Posted on 05/27/2010 6:47:03 AM PDT by SeekAndFind
This is a very sad day for me.
In Part One of this series, when I argued that gold might be about to go vertical, I made a whole bunch of new friends among the gold bugs.
And now I'm going to lose them all.
That's because even though I think gold might be about to take off, I don't recommend you rush out and put all your money into gold bars or exchange-traded funds that hold bullion.
And this is for one simple reason: At some levels, gold, as an investment, is absolutely ridiculous.
Warren Buffett put it well. "Gold gets dug out of the ground in Africa, or someplace," he said. "Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
And that's not the half of it.
Gold is volatile. It's hard to value. It generates no income.
Yes, it's a "hard asset," but so are lots of other things—like land, bags of rice, even bottled water.
It's a currency "substitute," but it's useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking "facility" still trying to settle their debts with cigarettes. That's gold. It doesn't make sense.
As for being a "store of value," anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.
I get worried when I see people plunging heavily into gold at $1,200 an ounce. What if the price goes back to where it was just a few years ago, at $500 or $600 an ounce? Will you buy more? Sell?
(Excerpt) Read more at online.wsj.com ...
A $20 gold piece in 1964 cost $50. I wonder how much that would be in today’s dollars.
Okay, I found a chart on the C.P.I. and that 1964 purchase of a $20 gold piece for $50 would be equivalent to paying $350 today. So gold would have been a big winner.
Wrong! gold also has monetary value and, when we were on the gold standard, it served to contain excessive debt.
When inflation in this country hits triple digits, ask me then about the value of gold and gold coins.
Not exactly, it was a different emergency for the Jews who used gold to bribe their way out of Nazi Germany or the educated people who used it to bribe their way away from the Khmer Rouge.
Good point. And diamonds sewn into your clothes.
Gold has been valued since antiquity. It is ingrained in the human psyche.
While the selection of gold for this special status may be somewhat arbitrary, repeated efforts to rationally attack it have been universal failures. And it is hardly unique. People pay millions at art auctions for moldy pieces of painted canvas.
Gold will hold its unique status because all over the world people want it to. Simple as that.
This has never happened in the history of the world, but I guess you can fantasize if you want to. The only time in our history that the currency held its value for the long run was when it was-- wait for it--- backed by gold.
The Executive Order only applied to coins and gold certificates. Further, one could keep up to $100 in gold on-hand under the order. Jewelry, etc. was not even covered...even so, the Federal Reserve received tons (yes, literally tons) of junk jewelry. The order was met with calls for "gold drives" to help the govt -- no joke.
Only one guy was ever prosecuted for violating the order and the judge dismissed the charges against him. Safe-deposit stories are likewise "urban myths" of the era.
Paper money need not be "fiat" if it is required to be backed and is redeemable in gold, silver or some other hard currancy. IOW, if Gold is $35 /oz, then you should be able to go to the bank and get an oz of Gold for $35. You could do just that until 1933. Here is a paper 1922 Gold Certificate:
So my grandparents were not getting by on "fiat" currency, it was backed by gold until '33 and it took quite some time for the effects of it no longer being redeemable for god to be felt. But silver certificates were still allowed and used. Even I remember having silver certificates. They were issued until from 1878 to 1964, and were redeemable for silver coins until 1968, the year I graduated from high school.
"real value" measured how? If you took a market basket of things, especially comodities like wheat or pork bellies, and translated their value to ounces of gold, you'd find that on average, the value of the gold, in wheat and pork bellies, didn't vary all that much over time. There were be certain times when gold was "expensive" other times when it was "cheap".
A few rebuttals to this article, noting all the varied logical fallacies, trite and shopworn fake arguments, etc.
http://www.lewrockwell.com/north/north849.html
http://www.acting-man.com/?p=2165
SLV turned up nicely today, fractionally outperforming GLD a bit here in morning trading... I'm still short-term bullish on the white metal.
Oh well. Not every day can be a winner.
As I have said before, gold is not the only “hard asset” in the world. It would be foolish to trust just one.
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