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 ...
“Dave Ramsey told a caller once that he’d be better off with a can of soup and a gun, if it hit the fan.”
I love how gold is always held up to this ridiculous, pointless standard: the “what if civilization ends” standard. If the economy suddenly collapses, and only the most urgent needs are important, then gold will be nothing like food, water, and shelter. But how come we never compare the things people usually invest in (not that gold is for investment, persay, rather than ) to the chaos standard? How come calls for investing in stocks, bonds, commodities, art, baseball cards, etc. are never met with, “Yeah, well, you’ll be sorry when wild gangs of violent punk nomads rape women and children willy-nilly and everyone’s house sponteously combusts on a regular basis.”
I know why. It’s because gold is commonly advocated in times of danger. Except when most people talk about hedging against inflation, they’re not necessarily imagining Weimar inflation. There’s a lot of space between cash losing value and blood running in the streets.
Why does it have monetary value?
That's my issue with gold as well...except there always seems to be someone willing to pay for it.
“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.”
What if the nuts knew that no matter whether anyone wanted to smoke them they would still be valuable? Because that is gold. It’s always valuable. Mystification at the power of gold ought to disqualify one from writing about it. That’s just the way it is. It’s shiny and pretty and people everywhere know they can use it to get other stuff.
By the way, prisoners aren’t locked into using smokes as currency. They can also use, you know, currency. Which still has value behind bars, though you can’t smoke it. Actually, you can smoke the paper variety, but not without adding something.
“There’s a lot of space between cash losing value and blood running in the streets.”
Not as much as you might think. History has shown that civilization is a thin veneer on society. After people miss a few meals, their children are hungry, or this month’s welfare check doesn’t arrive, you will see how thin a veneer it is.
“Why would a starving man trade you a loaf of bread for your yellow coin?”
I don’t know. Maybe he needs insulin.
“Why does it have monetary value?”
Why does anything have monetary value?
Oh, NOW he doesn’t trust gold. If a person has a middling amount to invest, he is a moron to buy into a heated-up market. Buying gold now is for people with money to lose or time to monitor the price like a hawk and the resources get out in minutes. Gold fund, maybe... real gold, not so easy.
If gold scared one of the original Democrat communists so much that he banned gold coins and ordered them melted down, then that tells me I should have some gold in my savings.
Same could be said for land, or nearly any other tangible purchased at an absolute peak in the early 80’s. Gold had gone parabolic at that point in time and no asset should be purchased in those circumstances. Even given that incredibly poor timing you would now be up roughly 50% from the early 80’s peak. Gold will in all likelihood go parabolic once again and once again that will not be the time to be buying. You should have been in long before that point.
If you purchased a basket of dotcoms in the late 90’s you’ll never have the chance to recover that money unlike with a tangible.
“Not as much as you might think. History has shown that civilization is a thin veneer on society. After people miss a few meals, their children are hungry, or this month’s welfare check doesn’t arrive, you will see how thin a veneer it is”
Yeah, yeah, yeah. But my point is, howcome no one ever brings up how thin the veneer is when people talk about investing in stocks or saving in dollars? Seems a rather crazy and unfair burden for gold to bear. Or perhaps I can view it as a backhanded compliment. You have to go all the way to the end of the world as we know it before gold’s not so valuable.
“What’s ridiculous is the notion that any and all fiat currencies will end up with any value other than totally, flat as a pancake worthless.”
Fiat currency does not have to be worthless if the issuing government is well run and people have confidence that it can live within its means. Remember that a fiat currency has one huge inherent value: you can pay your taxes with it. In the great scheme of things, the invention of pieces of paper that held the power to make gun-toting men from the government go away without stealing your stuff was a huge civilizational advance. As long as government continues to accept tax payments in its own currency and takes steps to match money supply growth to growth in real productivity, a fiat currency can be rock solid stable.
My point exactly. Gold is not magic. It does not have monetary value just because you or I want it to have monetary value.
Gold is a medium of exchange by consent, not by intrinsic worth.
If there is a complete collapse to the extent that many pushing gold are indicating, then gold will become just as useless as paper money. Food, shelter, and labor will be the modes of trade, not anything with “monetary” value.
“It has no utility.”
Yes it does, jewellery. Without that one utility (and slight electronics which would not be there at higher prices), it would be NO DIFFERENT FROM A FIAT CURRENCY. Artificially inflated value beyond real value.
“up roughly 50% from the early 80’s peak”
not inc inflation
I stopped reading right there. That's the most idiotic statement in investing.
“Even given that incredibly poor timing you would now be up roughly 50% from the early 80’s peak.”
Wrong. You’d be up 50% in inflated dollars. Your purchasing power would be substantially less.
“Remember that a fiat currency has one huge inherent value: you can pay your taxes with it. In the great scheme of things, the invention of pieces of paper that held the power to make gun-toting men from the government go away without stealing your stuff was a huge civilizational advance”
This is so very, very wrong. Fiat currency exists, you must realize, so that the government can print money at will to cover its debts, the people all along being mostly totally unwise. At least in the olden days, when the men with the guns had to do it the hard way, everyone saw what was happening. Oh, yes, they covered it up by outsourcing to tax farmers or stealing from the other guys or clipping coins.
Still, most of their booty had to be taken honestly. That is, openly. Just like some portion of the whole is now taken honestly. But without the hidden part—the part taken through inflation—government would never, ever have grown to its current gargantuosity. Wouldn’t have slipped it by us.
BINGO! Gold is best used as a store of value to re-monetize after a currency collapse. Its not for buying bread.
I have a brand new 100 Trillion Zimbabwe dollar note (3rd ZDW).
I most definitely want that note.
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