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John Embry's 17 Reasons To Own Gold

Submitted by Tyler Durden on 06/11/2010 19:09 -0400

John Embry

John Embry:Reasons to Own Gold

H/t Jing

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Sat, 06/12/2010 - 09:56 | 409596 Freebird

EQ, you can pay in gold at my business any time you want. If you insist upon visiting Ronald McDonald, as a good customer I will give you some vouchers commonly known as united states dollars which are really good at a clown party.

You`re not convinced to own gold, so how do you see yourself?

Sat, 06/12/2010 - 10:14 | 409602 FranSix

Thank you for your comments, EQ.

I think most people would say that the oil or the copper price is presently being propped up along with stocks, while the gold price is held back and that this can only go on for so long.

Gold is a form of money, much like bonds are a form of money, except it has no interest rate coupon. Gold prices respond nicely compared to currency values as negative implied interest rates on the short end of the yield curve continue to decline. Added to this is the diversion of aggregate demand(which is huge) into short term money, and gold will benefit as it has for the last 10 years, and will continue to benefit in terms of price as long as yields remain low. Gold will also act as a mitigating factor in deflation by devaluing currencies and mopping up excess liquidity. You can have confidence that this will go on for the next few years. As late as 1949, longterm interest rates were as low as 2%, and short term rates remained near zero at least until that time.

And, in addition, most people didn't have any gold to use as money during the depression because of its rarity. Silver coins were in use for exchange and dollars to doughnuts they paid a silver dime for just about everything.

But people would stampede to a gold mine just the same:

http://tinyurl.com/26xm4dl

Thus logically you would invest in a gold mine if you couldn't hold gold. Confiscation along with price and wage deflation was very likely a factor in the advance of gold mines in the U.S., which would explain why a lot of gold prospects have badly underperformed the bullion market for years after 2000. Other things have taken the place of gold miners, such as real estate, or oil investments, or corporate bonds.

I wonder if anyone realizes that their viewpoint on gold bullion goes as far back as the era of confiscation, that nobody really owns it, and that you couldn't pay for anything with it. The historical background on that is really a lengthy one. Not all countries engaged in confiscation, you have to remember that, so some people will have a different viewpoint on that issue.

Something to consider.

-F6

Sat, 06/12/2010 - 12:25 | 409682 DosZap

EQ,

Gold is not in a bubble,90% of Americans own NONE.

I have several well off friends, which own ZERO, too busy buying stocks, and worthless paper.(they are ostriches),they WANT to believe this will somehow turn out well, and business will return as usual.............NO WAY possible.NONE...................

Just look at the debt , where the hell are we, or anyone else going to get 60-160 Trillion dollars, to pay back our debt?, or meet our obligations?...............we won't be able to even pay the INTEREST on it!.

Estimated global debt is at 1000 Trillion dollars..........that, I believe is a a Quad.

Gold stocks are going to be in trouble,when the SHTF w/ the dollar.

Physical is the only way to make sure your butt's covered.

The ride down, will be a VERY temporary ride, followed by Hyper Inflation.............so, believe/don't believe this at your own peril.

Gold's price right now is being held down, artificially, and when the crisis hit's(and it will), the paper ETF's, and all stocks/bonds will turn to shit in a nano second.

OUR Gv't has two options, neither good........print, or deflate, they will continue to print, and devalue the currency( as they have already done), all soverign nations currencies are going in the crapper...........this is what Gloablism has brought us.

A new one must emerge, and it must be backed by something of value..or it will never fly.

Bottom line, when your out of options, and assets, your dead meat.The only nation that has any creds left is China..........and their on a precipice , and will fall flat also.

All other fiat paper is going down(as in OUT).

2012, at the latest................sit on your paper, at your own peril.

Sat, 06/12/2010 - 12:54 | 409708 LiquidBrick

Anyone who owns gold wouldn't be shopping at McDonalds anyway as there is nothing of value there worth buying so of course they will accept nothing of value (paper) for it. McD is food backed by nothing for paper backed by nothing so essentially it is a fair exhange of nothing for nothing.

