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 ...
The hard truth told, Gold in a crisis is useless. After all the hype and fears are worn out; it has to be sold for necessities. The clarion call will sound and this bubble will pop.
Food, water, guns, bullets.
Gold is not an investment.
Gold is savings.
Or ammunition.
Gold. 21st Centurys’ tulip bulb. I’d rather have copper, lead, brass, & wheat.
The copper, lead & brass is to protect the wheat. ;-)
If, & it’s a big if, granted, 1929 were to happen again, which would you rather have? A gold coin, or a loaf of bread?
Yes.
Buffet misses the point. We are at a stage of history when everything we thought constituted an investment is about to be wiped out. It started with the dotcom bubble. It continued with the housing bubble. We know the resultant paper and physical losses that followed. Now, we have this ridiculous debt bubble that is a worldwide scandal. When the other shoe drops, we'll finally know where we stand (only we won't be standing). In that scenario, all investment bets are off; except one.
The point not to be missed about gold is not that it's an investment, but that it will withstand the worst case scenario.
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.
It is a hedge, that is all.
Depending on the scenario, other forms of investments will bring higher returns, ie drinking water, food, ammo.
The idea that you should only put your faith in any single thing is absurd and of course foolish.
Diversification in investing is prudent; gold has it's role.
Free market. period.
The hard truth told, Gold in a crisis is useless.
And, it is hard to carry in your pocket. In crisis, where and who are you going to sell your gold to? How much food could you buy with a bar of gold? If you pull out gold coins to pay for something - will you have a big hairy guy following you out of the grocery? Food, water and ammo is what you need.
And this is for one simple reason: At some levels, gold, as an investment, is absolutely ridiculous”
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. Gold is a store of value and it has filled that role admirably for much, much longer than any fiat has ever approached. The $ only looks good because it’s being valued against a basket of even more worthless fiats.
There’s a race to the bottom that has accelerated dramatically over the past few years that will result in most financial assets being wiped out. Late 08 and early 09 was a foretaste. You don’t solve debt issues by creating more debt which is all we’ve done.
We are not in a gold bubble, one has to only look at the valuation being attached to the mining stocks along with silver’s relative value wrt gold to clearly see that truth. Gold has much further to run in a world where it’s being valued in rapidly depreciating currencies.
By far -- a loaf of bread. The existence of a loaf of bread assumes that it is available.
If it's available, I assume there's more.
If there's more bread, someone is selling it.
If someone is selling it, that means they can't eat it all and need something with which to store the value of their bread. That's where gold comes in.
About the only thing the beatniks and hippies got right was when they called money, "bread".
Goldbug ping
Well let’s count how many ways this is trite old rehash:
- no dividend, check
- you can’t eat it, check
- what if you bought it at the tippy tippy top, before you were born?, check
Then he waves his hands about how much “surplus” gold there is, using as the absolutely worst mental image possible, how many bullion coins the Mint could make with it. Does anybody remember exactly how many times in 2008 and 2009 the Mint stopped accepting orders because they couldn’t get material? Four, five, more?
And people are buying gold and hanging on to it, that’s why the price is high, because there’s less of it out there?
His first installment of this series came out on May 25, the very day of gold options expiration, notorious and easily proven for almost every month of the last year to be as the time when gold hits its monthly bottom.
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I'd take the gold coin. The price of bread in 1929 was about 10 cents, while the gold coin held value at $20.66. In general, food prices were falling in the depression, and there wasn't a shortage of it, just a shortage of jobs to get money to buy it.
Although Gold extraction has increased, I think it more likely that the world’s balance sheet, money printing and debt has far outpaced increased gold production.
Gold may not be a great investment, but fiat currency based assets are even worse.
Buying gold at it’s inflation peak was not wise in the late 70s/early 80s, but no one could predict when inflation would end when Jimmy Carter was president. Right now we have relatively little inflation just like in the 1960s.
If we get real economic growth (as in the mid 1980s and beyond), yes, I agree it would be wise to get out of gold. We will have to see some sound economic policy or a really positive and tranformative technological breakthrough that allows real wealth creation.
Saw a very interesting blog from an “urban survivalist” in Argentina when that country’s economy blew-up in 2001, the Gov’t confiscated foreign currency accounts, there was rioting in the streets, etc...
He also explained that gold, in most forms (esp. anything less than pure), was not useful. Do you exchange a gold bar for a tank of gas? He posited gold would have been more useful in the forms of small coins or tradeable links of some kind that would be easily carried, traded and recognizable to people (basically, he just described a type of currency)
More useful to him: A gun, ammunition, stored food/water, and a big truck/SUV that allowed him to get out of situations with would-be robbers on the roads
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