so far that oil prices are feeding through to a 1970s-style stagflation. Nothing in either bond or stockmarkets suggests that investors see much danger of such a thing happening.
Bear on bullion Gold's renewed shine is best explained by thinking of the metal not as money but as a commodity dug out of the ground. In the past few years the price has climbed because mining companies stopped locking in prices by selling gold in advance—in effect, withdrawing a huge source of supply. Even then, gold has captured only 40% of the gains of other metals in The Economist's metals index, which has almost doubled since the start of 2003 thanks partly to fundamental demand from emerging markets and partly to investors in search of better returns than those from other assets. Gold would have done better had Chinese demand risen as fast as some expected; in fact, figures from GFMS, a consultancy, suggest it has been flat, even falling, over the past 20 years. Chinese investors now have other places to put their money.
Gold is still cheap compared with its peak of $850 in 1980. Today, adjusting for changes in American consumer prices, it is worth only a quarter as much. Gold bugs might see that as a chance to buy; others as a reminder of gold's enduring capacity to disappoint.
Well private ownership of gold was illegal in 1970 for starters. Transactions in gold were never very accurate or efficient. Gold can be an ASSET and assets can increase in value. As an asset gold has lagged behind many other assets in appreciation.
Had you bought an ounce of gold in 1981 for almost $900. Today you could buy only $500 worth of stuff with it and that is after the doubling over the last five years.
For twenty five years it has been a horrible investment.
Thanks--it's always refreshing to encounter a hard fact that can blow speculation out of the water!
It certainly was for the Spanish after 1500. No way that it made the world more peaceful. But that was not my point. Warfare is so expensive that governments on the Gold Standard are forced to scrap it to finance the war effort. Once the Napoleonic Wars broke out England was forced to suspend convertibility not to be resumed for decades after they ended.
That "fact" is false. The Bank of England was private not run by the government. Keynes merely understood that resumption of the Gold standard would weaken the British economy (it did) reduce international trade (it did). His predictions were on the money and the slowing of the English economy in the late twenties following resumption of the Gold Standard helped bring on the Great Depression.
The fact I was referring to was that it was Keynes who was the source of the phrase "barbarous relic," not the economic analysis itself as a fact. I don't know enough about economics to have a worthwhile opinion on the subject.
Placerin is easier than hard rock stuff.
I still can't run that drill...
It's not the 8 foot drill bit that gets me, it's the 140 pounds of dead weight the drill itself has.
Easy is always a relative term.
Try running a custom 12" suction nozzle under an Alaskan river, working a hooka rig, all day, every day, for a season or two. "Easy" might not be the best description of commercial placer mining.
But, I agree with your point, Hard Rock sucks, just being there sucks, we got MSHA certified and then they wanted to pay us $10./hr to work under ground, even at the face. They were using big jumbos at the working face, and lots of back bolting was required, all the way through.
We laughed at them, and then went out west to fish the Aleutians.
Imagine that! $10./hr to work underground. Give me a working deck, and a percentage, any day. Well back in "the day" anyhow.
Panamanian rivers are a lot easier. There's guys here that go up stream and pan for a month and clear say, $100 --easy! A buddy of mine used to buy their gold at the going rate per oz. He had it checked out one time and found out that what he thought was pure gold was in fact contaminated with impurities --mostly platinum and iridium.
He only meant it was a barbarous relic in terms of basing a money supply on it nothing else. He undoubtedly bought his ballerina wife plenty of nice bling made up of gold though.
I had an ounce or so of placer (49'r territory placer) refined for jewelry.
It assayed out to 19.5 karat
Damn boy, I'll bet your kind up there had to tote your gonads around in wheelbarrows! Underwater mining, underground hard rock mining, and fishing in the Aleutions! Man, that sure as hell ain't sissy stuff!!!!
Agreed. You won't lose as much value investing in gold as in beanie babies. But then that applies to investing in toothpaste or urinal cakes or anything else, for that matter.
You certainly don't make any money in gold over the long run, it has no yield, and it actually costs money (in storage, verification and, of course, opportunity costs) to own.
And it can decrease in value. Gold is no more immune to the laws of supply and demand than anything else. But given the fact that gold has relatively few actual uses, it has little intrinsic worth.
People that bought at the top of the gold market in 1980 got screwed, just like the people that bought into NASDAQ at 5200 got screwed. It's simple...buy low, sell high; not the other way around.
I don't understand your point. Of course gold's value can be manipulated --- for political ends or for any other reason. About twenty years ago, the Hunt brothers came damn close to cornering the silver market. And if silver can be cornered, why can't gold? The laws of supply and demand don't just go away because you say they do.
NO BLOOD FOR GOLD!
HaHAHAHAHAHAHAHA.
Bought all I own between 240 and 300.
You could make the same idiotic comparison by comparing buying stocks only at the peak of the NASDAQ. The trick you see is to Buy Low and Sell High.
That's an old saying? I've never heard of it, and Google lists no references. And if the Emperor hates gold, it's because gold is a terrible investment, for individuals, speculators and nation-states alike.
The public gets used to a "little" inflation.
A good thing too, because the economy can't grow unless the money supply expands as well.
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