Gold will exchange for you anything of real value: Yachts, protection, Fine Art (yes, I know you can't eat art), exotic cars, inflationary hedges like rare collectibles (www.thebookportrait.com), etc.

End the FED and the incompetent IRS destroying small business - the engine of the U.S.

Sat, 06/12/2010 - 14:16 | 409774 dumpster

EQ a anal stupid remarck..

in my humble opinion.

why is it we get 30 year olds with hardly any experience posting these bromides about gold

lets see your resume ,, rather than glib talk

Sat, 06/12/2010 - 14:25 | 409779 dumpster

double twit

no body wanted in to buy a 10 cent burger with gold

in the 192o' they used a silver dime

or a paper note ,, and got change with paper gold backed notes or silver

Sat, 06/12/2010 - 16:57 | 409850 DoChenRollingBearing

ANYONE with real wealth would be stupid not to have some physical gold. Diversification, wealth preservation and insurance vs. .gov malfeasance.

How much? Many perfectly normal portfolio managers are OK with 5% or even more.

Lots of us here at ZH seem to have at least that, some claim 100%.

Disclosure: I have 6%, looking to raise that a bit.

I am bearing gold.

Sat, 06/12/2010 - 21:00 | 409984 mojine

I would tell you that you're wrong, face to face, but I would have to stick MY head up your ass to do so - so you'll just have to find out on your own.

Sat, 06/12/2010 - 10:41 | 409621 stopthenewworldorder

John Embry is a quality geezer - he spoke at the GATA presentation in London last summer and came across extremely well, slow delivery and due gravitas

Sat, 06/12/2010 - 11:02 | 409633 dumpster

gold in the winter of our discontent

Sat, 06/12/2010 - 11:17 | 409646 dumpster

how much gold to own

the gold you own is the gold you have in hand

their is no right answer for how much,, in every case it may be different.

start with at least one oz. then add..... In the coming times // a person can never have enough

Sat, 06/12/2010 - 11:54 | 409667 RockyRacoon

I note that EQ made one appearance, put forth his argument and then vaporized. At least the comments section is half the length it would have been with ole Johnny B here to terrorize everyone. Here's hoping that EQ checks in again to see the refutations to his comment. Some civilized debate is always welcomed.

Sat, 06/12/2010 - 14:21 | 409776 dumpster

no way to argue with 30 year old twits

his complete resume would be composed of odd jobs ,, the best paying one ,, orobably his stint at macdonalds ,, busting burgers/

no use giving any reason for gold

just call these kids what they are ,, a bromide

full of hot air

Sat, 06/12/2010 - 15:55 | 409815 RockyRacoon

Here is a link that I'll keep for future use. How a gold-backed currency works.

For those who say there is not enough, etc. this should shut them up.

http://thedailybell.com/1126/What-You-Always-Wanted-to-Know-About-Gold.html

A small taste:

Gold is not frozen pork bellies — wishful thinking of the American money doctors notwithstanding. The reason is that the marginal utility of the former declines more slowly than that of the latter. In fact, the marginal utility of gold declines more slowly than that of any commodity (or a basket of any commodities) known to man. That's what makes gold what it is: the monetary metal par excellence. That's what makes gold the only monetary asset that has no counterpart as a liability in the balance sheet of someone else.

Incidentally, there are only two monetary metals: gold and silver. Other precious metals such as platinum and palladium are not monetary metals. What sets monetary metals apart from other precious metals is their stocks-to-flows ratio. They are a high multiple for the monetary metals, but a small fraction for other precious metals.

...and...

The new gold standard would let the regime of irredeemable currency run itself aground and boil in its own juices of excess fiat money. When it can no longer handle the task of delivering food and other necessities to the people, when it can no longer provide employment to the majority of the population, the gold standard will spring back to life spontaneously. People have to eat, and they also have other necessities. They must have work to be able to earn a living. It will dawn on the world, maybe unexpectedly for the majority, that gold has a place underneath the Sun. Gold is that hard core of capital that can be destroyed neither by inflation nor by deflation, that will survive any consolidation of balance sheets. Gold is at the heart of the healing process of the world economy that makes survival possible.

