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A Parable On Gold From Jim Grant

Tyler Durden's picture




 

In his latest Interest Rate Observer, Jim Grant discusses the chance discovery by a 55-year old hobbyist of 11 pounds of gold memorabilia dating from the 7th century, and proceeds to provide a truly memorable parable on the definition of "assets" which is as illuminating as it is obvious.

Jim quotes Roy Jastram:

"Gold has two interesting properties. It is cherished and it is indestructible. It is never cast away and it never diminishes, except by outright loss. It can be melted down, but it never changes its chemistry or weight in the process. Its price has been remarkably similar for centuries at a time. Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century."

So how does gold, which many argue is the only true store of value, stack up when represented not merely on its day-to-day price fluctuations, but looked at through the filter of a true long-term perspective?

Let us say that an ounce of gold bought the same proverbial "good man's suit" in 650 A.D. as it does today. Maybe it bought a suit of armor. Jastram constructed a price index for gold for which the beginning year was 1343 and the end point was 1976. Colleague Tim Hlavacek has updated the index to incorporate today's spot gold price.

Let's see, Hlavacek reasons: 11 pounds of gold works out to 160,416 troy ounces. Times the current gold price, the trove would be worth $159,020 in bullion value alone. Never mind, for now, the archaeological value. Divide that $159,020 by Jastram's (updated) multiplier to find the value of those ounces in the money of the year 1343. The answer: $569. Now imagine that that $569 in gold value was converted into the currency of the day and invested in King Wulfhere's perpetual 2s. After 666 years, the ever-so-patient investor would be sitting on $304 million.

What about extending the time series to that distant day in the 7th century when the newly discovered treasure was buried deep in the British countryside?

At press time, no reliable price data for the years 650 to 1343 had presented themselves. But let us assume that Jastram's index number behaved over that span as it did between 1343 and the present. In that case, Hlavacek continues, the value of the artifacts at the time the vanquished surrendered them in the middle of the seventh century would have been $2.0347. And it is here that we come face to face with human tragedy. If those two little dollars had been invested and continuously reinvested, in 2% consols in the year 650, they would be worth $991 billion today. At 2.5%, the would be worth $762 trillion; at 3%, $568 quadrillion, or maybe just enough to pay fro the Obama administration's projected health-care initiative. [emphasis ours]

And for some truly inspired poetry from Mr. Grant:

The truth about the long term, then, is that it consists of a sequence of short terms and these short terms are full of episodes we call history: war, peace, pestilence, progress, revolution, invention, discovery, depression, enterprise, bankruptcy, birth, death, taxes and such. Kingdoms rise and fall, debts are incurred and repaid, or - as often as not - not repaid, or repaid in money unrecognizable to the poor creditor. Interest runs for years at a time, but rarely even for decades, politics or central banks intervening to disrupt the piling up of what would otherwise be wealth too vast to be stored on the planet Earth. Through it all, just as Hall and Jastram have separately noted, gold endures, holding its value but returning no income. Well, you can't have everything.

 

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Mon, 10/05/2009 - 01:03 | 88583 Stink_Pickle
Stink_Pickle's picture

This is a very good argument for a very good point:  gold is a fantastic store of value for the risk averse. 

Another point I would reinforce here is that with Terry Herbert's booty (e.g. the awesome hilts of the conquered and other items), the historical value of an item acts much more like a commodity than a store of value.  Certainly a Honus Wagner baseball card will be considered priceless to an American, but could be considered worthless to the future ruling Chinese (arguably current as US debt holders).

Mon, 10/05/2009 - 17:18 | 89216 Anonymous
Anonymous's picture

People who bought gold at 850 in 1980 might not agree
gold is a fantastic store of value for the risk averse.

19 years later is traded at $255.

People buying gold above $1000 might find similar...

Mon, 10/05/2009 - 01:23 | 88594 Anonymous
Anonymous's picture

The only issue with this argument is that inflation needs to be taken into account, which most likely averaged more than 2 percent per year historically. Deflating that number by the CPI would probably yield a negative real interest rate (I say may, because that is my best guess). This article degrades this website with such poor analysis.

Mon, 10/05/2009 - 10:21 | 88793 Anonymous
Anonymous's picture

No, inflation does not need to be taken into account. That is the whole point. This example proves more than anything how difficult it is to earn 2%/yr over an extended period of time.

