Posted on 01/10/2009 11:08:04 AM PST by An Old Man
Gold is unique among commodities as it is perceived as a principal store of wealth. It is an element that does not chemically combine with other elements, does not tarnish, is highly malleable, easy to melt, can be subdivided indefinitely, and can’t be counterfeited.
I believe gold’s economics to be comparatively straightforward:
• gold is the ultimate competitor to the U.S. dollar;
• in the current environment of increasing global competition and military conflict anyone with an interest in building or maintaining wealth who ignores the gold market – and by inference both gold bullion and gold stocks - does so at their peril; and,
• a ‘gold standard’ forces governments to be fiscally responsible and provides a stable economic environment and that the adoption of a ‘non-gold standard environment’ operated with fiat currencies (i.e. currencies not backed by gold) will never do,
• of the 125 million kilograms of gold estimated to have been mined from prehistory to 2001, humans still possessed 106 million kilograms, or roughly 85% of it;
• of that total of 106 million kilograms, roughly 34 million kilograms were held by central banks, and 72 million kilograms were held by private citizens;
• the gold market is not subject to the vicissitudes of either supply or demand in the same manner as other markets. For most commodities production and supply are nearly synonymous, whereas annual gold production from mining is a tiny fraction of the total supply; and,
• gold production is spread throughout the world, making a dramatic rise or drop in production due to political factors unlikely.
(Excerpt) Read more at stockresearchportalblog.com ...
A book I strongly recommend to anyone concerned about current economic conditions, prospects, and wealth growth and preservation, and who is a disbeliever in the efficacy of fiat currencies is Gold, The Once and Future Money, Nathan Lewis, John Wiley & Sons, Inc., 2007. This book is available at most bookstores and at Amazon.com.
The book quotes Alan Greenspan in 1999 as saying:
“Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted.”
This statement was made before the serious loss in manufacturing jobs (simplistically over 21% from 2000 to 2007) and enormous escalation in the cumulative U.S. net trade deficits that has subsequently occurred (approximately U.S.$2 trillion from 1999 to U.S.$6.5 trillion by December, 2007 and growing) – see the Economic Research tab of StockResearchPortal.com for detailed charts reflecting these statistics.
In view of the current state of the US Dollar, I thought reviewing some of the points made by the author would be appropriate.
Can’t eat it. Spam is a better investment. I was able to get a couple cases yesterday.
Great.
Everyone buys gold, driving up the price. Then news is released that the economy is improving and gold prices tank.
So, what we did for the housing market bubble, the hucksters are doing for the gold market.
a ‘gold standard’ forces governments to be fiscally responsible and provides a stable economic environment and that the adoption of a ‘non-gold standard environment’ operated with fiat currencies (i.e. currencies not backed by gold) will never do,
Gold has had its day ~ more recently the discovery of “super atoms” suggests that gold can and will be counterfeited successfully ~ in large quantities.
It is gonna be so bad Spam will be worth more.
Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or "paper" proxies.
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Spam is better. You can eat it. If you were on a desert island would you rather have Spam or Gold?
True but the hucksters only want to sell you a piece of paper saying you own part of a gold fund. Sort of like Madoffs cash, cow, you know who makes the money!!! Be happy keep your money say out of FUNDs.
Pure gold does not tarnish. The "grade" depends on the amount of alloy metals like silver, copper, nickel, zinc mixed with the gold which do tarnish. 10 karat gold, for instance, is only .4167 % gold, so tarnishing of the alloys is quick and obvious. 18K gold is 75% pure gold and the alloys will tarnish more slowly over time. In neither case does the gold tarnish.
T’pol
Glenn Beck is always screaming to “buy gold”. I called the Gold place he endorses and got the hard sell. I made a “verbal” purchase, and said I’d back it up with the cash or decide against the purchase within 24 hours. When I said no the guy went ballistic! Said I was the 1st guy ever to bow out of a deal. Nothing on paper and no actual obligation was made verbally. I’ll take the Spam an earlier post suggested. Great nuked with mayo and wonder bread!
I don't have to make a choice, I have both. I bought Krugerrands in 1993 at $382.00-$402.00 each.
At today’s prices, gold is still a good piece of the puzzle. I would never put all my options into any single basket, not even spam. However, disasters are not instant and do not happen in a single step.