Gold is not scarce: in terms of its stocks-to-flows ratio gold is the most abundant substance on earth. But for the gold standard to endure man has to have confidence in the promises of government to pay gold. If this confidence is impaired, gold tends to go into hiding and then the system may break down. The answer to the problem is that the government must keep faith with its subjects without fail.

...and the real kicker:

The reason for the exponential growth of debt in the world is that the international monetary system has been lacking an ultimate extinguisher since 1971. Total debt in the world can only grow, never contract. We should do well to remember that, since time immemorial, gold has successfully acted as the ultimate extinguisher of debt — until it was forcibly removed from the international monetary system in 1971. Paying debt in gold extinguished the debt, period. Since 1971 governments have pretended that paying debt in U.S. dollars extinguished it, too. But in fact it did not. Debt was merely transferred from the debtor to the U.S. government and kept accumulating. Transferring debt is not the same as extinguishing it. Debt accumulation has a natural limit. This limit has now been reached.

There is much more!

Sat, 06/12/2010 - 16:41 | 409843 Hephasteus

So he's saying stop letting yeast fuck you and give you yeast infections?

Sat, 06/12/2010 - 17:34 | 409865 DosZap

A must read.............

http://www.safehaven.com/article/17108/hidden-gold-taxes-the-secret-weapon-of-bankrupt-governments

Sat, 06/12/2010 - 18:14 | 409889 AVP

DosZap:

If that is how one would play their hand, yes, this is very disturbing.

This story plays out in a perfect world with rule of law.

If gold ever reaches $100,000/oz, I think anarchy will rule the day.

As a gold bug I don't even want to see this!

Interesting read!

Sun, 06/13/2010 - 20:40 | 411402 Oracle of Kypseli

This is not disturbing at all. It's pure theory and fiction.

Gold sales of fewer than 30 or so coins are not reportable. (anyone who knows the exact number please let us know.) Unless the law changes, that article is nonsensical.

Worse come to worse, you can sell one coin at the time, or go gray market.

You can sell them in other countries also.

Is this article going to stop anyone from buying gold?

Sat, 06/12/2010 - 19:06 | 409911 nuinut

Makes sense, but it ain't gonna happen.

We know the $ is toast. People need to start thinking in different terms.

Govts will soon be encouraging the accumulation and circulation of gold within their borders, as a matter of necessity.

Massive taxation is the opposite of what they will need to do.

EQ, above, can't even properly define money, so I can't imagine his other points can be based on reality.

JB and the other trolls have most likely been moderated away. Thank you, Tyler.

Sat, 06/12/2010 - 20:33 | 409961 RockyRacoon

This relationship is summarized in the chart below. When Jack earns a 100% profit -- he loses 25% of his net worth. When Jack earns a 400% profit -- he loses 40% of his net worth. When Jack earns a 9900% profit -- he loses 50% of his net worth.

There is no mention of Kate at this point... She has lost everything. At least Jack has 50%. What is Daniel Amerman selling that would fix that?

Sat, 06/12/2010 - 22:02 | 410043 Mark Beck

Please if may suggest, I know most ZH readers understand this, but in a world where we have paper currencies racing to the bottom, wealth maintenance is multi-national.

The estate and the people in it have to be mobile, between countries and currencies. If you are in the US, a good basic choice is Canada. If it is a large estate, my recomendation is, Cananda, Bahamas, and Switzerland, with residence in Florida (Fort Lauderdale) US, and Nice, France.

I especially like travel by sea as a means of moving family members. Its not fast, but the advantages are substantial. Especially, between Florida and the Bahamas, and between Nice and Florida. I prefer a high speed motor yacht about 100 feet long, with enough diesel storage to make it from Florida to Nice with about 10% reserve, cruising at about 14 Knots, top speed maybe 18 knots.

Like;

http://www.derecktor.com/shell_home.html?gallery/gallery_overview.html

Not to big not to small.

----------

Before there is crisis, there must be flexibility to move capital and wealth out.