Mon, 10/05/2009 - 10:22 | 88796 Anonymous
Anonymous's picture

No, inflation does not need to be taken into account. That is the whole point. This example proves more than anything how difficult it is to earn 2%/yr over an extended period of time.

Mon, 10/05/2009 - 10:35 | 88821 Anonymous
Anonymous's picture

Agreed. Moreover, it doesn't look like Grant was accounting for taxes (for whatever times income-type tax schemes were in effect) on that 2 or 3% annual interest. Combining taxes with the effects of inflation, that initial $2.0347 worth of gold presumably would have served a hypothetical extremely-long lived gold hoarder far better than if he had continuously reinvested the initial $2 stake in the suggested fixed-income investment scenario.

Wed, 11/25/2009 - 08:35 | 141752 Anonymous
Anonymous's picture

If you visit westegg.com, you'll see that between 1800 and 1900, prices fell by approximately 50%. Others have noted that the cost of a 2 penny stamp in Britain when Victoria was Queen was still 2 pennies one hundred years later. If you assume 2% inflation per year, after 100 years, prices should be almost 8 times what they were.

And, like the CRU people, I'm going to assume you've "lost" your supporting data.

Mon, 10/05/2009 - 02:09 | 88605 agrotera
agrotera's picture

I love his poetry--whenever anyone wants to talk about long term investing, i always say, we don't live in 10, 20 or 30 year cycles,  and Grant really says it well:

The truth about the long term, then, is that it consists of a sequence of short terms and these short terms are full of episodes we call history: war, peace, pestilence, progress, revolution, invention, discovery, depression, enterprise, bankruptcy, birth, death, taxes and such.

Mon, 10/05/2009 - 02:16 | 88606 Gunther
Gunther's picture

The gold found in the ground did not change- nothing new about that.
Is that piece in reality an illustration of the absurdity of compounding interest over long times?

Mon, 10/05/2009 - 03:38 | 88626 Anonymous
Anonymous's picture

Excellent point. I've long argued that the concept of compound interest was contrived by lenders who are simply perpetrating another scam on the borrower. Mathematically, the idea of compound interest fails both historically and when projected into the future, but is sure does make the lender wealthy.

Mon, 10/05/2009 - 06:46 | 88642 Hephasteus
Hephasteus's picture

it's just as absurd over short periods. I've never seen a fractional reserve currecy economy continue for long. Rome did a good job for the longest time until the fractional reserving hit and people started loaning tons out at interest and then they just mass migrated away with all of romes gold leaving behind a huge empire with 1/10th the gold and 10x the value psychology. Coins were being cut down more and more till they looked like little tiny fractions of themselves.

Mon, 10/05/2009 - 03:14 | 88622 Anonymous
Anonymous's picture

It's a very good essay and it puts the idea of gold as an investment into perspective.

I find it interesting to consider what the buried gold would have been worth if no other gold had been discovered and dug up in all history after that point in time. In that unlikely scenario and given progress and population expansion as it has occurred the buried gold would be worth a lot more.

So more gold has been discovered as more people have become interested in finding it and more people and resources have come available to extract it. The nett effect being that gold is now worth roughly the same as it always has been. This is not a characteristic of fiat money.

Gold as effective universal and transportable money that retains its value has the interesting property that at certain "special" times when all else is failing a relatively small amount may be traded for a items, property, or services of disproportionatly large value compared to it "normal" valuation.

Mon, 10/05/2009 - 03:40 | 88627 Anonymous
Anonymous's picture

I think what is interesting about this is to illustrate the fascination that gold has over the minds of otherwise rational people. the fetishism of gold as a 'true' as opposed to a 'fiat' currency is a little like the argument of biological behaviourislists that we can explain social interaction by reference to our hunter gatherer forebears.

The basis of modern economics is that we seperate exhange goods, services and even currencies and that we agree some form of exchange mechanism, generally currnecy or assets that are believed to ahve a avlaue in currency. There is no reason for gold to have a value any more than dollars. Any serious reading of the Aztec empire showed that thier view of gold (which was abundant) was that it was decorative but not valuable. Referred to as the excremnent of the gods and considered far less valuable than colourful feathers.

Value depends on a society's current view of value. Jastram's "good man's suit of clothes" is hardly a universal truth.

