Gold Is Cheap. Inflation Is Coming. You Do the Math

Barrons ^ | 09-24-2018 | Andrew Bary

[NRx]

Gold has gotten a bad rap.

Long seen as the investment choice of the cranky and the fearful, the metal yields nothing; as Warren Buffett has said, it just “looks at you.”

This year has been especially lackluster for gold. Its price has slumped 8%, to about $1,200 an ounce, and is off more than 35% from its high of $1,900 in 2011. Adding insult to injury, Vanguard will soon rechristen the largest gold-oriented U.S. mutual fund and shift its focus away from the metal.

But this out-of-favor asset class now deserves a place in investment portfolios.

Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the U.S. and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio. Over time, it has held its value against the dollar. Gold was $20.67 an ounce 100 years ago and that bought a good men’s suit. At $1,200 an ounce, the same is true today.

“Gold is rare, and it’s hard to rapidly increase the supply of it,” says Keith Trauner, co-portfolio manager of the GoodHaven (ticker: GOODX) mutual fund, which holds Barrick Gold (ABX), a leading mining company. “People have historically viewed it as a hedge against government depreciation of local currency...”

“...Virtually every government in the world is trying to promote inflation partly because there is so much sovereign debt,” Trauner says. When there is so much debt, he contends, governments have three choices: default, restructure, or inflate the currency. “Politicians, when given the chance, will choose the latter.”

[RegulatorCountry]

Regardless of which nutmeg was the source of that oft-cited erroneous statement, I tried and failed to point out that gold gyrates wildly, it hasn’t tracked neatly with inflation, it takes off in times of economic uncertainty fed by speculation, and it then collapses. This has happened time and again. I’m not against gold as a hedge against economic uncertainty, but encouraging naive people to treat it as a long term investment is folly that impoverishes a lot of people who can ill afford to lose the money.

[Georgia Girl 2]

Silver is similar to gold. A pre 1965 quarter would buy a loaf of bread. That same quarter will buy a loaf of bread today.

[Zhang Fei]

[The US dollar is collapsing, and has been the moment we took it off the gold standard.

Without Chinese labor in 90% of our products, the prices become too high for any american to purchase anything. Ask an American to pay $7000 for an iPhone.

We’ve been collapsed for sometime now. It’s just not “hyperinflation”. There is a lot of room between those two points on the chart.]

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In most countries, the wages adjust. They don’t completely make up the difference and there is a fall in purchasing power, but they adjust. But that’s an average. In reality, workers getting wage income do fine. People on fixed incomes, not so much. If latter category are reasonably savvy, they invest their savings in foreign stock markets via index funds to preserve their purchasing power and get some dividend income.

Quoting from memory, Mexico has had 6 zeroes removed (I remember at least 3) from its currency in the past 50 years. https://en.wikipedia.org/wiki/Mexican_peso Do you ever hear of starvation in Mexico? In reality, Mexico has a roughly the same obesity rate as we do. https://en.wikipedia.org/wiki/List_of_countries_by_body_mass_index The reality of out-of-control inflation is much more prosaic than the typical Hollywood potboiler. Even in Zimbabwe, people are somehow eking out a living rather than starving or living a Mad Max script played for real. Last I remember $1 bought trillions of Zimbabwe dollars.

[Eleutheria5]

Of course inflation’s coming. The Fed wouldn’t tighten the money supply significantly, despite the fact that the economy is booming like a cannon. So naturally, you will have inflation. I don’t know how Donald stopped the Fed from acting, and I don’t know if it’s a good thing or not. But this is what happens.

[MarchonDC09122009]

RE: “15 years ago I said on FR that globalism was coming, and one of their goals was a one world currency.”

All, the new global currency is already here...
BIS & IMF approved Goldman Sachs new “stablecoin” USD Coin, ie:
US dollar world reserve currency replacement.

NEWS: In a milestone for the entire #crypto industry, Goldman Sachs Circle and CENTRE introduce USD Coin (#USDC), a fiat-backed stablecoin, with 30+ supporting companies

Introducing USD Coin
blog.circle.com

https://perc360.com/goldman-sachs-launches-us-dollar-coin-fedcoin-coinbase-to-become-the-crypto-regulatory-agency/

https://www.cnbc.com/2018/05/15/goldman-sachs-backed-start-up-circle-introducing-a-crypto-us-dollar.html?__source=sharebar|twitter&par=sharebar

And -
Biometric Global universal ID on track as well, see: ID2020.org (UN, Microsoft, Accenture consortium)

You’re gonna Love the convenience!

[servantboy777]

Good point, but before you purchase the loaf of bread, you must first sell the pre-65 quarter dollar.

[Celerity]

None of your examples make me feel good, nor do I think they really negate my position.

Also, fat doesn’t mean doing well.

[SaveFerris]

[Biometric Global universal ID on track as well, see: ID2020.org (UN, Microsoft, Accenture consortium)

You’re gonna Love the convenience!]

Yet the world thinks Revelation 13 and Revelation 14 aren’t coming. They’re going to walk right into it.

Cool technology. Very convenient. Saves time. Decreases identity theft. More accurate inventory.

And then, a global dictator who confirms the peace covenant dividing Israel for 7 years.....

[Zhang Fei]

[None of your examples make me feel good, nor do I think they really negate my position.

Also, fat doesn’t mean doing well.]

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These examples aren’t wonderful, but it’s hard to think of something even 1/10 as bad as the Mad Max dystopias Hollywood has conjured up, short of civil war. Mad Max is basically caveman wars fought with guns, crossbows and edged weapons, with psychopaths as tribal leaders. Even the collapse of the Western Roman Empire 1500 years ago was better than that.

Fat doesn’t mean they’re doing well by modern world middle income standards (Mexico is near the top 1/3 of countries, income-wise) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita, but they are hugely better off than even 50 years ago. A fat person is taking in more calories than he needs. As recently as 50 years ago, that wasn’t a problem in Mexico. It’s certainly not a problem in Vietnam or Indonesia today, where the average person is reed-thin. And a recurring theme in dystopian fiction is the difficulty of getting enough food to eat.

[SaveFerris]

He keeps flying his plane over me, clinking his gold coins and laughing.

Meanwhile, I’m on hold with Glenn Beck and Goldline right now.

[Georgia Girl 2]

Obviously I'm just talking about value. ☺

[ak267]

Keep em for a rainy day

imho

[freepertoo]

I buy silver eagles. They’re a pretty coin.

[Roman_War_Criminal]

I see FR really gives a crap about our warnings.

95% of them will walk right into Revelation 13 & 14 also, if they survive the first few seals.

[SaveFerris]

I think March on DC sees it coming, in some way.

U.N., and a few tech companies. Really cool technology.

Really convenient for a world dictator some day....