If you are subjected to the negative effects of wealth destruction due to hyper-inflation on any substantial portion of your portfolio, your overall investment strategy is not working.

----------

The strategies for physical gold have to be planned across multiple boarders. One reason to hold physical gold is the ability to transact it between currencies. So, several countries are used to hold the gold, with some plan to move it about if need be.

It is clear that before a currency crisis reaches hyper-inflation, the members of the estate would no longer reside in that country, or hold any substantial amount of paper currency.

----------

The bottom line is, if you or your wealth are still around when the nasties hit, your plan is not working.

Mark Beck

Sun, 06/13/2010 - 00:12 | 410180 DoChenRollingBearing

Mark Beck, as always your posts are very thoughtful.

I am going to guess that perhaps only one half of 1% of Americans or so have the scale of wealth you are talking about. For that group, your advice is excellent. Good strategies.

For those a little further down the food chain, in my case I have PMs here (USA) and a little in Peru (where we also have a bearing business).

I do not have nearly enough (sigh) to have a place in Nice (which is, yes, very nice) nor do I have enough to buy 100' + boats...

If anyone who is merely reasonably wealthy, you can always drive to Florida and find PLENTY of boatsmen who will take you to Bimini...

Mark's general point is, I think, that you want to be VERY DIVERSIFIED, in as many ways as possible, esp. geographically. Quite correct.

Sun, 06/13/2010 - 00:43 | 410211 AVP

DCRB:

I hear Aroostook County, Maine is very nice. Close to the CB, great farm land, hunting, fishing, trees (firewood) and winter offers a natural (heavy snow) border/security.

Bimini, not so much!

I do hope your "condo" is not in a major city.

Sun, 06/13/2010 - 13:11 | 410606 DoChenRollingBearing

AVP, you are in an excellent situation. Congratulations. You are readier than almost anyone I know.

No that's not quite true. I know a guy in rural N Carolina. He has a few tracts that he leases out to sharecroppers. He is armed to the teeth (can fire 2000 rounds without reloading). He is more ready than anyone I know to live with 1800s technology.

I have a cousin who is on his way to a life similar to yours.

Alas, my condo is near a big city. But, I worry more for my kid, and all my gold (etc.) will go to her.

Sun, 06/13/2010 - 01:17 | 410254 Geoff-UK

I have a theory on how folks will deal with this, and if you'll send me 1/10th of an ounce of gold, you too can get a copy of my book "Eff the IRS!". Details won't be given out for free on ZH--you must buy my book to get it!

Sun, 06/13/2010 - 07:44 | 410403 technovelist

I'm afraid I don't buy that argument. Yes, the government could raise taxes on gold, but that would still leave the gold holder ahead of the paper holder. And any attempt to get around that by clever tax maneuvers is just as subject to interference by the government, and has much greater counterparty risk, than "buy, hold, and wait".

Sat, 06/12/2010 - 17:44 | 409869 msjimmied

Here's something for everyone to argue about..

are you really intending to tell us that not increasing the prices of gold and silver is more important than creating full employment for those 30 million?

http://neweconomicperspectives.blogspot.com/2010/06/open-letter-to-presi...

Sat, 06/12/2010 - 17:57 | 409876 omi

Every single gold backed currency faield as well. This is has more to do with how the country is run.

Sat, 06/12/2010 - 23:53 | 410165 JLee2027

Where do you trolls come up with this nonsense? Inquiring minds what to know. Is it a stupid pill? A genetic defect? A bad web site link? Or just a brain fart?

Sun, 06/13/2010 - 00:27 | 410195 AVP

Trollville, of course!

The land of lollipop kids and such...

Sun, 06/13/2010 - 10:51 | 410496 RockyRacoon

Not so fast on the hair-trigger junking. See the second sentence. Blame is squarely placed on government, hence the people (that's us). It's bad governance that causes the failure of gold-backed currencies, not the asset itself. I think he (she?) is correct.

Sun, 06/13/2010 - 13:16 | 410610 DoChenRollingBearing

I agree Rocky. An example is ancient Rome, which was silver backed. As the years went by they cut the silver content (sometimes just a little sometimes a lot).