Mon, 10/05/2009 - 09:51 | 88751 Anonymous
Anonymous's picture

"There is no reason for gold to have a value any more than dollars."

Except that alchemists succeed in conjuring dollars from dust. Even authentic decorative feathers have some scarcity.

Mon, 10/05/2009 - 04:27 | 88632 jdun
jdun's picture

He took the risks out of the equation.

The problem with this theory is countries, currencies, and government doesn't last as long as gold. Not even close.

 

 

 

 

Mon, 10/05/2009 - 09:47 | 88747 gmrpeabody
gmrpeabody's picture

+10

Mon, 10/05/2009 - 10:32 | 88813 Anonymous
Anonymous's picture

+ 1, what good would $250 Billion marks do you in 1935? A loaf of bread maybe...

Mon, 10/05/2009 - 06:44 | 88641 aus_punter
aus_punter's picture

in the short term $USD's produce no income either

Mon, 10/05/2009 - 11:19 | 88881 Anonymous
Anonymous's picture

Especially at almost 0% interest...

Mon, 10/05/2009 - 12:51 | 88937 perpetual-runner-up
perpetual-runner-up's picture

its proven the have a negative interest rate in terms of purchasing power...

in order to maintain purchasing power, you need to make enough money to combat deflating dollar and taxes on your "earnings/maintainings"

Mon, 10/05/2009 - 07:07 | 88645 Manfred
Manfred's picture

And in a giant leap forward for financial television, Fox Business has replaced Alexis Glick with Don Imus in the 6-9am slot. It streams live at foxbusiness.com(though they seem to be down right now) also streams at http://www.thestreet.ca/m_2.asp which appears to be working.

My initial reaction is that it is worse than bad but compared to CNBC - I think Bloomberg will be the big winner.  

 

 

Mon, 10/05/2009 - 07:10 | 88647 Careless Whisper
Careless Whisper's picture

Let's say you could time travel to the year 2609. What would you take with you, one ounce of gold or ten Benjamins?

Mon, 10/05/2009 - 08:54 | 88687 pivot
pivot's picture

i have a hypothetical too, which is much more realistic than yours.  Lets say you have to buy groceries tomorrow, which would you rather have?  i dont know anyone who is faced with your scenario but know many faced with mine.

Mon, 10/05/2009 - 09:56 | 88756 Anonymous
Anonymous's picture

And my hypothetical is just as valid as yours. Say your government is hopelessly indebted, and is forced to devalue your currency. You need to buy groceries tomorrow. Will you also need to buy groceries after that?

Mon, 10/05/2009 - 10:24 | 88761 lookma
lookma's picture

double

Mon, 10/05/2009 - 10:01 | 88762 lookma
lookma's picture

What does buying groceries tomorrow have to do with a saving? They both involve finding a store of value.

Mon, 10/05/2009 - 12:53 | 88939 perpetual-runner-up
perpetual-runner-up's picture

lets say you lived in a superpwer and needed to retire in 10 years...say we are talking 1988-1998 timeline....

 

would you rather have 100 million rubles or 1million in gold?

 

which would have served you better? because there were millions faced with that scenario

 

 

Mon, 10/05/2009 - 14:40 | 89056 Rusty_Shackleford
Rusty_Shackleford's picture

 

If you were trying to buy groceries in Zimbabwe right now, $1,000,000,000,000 of paper broken promises would only get you an empty belly.  

 

However, 0.1 grams of gold would get you a loaf of bread.

 

Most of us try and plan for the preservation of our purchasing power on a time horizon greater than 24 hours. 

Mon, 10/05/2009 - 10:32 | 88811 Anonymous
Anonymous's picture

600 years is a long time. Very few countries have had gpvernments which lasted that long. Even Rome had some regime changes. Can you change the question to: one ounce of gold vs my choice of bonds? That is, I get to adjust my bond choices. Or how about a 30 year time frame?

Mon, 10/05/2009 - 07:20 | 88648 RagnarDanneskjold
RagnarDanneskjold's picture

If only I lived for a millennium. This is like all those 2% inflation charts that go vertical after 100 years. During most peoples' lifetime, they only experience the middle portion of the chart, slow steady inflation. 

The lesson here is that crisis comes no matter what, the question is whether you're living at a time of crisis or not. Today, that probability is high.

Mon, 10/05/2009 - 09:46 | 88746 SWRichmond
SWRichmond's picture

During most peoples' lifetime, they only experience the middle portion of the chart, slow steady inflation.

