Gold as a Store of Wealth

Sock Research Portal ^ | Aug 24, 2008 | icampbell

[An Old Man]

Gold is unique among commodities as it is perceived as a principal store of wealth. It is an element that does not chemically combine with other elements, does not tarnish, is highly malleable, easy to melt, can be subdivided indefinitely, and can’t be counterfeited.

I believe gold’s economics to be comparatively straightforward:

• gold is the ultimate competitor to the U.S. dollar;

• in the current environment of increasing global competition and military conflict anyone with an interest in building or maintaining wealth who ignores the gold market – and by inference both gold bullion and gold stocks - does so at their peril; and,

• a ‘gold standard’ forces governments to be fiscally responsible and provides a stable economic environment and that the adoption of a ‘non-gold standard environment’ operated with fiat currencies (i.e. currencies not backed by gold) will never do,

• of the 125 million kilograms of gold estimated to have been mined from prehistory to 2001, humans still possessed 106 million kilograms, or roughly 85% of it;

• of that total of 106 million kilograms, roughly 34 million kilograms were held by central banks, and 72 million kilograms were held by private citizens;

• the gold market is not subject to the vicissitudes of either supply or demand in the same manner as other markets. For most commodities production and supply are nearly synonymous, whereas annual gold production from mining is a tiny fraction of the total supply; and,

• gold production is spread throughout the world, making a dramatic rise or drop in production due to political factors unlikely.

[An Old Man]

Spam is better. You can eat it. If you were on a desert island would you rather have Spam or Gold?

I hope you never find yourself stranded on a desert island with only spam to eat. The salt content would kill you in short order.

Fair well, and stay safe
An Old Man

[Lokibob]

I am a firm believer in keeping 10% of your assets in gold, 5% in silver, and 1% in lead, to protect the other two.

.....Bob

[screaminsunshine]

Ha ha. Spam and coconut milk. Damn the docs and full speed ahead.

[Oldpuppymax]

Yes, but as Big Brother cannot print it or control its value, it is of no use to those trying to “get ahead” in politics.

[Steamburg]

Think long term. If this government sinks, who or what will replace it and how long will that take? With uncertainty comes opportunity and with options....

[screaminsunshine]

Long term what? Please to give me a scenario of sucess in the present environment. I can not see it. I do not think there is enough time to change the government by election or a voting public that would do so. I think the economy is in an unstoppable death spiral. If anybody can come up with a reason to believe otherwise that is viable I would appreciate it.

[torchthemummy]

Be happy keep your money say out of FUNDs.

Exactly. Get possesion and hold on to it (safe, safety deposit box)

[ScreamingFist]

I saw an interesting video the other day....it said gold should NOT be a standard for the US, we don’t have enough mineable gold. Silver on the other hand, we have in abundance....

[An Old Man]

This part is highly debatable, to say the least:

a ‘gold standard’ forces governments to be fiscally responsible and provides a stable economic environment and that the adoption of a ‘non-gold standard environment’ operated with fiat currencies (i.e. currencies not backed by gold) will never do,

Bring on the debate! That is what this is all about. Lets start with your explaination of the two jumps one at about 1930, and another at around 1971 in the flat line along the bottom of the chart below.

[Steamburg]

If we are in this disastrous spiral then in time a new government will replace this one. Gold has been a viable commodity as long as there have been governments and officials to bribe.

[An Old Man]

we don’t have enough mineable gold

The miners around here would give you a run for your money on that.

I wish people would stop including me in their "WE", it makes it appear as if I agree with them. I Don't!

[ScreamingFist]

I wish people would stop including me in their "WE", it makes it appear as if I agree with them. I Don't!

"We" as in the US of A, not we as in me and some Old Man on FR.....

[willgolfforfood]

My point is... that if you think backwards in time for 100 years starting at the Great Depression, the US of A was on the gold standard for that 100 years. And yet we had no stable economic environment. There were other depressions, "busts", booms, economic over- and under-shoots from anything that might be considered a "stable economic environment". Mostly due to the same problem we have now - meddling politicians that don't know diddly squat about economics, and don't care if citizens are free and prosperous, or broke and economically chained. But those very same politicians were VERY interested in getting re-elected, and lining their pockets with the spoils of the system.

What "fiscal responsibility" was there when Abe Lincoln borrowed money to fight the Civil War? The national debt slowly increased over that entire 100 year time frame. Nothing like now, but still getting higher all the time. What "fiscal responsibility" did gold impress on the politicians in charge over that 100 year time frame? NOT MUCH !!!

I don't care about your graph.

[snarkpup]

Back in the '80s I looked into precious metals as a potential investment. I got several coin magazines and read the articles and editorials. A common theme was that Wall Street traders with no experience in metals were bidding prices up to the point where hobbyists were priced out of the market. I decided this was nature's way of saying "Stay away!" Sure enough, it was a market top.

The hype today blows away what we had back then by an order of magnitude: Radio commercials that sound like criminal enterprises scream at me every five or ten minutes that I'd better buy gold from them or I'll be in big trouble. Talk show hosts almost unanimously beg the public to pull out of the economy and speculate in gold.

[justa-hairyape]

When I said no the guy went ballistic!

Really difficult to buy and take delivery of large quantities of precious metals right now. A friend of mine who had the money to make a decent purchase and wanted delivery was basically given the bait and switch. Oh, you wanted delivery, well that's $500 more per 10 ounce bar (Palladium). He found out from another mint seller that what some dealers like to do is take an order for metals they know they cannot deliver and then get you to hedge even larger purchases. This occurs during a run up in prices, then when the prices come down you end up with a lot of margin calls. Eventually you have given them a lot of money and never actually held any metal in your hand. The strategy that I am starting to use is to make frequent small purchases whenever the price dips and whenever some metal coins are available. If you want physical metal, only purchase deliverable metals in stock ready to ship. You probably made the right move. Small purchases can be made on CC cards which include some buyer protection. And in the future when the feds go looking for gold so they can make some more pie, they are probably gonna look for the large purchases first.

[PushinTin]

Ammunition is a MUCH better investment....

[drdemars]

Guns, ammunition, food stock, a roof over my head and a happy disposition about life in general. Oh yes some silver to barter with plus the green stuff for emergency if it shows up. And the greatest wealth of all my wonderful family.

[snarkpup]

Oh, you wanted delivery, well that's $500 more per 10 ounce bar (Palladium).

And there's also the matter of retail markup. Back in the '80s when gold was peaking at around $450/oz., a coin dealer tried to convince me that his substantial markup didn't really matter because "Gold's going to 800".

[justa-hairyape]

They come for the guns first. The gold second. The silver third. I figure it will take them at least 10 years to get all the guns, about 4 years to get all the gold and then they will have fun trying to take the silver. By then we will be living like the Afghanis guarding the Khyber Pass. Making our own guns and bullets by hand from scratch.

[justa-hairyape]

The markups make every PM coin a tough buy right now. And Gold did not experience the 50 % depreciation that all major commodities have experienced. I am sticking with the Silver Eagles for now. Cheap and silver did take its 50 % depreciation. The markups are difficult though. I have a business and a few general partnerships (micro sized companies with no relationship to PMs) and what I am looking for is a form of money to conduct transactions with in the future that is independent of any government action. The worse case for silver is that in a depreciation death spiral it loses another 50 %. Gold could lose another 75 % assuming worse case deflation, but it has resisted the 50 % depreciation. Took about a 25 % hit.