Gold backed currencies usually morph into fiat (eg, US$) anyway. For political convenience.

Sun, 06/13/2010 - 00:52 | 410225 Geoff-UK

Troll/junkpost. Also, on the spelling component of your post? You faield.

Sat, 06/12/2010 - 18:53 | 409906 RicardoM from T...

Lips that touch gold will never touch mine. Can't stand the stuff. More likely to be robbed of it than have any use for it.

People who own paper gold are crazy. Do you really trust the crooks to have any integrity and actually back your investment with physical gold or even a contract to take delivery of gold Whatever. If I were Bernie Madoff, I'd start a gold ETF fund.

I am into silver if you are talking silver bullets and gold if you are talking golden guns. I'd rather have one hundred thousand dollars of guns and ammunition when it all comes down that one trillion dollars in gold and/or silver.

Sat, 06/12/2010 - 20:37 | 409967 RockyRacoon

Them are some big numbers you're throwing around there padnah. Exaggerate much?

Sat, 06/12/2010 - 22:35 | 410085 Iam_Silverman

If I told him once, I told him a million times to stop exaggerating!

Sun, 06/13/2010 - 13:57 | 410665 Hephasteus

LOL.

Sun, 06/13/2010 - 00:18 | 410186 DoChenRollingBearing

Why not have it all? Gold. Silver. Guns & ammo. Mmm, mmm, good!

Maybe some stored up food. Farmland if you can do it (not for me as a condo dweller).

Diversification, because you cannot predict the future...

Sun, 06/13/2010 - 00:54 | 410228 Geoff-UK

Agree with that, except you don't have water listed, and that's arguably most important of all. Without clean aqua, you live 7-10 days max, which sorta makes the food irrelevant. Recommend Katadyn Pocket filter. Probably never need to use it--hard to find one if you do.

Mon, 06/14/2010 - 17:00 | 413341 reave the sheeple

But, dude... you can't eat ammunition!

Sat, 06/12/2010 - 21:08 | 409991 Mark Beck

I may increase holdings of physical Gold but only on dips, and then only a small precentage shift in assets.

It does look like Gold has decoupled a bit from Silver and other commodities, but my guess would be the events in Europe. My overall strategies for midterm movement in commodities is not really related to Gold unless there is another sovereign debt crisis.

I am anticipating price deflation in most commodities outside of Gold and Oil, like Copper and Aluminum. However the reduction in price will be linked to continued de-leveraging and liquidity actions tapering off. So I do not anticipate the decline to be as fast as 2008.

For example, I am expecting to see the BDI drop to below 2008 low levels but at 1/2 the 2008 rate of decline. So the initial bottom would be FEB 2011, for Copper, with the start of decline being June 2010.

Mark Beck

Sat, 06/12/2010 - 21:18 | 410002 Pooh-Bah

Not sure of the full meaning of "stocks to flow ratio".

Sun, 06/13/2010 - 00:08 | 410156 RockyRacoon

This from

Backwardation That Shook The World By: Antal E. Fekete | Sun, Dec 14, 2008

I warn the world again that the futures market would not go to backwardation in gold if the house of paper money were not on fire. There is just no prima facie reason for a shortage in physical gold. A very large part of all the gold produced throughout history still exists in monetary form, sitting in vaults doing nothing. (Under the gold standard it used to be doing heavy-duty work in financing production and world trade.) Unlike all other commodities with the exception of silver, for gold the stocks-to-flows ratio is a high multiple (by contrast, the stocks-to-flows ratio of copper is a small fraction). And, on the top of privately held gold, there is central bank gold amounting to one quarter of all the gold ever produced since the dawn of history. Why are central banks unwilling to take advantage of risk-free profits by releasing gold? Could it be that, in possession of inside information, they have reason to be afraid that the regime of irredeemable currency may soon collapse and, with their gold gone, they don't want to be left holding the bag? Could it be that the Babeldom of the debt tower is already crumbling, but the fact is being covered up?

And this from

RED ALERT: GOLD BACKWARDATION!!!