That's because currencies keep being reset, isn't it?  The U.S.'s currency has been reset twice in the last 100 years, once in 1933, and once in 1971.  So much for perpetual returns.  Grant's analysis falls flat on this basis alone.

Mon, 10/05/2009 - 10:02 | 88764 lookma
lookma's picture

You've identified Grant's point.

Mon, 10/05/2009 - 10:39 | 88829 RagnarDanneskjold
RagnarDanneskjold's picture

Yes, but it's the resets, not the inflation. Assuming a 2% constant inflation, a person born 200 years from now would see the same inflation rate over their lifetime as someone born in 2000, yet the dollar may be worth a thousandth or less of a dollar today, just as a dollar from 1913 is worth a few cents today, but how many people alive in 1913 are still carrying around those paper dollars?

I'm not arguing against gold, its good to own now, but that's because I think we're approaching a reset. Once it happens (it could take years to complete), I may not need to own gold again in my lifetime.

 

Mon, 10/05/2009 - 10:55 | 88857 Anonymous
Anonymous's picture

Ragnar, I love you and your pirate looting ways. If the Somalis had your motives at heart we might be able to shape a better world.

Ultimately, money serves as a claim on real assets. When the great game of musical chairs stops, make sure you're holding something tangible or something that can be exchanged for something tangible.

Mon, 10/05/2009 - 07:26 | 88650 Anonymous
Anonymous's picture

@ Careless Whisper

I feel silly saying this, but that pretty much is the best arguement I've heard yet. Lol

Mon, 10/05/2009 - 08:57 | 88690 pivot
pivot's picture

that is because you either 1) are planning on living 600 years or 2) have a time machine.

Mon, 10/05/2009 - 07:49 | 88654 lookma
lookma's picture

Thank you

Kingdoms rise and fall, debts are incurred and repaid, or - as often as not - not repaid, or repaid in money unrecognizable to the poor creditor. Interest runs for years at a time, but rarely even for decades, politics or central banks intervening to disrupt the piling up of what would otherwise be wealth too vast to be stored on the planet Earth.

Mon, 10/05/2009 - 08:13 | 88664 Achilles
Achilles's picture

Gold has no purpose. You can't eat gold. Gold is only valuable, because people believe that other people will accept it as a means of payment. Sounds familiar? If you prepare for the end of fiat money, buy fertile land, oil or a useful commodity.

Mon, 10/05/2009 - 08:37 | 88676 Anonymous
Anonymous's picture

if it has no purpose why don't all central banks just sell it to highest bidder? Outright sell it...

Mon, 10/05/2009 - 09:40 | 88738 Achilles
Achilles's picture

Maybe they already did :)  Did you recently visit Fort Knox?

Mon, 10/05/2009 - 08:45 | 88681 Anonymous
Anonymous's picture

I do not think I will accept someone's fertile land as payment, since I will stay where I am now. I do not think I will accept someone's oil as payment, since I have no tank to store that oil in. I do not think I will accept someone's useful commodity as payment, since I don't know whether that commodity is toilet paper or pig iron. Therefore, I think I will accept as payment that which people everyone, throughout history, has accepted: gold and silver.

Mon, 10/05/2009 - 09:35 | 88733 Achilles
Achilles's picture

You will accept my loaf of bread for a kilo of gold, when you are starving.

Mon, 10/05/2009 - 10:03 | 88767 Anonymous
Anonymous's picture

Are you are bread factory? How much bread can you store without spoilage? What do you hope to accept as "payment"? Do you even think beyond square one?

Mon, 10/05/2009 - 11:13 | 88845 Achilles
Achilles's picture

If fiat money fails, there will be no one buying your gold. It will be one great default and prices of everything will fall.  People will be poor. Furthermore, there will not be enough gold around to serve as an efficient way of payment, so they will use something else. 

 

Mon, 10/05/2009 - 12:39 | 88928 Daedal
Daedal's picture

LOL! The only thing that's gold is your commentary. Pure gold. Thanks for the laugh.

Tue, 10/06/2009 - 06:55 | 89794 Hephasteus
Hephasteus's picture

Dessert. 24k gold flake as an ingredient. You can eat gold. So there.

http://veryveryfun.com/pics/World%27s-most-expensive-dessert/World%27s-m...