Three things gold does. First, it has always been the mark against which currencies measured, therefore in the event of hyperinflation, gold will keep pace. Second, it is a compact, alibi heavy commodity. Third, gold has no shelf life.
On the negative, gold does not have much value in a total collapse, until some order gets reestablished. It temporarily looses value in deflation (emphasis on temporarily).
No doubt. But I feel the bad vibes. We are going down like the Titanic.
Perhaps tarnish is incorrect...let’s go with patina.
It is pretty hard to tarnish pure gold.
Bear in mind that gold used in jewelry is far from pure. Pure gold is 24-karat, American-made jewelry is usually 14K (which means 14/24 Au). European jewelry is 18/24 Au. That means that even European jewelry is at best normally only two-thirds gold.
I still advocate USPS “Forever” stamps as a good hedge. They will always be worth the mailing of one first-class letter. I recommended putting about 1/100,000 of your portfolio in “Forever” stamps.
Some people recommend 10-20% of your savings should be in gold. Another portion should be in guns and ammo.
I hope you never find yourself stranded on a desert island with only spam to eat. The salt content would kill you in short order.
Fair well, and stay safe
An Old Man
I am a firm believer in keeping 10% of your assets in gold, 5% in silver, and 1% in lead, to protect the other two.
.....Bob
Ha ha. Spam and coconut milk. Damn the docs and full speed ahead.
Yes, but as Big Brother cannot print it or control its value, it is of no use to those trying to “get ahead” in politics.
Think long term. If this government sinks, who or what will replace it and how long will that take? With uncertainty comes opportunity and with options....
Long term what? Please to give me a scenario of sucess in the present environment. I can not see it. I do not think there is enough time to change the government by election or a voting public that would do so. I think the economy is in an unstoppable death spiral. If anybody can come up with a reason to believe otherwise that is viable I would appreciate it.
Exactly. Get possesion and hold on to it (safe, safety deposit box)
I saw an interesting video the other day....it said gold should NOT be a standard for the US, we don’t have enough mineable gold. Silver on the other hand, we have in abundance....
a ‘gold standard’ forces governments to be fiscally responsible and provides a stable economic environment and that the adoption of a ‘non-gold standard environment’ operated with fiat currencies (i.e. currencies not backed by gold) will never do,
Bring on the debate! That is what this is all about. Lets start with your explaination of the two jumps one at about 1930, and another at around 1971 in the flat line along the bottom of the chart below.
If we are in this disastrous spiral then in time a new government will replace this one. Gold has been a viable commodity as long as there have been governments and officials to bribe.
The miners around here would give you a run for your money on that.
I wish people would stop including me in their "WE", it makes it appear as if I agree with them. I Don't!
"We" as in the US of A, not we as in me and some Old Man on FR.....
What "fiscal responsibility" was there when Abe Lincoln borrowed money to fight the Civil War? The national debt slowly increased over that entire 100 year time frame. Nothing like now, but still getting higher all the time. What "fiscal responsibility" did gold impress on the politicians in charge over that 100 year time frame? NOT MUCH !!!
I don't care about your graph.
The hype today blows away what we had back then by an order of magnitude: Radio commercials that sound like criminal enterprises scream at me every five or ten minutes that I'd better buy gold from them or I'll be in big trouble. Talk show hosts almost unanimously beg the public to pull out of the economy and speculate in gold.
Really difficult to buy and take delivery of large quantities of precious metals right now. A friend of mine who had the money to make a decent purchase and wanted delivery was basically given the bait and switch. Oh, you wanted delivery, well that's $500 more per 10 ounce bar (Palladium). He found out from another mint seller that what some dealers like to do is take an order for metals they know they cannot deliver and then get you to hedge even larger purchases. This occurs during a run up in prices, then when the prices come down you end up with a lot of margin calls. Eventually you have given them a lot of money and never actually held any metal in your hand. The strategy that I am starting to use is to make frequent small purchases whenever the price dips and whenever some metal coins are available. If you want physical metal, only purchase deliverable metals in stock ready to ship. You probably made the right move. Small purchases can be made on CC cards which include some buyer protection. And in the future when the feds go looking for gold so they can make some more pie, they are probably gonna look for the large purchases first.
Ammunition is a MUCH better investment....