By Antal E. Fekete 22 May 2010

http://www.forsoundmoney.com/category/antal-fekete/

Contango whereby the futures price of gold is quoted at a premium to the spot price is the normal condition for the gold market, and for a very good reason, too. The supply of monetary gold in the world is very large relatively speaking. Babbling about the ‘scarcity of gold’ reflects the opinion of uninformed or badly informed people. In terms of the ratio of stocks to flows the supply of gold is far and away greater than that of any commodity. Silver is second only to gold. It is this fact that makes the two of them the only monetary metals. The impact on the gold price of a discovery of an extremely rich gold field, or the coming on stream of an extremely rich gold mine, is minimal in view of the large existing stocks. Paradoxically, what makes gold valuable is not its scarcity but its relative abundance, which evokes that superb confidence in the steadiness of the value of gold that will not be decreased by a banner production year, nor can it be increased by withdrawing gold coins from circulation. For this reason there is no better fly-wheel regulator for the value of currency than gold. The same goes, albeit to a lesser degree, for silver.

Put simply, transactions in gold do not necessarily mean that gold physically moves from place to place. Every loaf of bread does not have to be purchased with a miniscule snippet off a gold coin. The currency du jour will do fine as silver or even paper money IF the currency is honestly backed by a known gold reserve which is set aside specifically for the purpose of making the currency sound. As long as the transactions are honest and open the amount of gold on hand can handle today's current financial transactions. One has to exclude the trading in "insurance" products for starters, and governments must be relied upon to keep transactions from becoming politically polluted. That is where reliance on our elected officials is critically important. Lots of "ifs" here but gold is NOT the problem, nor is the gold standard per se. It is the price of gold, not how much of it there is.

I suggest further reading by Fekete:

http://www.safehaven.com/author/8/antal-e-fekete

Sun, 06/13/2010 - 00:21 | 410190 DoChenRollingBearing

Antal Fekete is awesome.

So is FOFOA.

I've learned a lot about gold from those guys, Jim Sinclair as well.

Sun, 06/13/2010 - 00:48 | 410220 Seal

USA monetary base = $2200 billion ; http://research.stlouisfed.org/fred2/series/BASE SUPPOSED USA gold supply = 8300 tons == $8283/oz Oh? U don’t like my numerator and denominator? Plug in your own and DO THE MATH!

Sun, 06/13/2010 - 01:08 | 410231 RockyRacoon

The rise in the base from $800 billion (or $400 billion for that matter) is where? Doing what? In what form? It sure ain't pocket change in the citizens pockets. If you take out all the swaps and financial "insurance", and all the other computer generated "money" you get what? Now, use those figures and what is the price per ounce? The price of gold is not the question nor the problem. The larger part of the money supply is just fluff. Massive deflation will take care of that. Poof!

Sun, 06/13/2010 - 00:59 | 410233 Geoff-UK

I think Seal just bitch-slapped Big Ben. Standby for CNBC to immediately go to 24/7 coverage of this news that gold is undervalued by 4x or 5x minimum...or maybe they'll just continue 24/7 coverage of that little blond chick sailor (who didn't trim her sails enough to cut the stress to her mast before it failed).

Sun, 06/13/2010 - 12:37 | 410573 DosZap

Doesn't matter what the USA base is,as long as it's KEPT in Banks.(and that's exactly where it is).

Exactly what's happening.......this is why the interest rates, have not gone thru the roof.The money, is simply not in circulation.

If you could hold millions,billions, make 2-3% on just holding it, would you really make an effort to lend it, and risk defaults?.

No way...........plus,

Two Thirds of the ACTUAL Printed currency is OUTSIDE the USA.

Plus what's in Banks is not PRINTED anyway, it's just a friggin computer entry.

Sun, 06/13/2010 - 03:47 | 410335 johan404

Get physical tonight, the world's alive. Get physical in the light, this is our time. Get physical tonight, we're riding high. Get physical in the light. Going out - feel alright, it's a magical night!

Sun, 06/13/2010 - 05:22 | 410369 Grand Supercycle