Mon, 10/05/2009 - 16:14 | 89145 DiverCity
DiverCity's picture

Pwned, he was.

Mon, 10/05/2009 - 10:38 | 88823 Anonymous
Anonymous's picture

My grandparents lived through the Great Depression, and they never starved, and they held onto some of their silver dollars. They always grew sweet potatoes and tomatoes and such and always had fruit trees in their yard, and they always fished. I can't recall their ever telling any story about anyone trading a kilo of gold for a loaf of bread.

Mon, 10/05/2009 - 10:55 | 88855 Achilles
Achilles's picture

Yes, but he thought of food first. Of course, its good to spread your investments and keep some gold or silver.

Mon, 10/05/2009 - 11:33 | 88891 Anonymous
Anonymous's picture

Okay. Truce. Also, Brad Pitt was great as Achilles, but my favorite was the movie "Snatch".

Mon, 10/05/2009 - 13:40 | 88970 CB
CB's picture

Explain to me how your grandparents experience is the only valid experience on which to base your current behavior. 

By the way, there are starving people in Zimbabwe right now digging up riverbeds in order to sift the mud for grains of gold so they can buy a loaf of bread because the people selling bread will only take payment in gold. 

Seems the Keyensians did their job well.  The notion that gold is not money is derived from failed economic theory and wishful thinking. 

Mon, 10/05/2009 - 08:58 | 88694 Millivanilli
Millivanilli's picture

You can't wipe your butt with a shotgun, either.   

Mon, 10/05/2009 - 09:24 | 88717 Achilles
Achilles's picture

A shotgun is also usefull :)

Mon, 10/05/2009 - 09:13 | 88706 CB
CB's picture

Achilles: 

Why do you think so many people in the world collect & keep their assets in gold & silver too (Vietnam, Russia, China, India, Zimbabwe)?  Your argument is silly.  Gold is & has been money for thousands of years.  It's commonly recognized as a store of value and is still used as a means of exchange.  It is primarily used as money first, a commodity second. 

Mon, 10/05/2009 - 09:33 | 88730 Achilles
Achilles's picture

Women want shiny objects (gold), men want women, therefore gold is valuable. It has only value because people believe its valuable. Its exactly like you said:"its commonly recognized as a store of value". Furthermore, that something is rare, does not mean its valuable. Panda's are rare, but are we saving them?

Mon, 10/05/2009 - 10:03 | 88765 SWRichmond
SWRichmond's picture

Women want shiny objects (gold), men want women, therefore gold is valuable.
What an interesting, and revealing, comment.  Is that also why Benjamins are valuable?  How do you believe women regard Benjamins?

Perhaps you can furnish an answer to this question: Which is more irrational, holding as valuable something humans have almost universally regarded as valuable for thousands of years, or holding as valuable something that requires "legal tender" laws, enforced by men with guns, in order to be accepted as valuable?  Include in your answer a justification of the fact that your beloved fiat money-thingies historically hpold value no longer than a typical human's lifetime, and that as illustration the U.S. has defaulted its fiat money-thingies twice in the last 100 years.

Mon, 10/05/2009 - 10:18 | 88787 Achilles
Achilles's picture

The choice was not fiat money or gold. What would you chose when you were to be shipped to an island? Food, seeds, tools or a big chest with bars of gold? You probably choose gold. I will come and pick it up after 5 weeks or so :)

 

 

Mon, 10/05/2009 - 10:31 | 88808 SWRichmond
SWRichmond's picture

You present a false choice.  I am not preparing for an end of fiat money, I am preparing for an end of this particular version of fiat money, to be replaced (sadly) by the banking oligarchy with a new version of fiat money.  I seek to move as much value forward into the new system as possible by avoiding having it stolen from me in a hyperinflation.  I'd love to see a return to a gold standard, but I don't realistically expect one any more than I expect Mad Max.

Does this mean you can't answer my question?

Mon, 10/05/2009 - 10:42 | 88831 Achilles
Achilles's picture

When this fiat money fails, we will have mad max. The alternative will be a new fiat money. Your beloved gold standard will never come as long as bankers control this world. When bankers do not control this world anymore, we will have mad max (at least for a while).

I am not saying that gold has no value, but the value of gold depends on the deeply rooted believe that its valuable. That, in my humble opinion, is the achilles heel of gold.