Guns, ammunition, food stock, a roof over my head and a happy disposition about life in general. Oh yes some silver to barter with plus the green stuff for emergency if it shows up. And the greatest wealth of all my wonderful family.
And there's also the matter of retail markup. Back in the '80s when gold was peaking at around $450/oz., a coin dealer tried to convince me that his substantial markup didn't really matter because "Gold's going to 800".
The markups make every PM coin a tough buy right now. And Gold did not experience the 50 % depreciation that all major commodities have experienced. I am sticking with the Silver Eagles for now. Cheap and silver did take its 50 % depreciation. The markups are difficult though. I have a business and a few general partnerships (micro sized companies with no relationship to PMs) and what I am looking for is a form of money to conduct transactions with in the future that is independent of any government action. The worse case for silver is that in a depreciation death spiral it loses another 50 %. Gold could lose another 75 % assuming worse case deflation, but it has resisted the 50 % depreciation. Took about a 25 % hit.
I am sorry you feel that way. Perhaps you would be interested in a paper that discusses the booms and busts you refer to in your response. The following is the section of the paper which mentions the Gold Standards.
5. The Gold Standard
The authors argue that the inter war gold standard was different than the pre war gold standard because it was a full blown gold exchange standard in which, foreign exchange reserves provided central banks greater scope for independent accomodative monetary policies hence encouraging foreign capital to finance credit booms.
Was this really different than the pre 1914 era? Massive investment booms occurred in the U.S. in the 1830’s, and 1870’s which were followed by busts as was the case for Argentina in the 1880s. Why was that earlier experience different from the 1920s? The answer I believe lies not in the differences in the size of the credit boom stressed here but in the severity of the bust. As Bordo and Eichengreen (1999) and Delargy and Goodhart (1999) show, the busts in Argentina in 1890, the U.S. in 1893, Italy 1907 were severe but nothing compared to the Great Depression. As mentioned above, it was the policy response after 1930 and not the credit boom that accounts for the consequences of that event.
For your edification, the entire paper can be found in Comments on “The Great Depression as a Credit Boom Gone Wrong”
By Barry Eichengreen and Kris Michener
The authors argue that the inter war gold standard was different than the pre war gold standard because it was a full blown gold exchange standard in which, foreign exchange reserves provided central banks greater scope for independent accomodative monetary policies hence encouraging foreign capital to finance credit booms.
And here's what the original article said:
a ‘gold standard’ forces governments to be fiscally responsible and provides a stable economic environment...
I seriously question how a government / country on the gold standard can both have a "central back encourage foreign capital to finance credit booms" AND SIMULTANEOUSLY "force governments to be fiscally responsible and provide a stable economic environment."
Personally, I think owning some gold is a great idea. But as a laymen studier of history, politics, and economics, I don't see any evidence over the last 150 years within the US of A that gold-backed currency EVER kept politicians from being stupid, greedy, destructive, and fenced these same politicians off from having their greed and destructive human natures reverberate in a negative way throughout the economy of their day.
And I don't think going back on the gold standard tomorrow would prevent today's politicians from scewing things up, either. YMMV.
Gold never tarishes. If the alloy contains so little gold there is oxidation, it is the other metals that oxidize.
You are mixing apples and oranges and calling them pears.
The Fidelity gold Fund invests in gold stocks and is a good way to play the gold market
The gold standard did not guarantee a "stable economic environment." What it did provide was a stable currency. The dollar in 1930 was worth pretty near what it was worth a hundred years earlier. The dollar today is worth about one percent of what it was worth a hundred years earlier.
Gold did go to 800.
The poster’s article EXACTLY said that the gold standard DID provide a stable economic environment. My contention is that it did no such thing, nor would it do so in the future, even if we somehow could get back on the gold standard tomorrow.
I really don't understand why so many around here treat holding gold as akin to being a flat-earther.
In early '02 Mrs Ghost bought around $200K in gold coins at $300 per oz.
We don't plan to divest it, simply hold it. It has nearly tripled in value (actually more, as most is in collector coins), stock market would have busted our chops.
That, along with some real estate, makes us reasonably confident in staving the wolves.
A warehouse full of Spam would not be nearly as comforting. A guy can't eat much more than one meal of that crap a year, anyway.
I was making a point. But your gold has stayed at the same value you got it for. Only the value of the tender has changed.
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