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 ...
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.
Gold is a hedge, not an investment. It has no more or less value than what people give it, just like any other asset.
Why I don’t trust gold?
Because what can go violently UP, can come violently DOWN!
What goes up must come down.
“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? By far — a loaf of bread.”
Not sure of your logic. Under those circumstances a gold coin can buy many loaves of bread as well as other more durable things. After you eat the bread, what do you have?
Can it? Why would a starving man trade you a loaf of bread for your yellow coin?
Also the original article makes gold out to be just a another pretty element. But there is industrial demand for gold. Even in dentistry there is still no better substance for a long-lasting crown that is easy on opposing teeth. The melt-value of a one hundred year-old twenty dollar gold piece is now around $1200.00 Add a bit of collector’s value and that ole coin has maintained its value pretty well.
Honest question, (and I don't own gold except for a couple of rings), but if your premise is true, then why did the Nazis during WWII pull all the teeth with gold fillings from the dead Jews mouths. WWII was definitely a world crisis. Just curious.
Whoops, I didn’t even see that graph, he compares the graph of gold to graphs of the housing bubble and the tech-stock bubble. Yes investors, every graph that shows a constant compounding of the original investment over a carefully chosen timeframe is a good indication that the underlying fundamentals are all the same.
Wow, to think that gold production will magically double, triple, increase by a factor of ten — fifty? a hundred? — as we saw in the production of internet stocks, that’s a journalistic and economic crime itself.
Even to compare it to the housing bubble, where the number of housing starts only doubled from 1991 to the top, and prices went up by a factor of up to five-fold, is irresponsible. Nobody’s trying to wreck the economy by handing out interest free loans to bums so they can buy gold.
Trolling has already been addressed.
Savings, or more accurately, wealth preservation.
Buy silver if you want currency to “spend”.
Rice is a hard asset until the meal worms or moths show up. There might be gold bugs, but they don't eat your gold.
Have some gold, sure. But don't forget soap, tampons, toothpaste, and other things people use on a daily basis for decades. And I might add, if you are really planning ahead, they store better than cigs and with booze, you have to guard both of them from people who are out of their minds in withdrawal.
Of all the above, I would probably choose soap, toothpaste, and tampons -- in that order. They store well and are pretty much ignored by people with guns looking for cigs and booze. If it hits that fan that is. You'd be dealing with less offensive minded people (women) looking for these items for their families.
Gold has it's value before and after a major meltdown when you have an semi-orderly market with liquidity.
“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.’”
Warren Buffett is being facetious, I’m sure. It has enormous utility. It is the greatest medium of exchange yet discovered by mankind. That fact is so plain and simple that a child can understand it, and I’m sure if we could find a way to communicate with sentient Martians, they’d get it, too. Though apparently (but not really), it’s beyond the delicate “genius” of Buffett.
Well stated. One also needs to understand one's reasons for wanting to own gold. One's reason should dictate the form the investment should take. Owning gold for the sake of owning gold is foolish.
“Yes, it’s a ‘hard asset,’ but so are lots of other things—like land, bags of rice, even bottled water.”
It hardly needs to be pointed out that land is only as valuable as the market dictates, and that the shelf life of rice and water is drastically shorter than that of gold.
DITTO. Before we hit Mad Max situation (where guns, bullets, food, water, drugs, alcohol, porn will be hot products) then gold has very little value in terms of keeping you alive/safe/comfortable. However if we do not drop to that level, but suffer from a severe financial meltdown (ala high inflation) then gold and silver will be very handy.
If the price of a loaf of bread is the amount of gold that you have in your hand, you are going to wind up in the same spot.
huh?
“”Under those circumstances a gold coin can buy many loaves of bread as well as other more durable things.””
“Can it? Why would a starving man trade you a loaf of bread for your yellow coin?”
Because it still has monetary value especially in a period of hyperinflation when paper money is useless. For example, during the actual depression do you think many people were willing to trade a gold coin for a single loaf of bread? Would that happen in Zimbabwe? or Venezuela? or Argentina? The only time that gold coin is less valuable than a loaf of bread is when no one wants it, something that has never happened.
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