 

 

Mon, 10/05/2009 - 10:50 | 88837 lookma
lookma's picture

The value of gold derives from man's need for a store of value, and gold's ability to best fill that task.  If a better store of value reveals itself, belief be dammned.

Fiat currency is predicated on belief (and the threat of force to assist the development of that belief).

Mon, 10/05/2009 - 14:28 | 89040 TumblingDice
TumblingDice's picture

I'll take a gold stanard, since it is obviously better than the clusterfuck standard we have today, but please consider the possibility of having specie of higher intrinsic value as an alternative. I'm not sure if this is what Achillies has in mind in his attacks on gold but I mostly agree with him. I am an indealistic lad an in the future I hope that we can make it our goal to not strive to gain as much of a piece of paper (not represented by anything) or a shiny metal, but instead strive to get as much of something that we can use in our daily lives. Maybe an oil stadard, or an energy standard. The point would be to eliminate money altogether, in the form we have known it for so long. Have our society use an intrinsically valuable form of exchange rather than the extrinsic ones we have been used to for so long. The medium of exchange should be useful, so that its value is not supported by faith. Such a medium would prove to be the most stable of all moneys, IMO.

Mon, 10/05/2009 - 10:28 | 88803 gmrpeabody
gmrpeabody's picture

You should listen to your heel, Achilles. The man wise enough to have saved some gold for times such as you're discussing, probably already has bread, women, shotguns, and has had an eye on you for quite a while.

Mon, 10/05/2009 - 10:33 | 88816 Achilles
Achilles's picture

Yep, but the wise man thought of food first and he knows there will be enough suckers to sell his gold to. :)

Mon, 10/05/2009 - 11:30 | 88888 Anonymous
Anonymous's picture

If the food doesn't rot first in his cellar. And that's presuming his crop came in, which isn't a guarantee.

Mon, 10/05/2009 - 14:30 | 89041 TumblingDice
TumblingDice's picture

there are no guarantees in life, an the one you are relying on, gold indestrutibility, is only useful as long as you're alive, thanks to food.

Mon, 10/05/2009 - 13:42 | 88975 CB
CB's picture

Achilles, I can tell you have trouble thinking very far beyond your penis.

Mon, 10/05/2009 - 08:13 | 88666 WhataMess
WhataMess's picture

An interesting aside, I have just heard the guy who found the gold hoard and spent 5 tough days during the discovery is on UK incapacity benefit which means he is not fit for work!

Mon, 10/05/2009 - 08:23 | 88669 chindit13
chindit13's picture

And if Charlemagne (who took his kingdom off the gold standard) had max'd out his Bank of America credit card at 30% APR in 800 A.D..........

Bank of America would probably still be insolvent.

Mon, 10/05/2009 - 10:24 | 88800 Anonymous
Anonymous's picture

So true

Mon, 10/05/2009 - 08:36 | 88674 contrabandista13
contrabandista13's picture

I guess that Taleb is correct when he states that history jumps at you.

Mon, 10/05/2009 - 08:51 | 88685 Anonymous
Anonymous's picture

and gold can't be printed or destroyed at will.

Mon, 10/05/2009 - 08:57 | 88691 Stuart
Stuart's picture

FIAT comes and goes.   Bullion is forever. 

Mon, 10/05/2009 - 09:09 | 88699 Mazarin
Mazarin's picture

"On time frames longer than about 10 generations (200 years), the odds of any fortune surviving in the same "house" (whether preserved in Gold, land, or paper) drops to zero - even for "sovereigns."  The few fortunes that have survived the tests of LONG time (Rothschild, Valois, Medici, Habsburg, Wettin) are usually based in gold, land, and occasional opportunistic forays into other assets - and they are usually advantaged by direct connection to the control of a currency/central bank. ;-)

Mon, 10/05/2009 - 09:18 | 88709 Anonymous
Anonymous's picture

Did I read this correctly? "11 pounds of gold works out to 160,416 troy ounces."

Mon, 10/05/2009 - 09:53 | 88754 gmrpeabody
gmrpeabody's picture

The article definately was using some fuzzy math.

Mon, 10/05/2009 - 10:03 | 88766 Hephasteus
Hephasteus's picture

A troy ounce is not an ounce. It's a bit heavier than an ounce.

Mon, 10/05/2009 - 10:09 | 88772 Anonymous
Anonymous's picture

They are european... they always mix up their . and ,

11 pounds is 160.416 troy ounces

Mon, 10/05/2009 - 10:11 | 88779 chindit13
chindit13's picture

It's a typo....comma when it should have been a period, as in 160.416

Mon, 10/05/2009 - 10:17 | 88784 lookma
lookma's picture

11 pounds x 16 oz/pound x 28.3495231 grams/oz = 4989.51607 grams

4989.51607 grams / 31.1034768 grams/troy ounce = 160,416 troy ounces

He is using a decimal comma.  It is non-USA/non-Canada rest of the world thing.

Mon, 10/05/2009 - 09:43 | 88739 Anonymous
Anonymous's picture

didn't seem right to me either, but even if it is, how does that come to equal $159,020?

Mon, 10/05/2009 - 09:44 | 88740 Anonymous
Anonymous's picture

didn't seem right to me either, but even if it is, how does that come to equal $159,020?

Mon, 10/05/2009 - 11:27 | 88886 Anonymous
Anonymous's picture

On the day he wrote the article, gold was at $991.29/oz. apparently.

Mon, 10/05/2009 - 09:44 | 88741 Anonymous
Anonymous's picture

"Gold is the corpse of value."

Neal Stephenson -- Cryptonomicon

Mon, 10/05/2009 - 10:14 | 88780 SWRichmond
SWRichmond's picture

The faults in these articles are almost invariably at the very beginning, in the erroneous framing of the discussion to come.  These screaming misconceptions jump out at goldbugs:

Its price has been remarkably similar for centuries at a time. Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century.

Does it have price like a commodity, or does it have purchasing power like money?  If gold is money, it has no price, but rather an exchange rate.

This misconception about gold's role in economics is a shockingly common yet modern B school-induced phenomenon.  It is almost as if, in order to cement the validity of the fraudulent-reserve fiat banking system, recent students everywhere were deliberately taught that gold is a barbarous relic, useless commodity, you can't eat it, you can't buy stuff with it in stores, blah blah blah.  Yet, for something so useless and barbarous, central banks globally have just become net buyers of the stuff.

Can someone explain that please?

 

Edit: Is Grant a tool, or a fool?

(see how well framing the debate works?)

Mon, 10/05/2009 - 10:20 | 88790 lookma
lookma's picture

"Edit: Is Grant a tool, or a fool?"

Jim quotes Roy Jastram

Mon, 10/05/2009 - 10:35 | 88819 SWRichmond
SWRichmond's picture

He quoted, then builds his case based on that.  In other words, he approves.  Have I missed something or taken it out of context?  Not having seen the letter; I thought I understood where the Jastram quote ended and Grant began.

Edit: can you explain why CB's are buying barbarous relic?

Mon, 10/05/2009 - 10:52 | 88844 lookma
lookma's picture

I may be mistaken but I believe you may have misread Mr. Grant.

This is a very pro-gold piece.

 

 

Mon, 10/05/2009 - 15:39 | 89092 agrotera
agrotera's picture

I have enjoyed Grant's essays over the years,  but i have thought his recent jubulation over the market was strange and short sighted. 

I also overlooked what he was doing here but you are right!  He tantalizes the reader with the returns they "could have" had if they hadn't been in gold, but then shows how today gold buys the same items it did way back when which leaves the reader with ambiguity on the significance of that fact since greed often overshadows people's judgement...you are right.

I also didn't hold Bill Clinton accountable for the revocation of the Glass-Steagall Act, and i realize now that i get sidetracked and overlook things in people that i like sometimes, and this is a big fault I am working on correcting.

Mon, 10/05/2009 - 10:21 | 88794 Achilles
Achilles's picture

Central bankers also have wives and mistresses... :) They started believing in their own fairytale or they want other people to believe its valuable. Central bankers are buying toxic mortgages, maybe you should buy that too!!!

Mon, 10/05/2009 - 10:22 | 88795 Anonymous
Anonymous's picture

After taxes and inflation the 2% return is wiped out, fiat money systems die terrible deaths. I would much rather have the gold, than the "ducats" of the day.

Beans, bullets and bullion, is a well balanced portfolio given the current economic situation.

Mon, 10/05/2009 - 10:27 | 88802 Achilles
Achilles's picture

I can live with that :). I like the order too.

Mon, 10/05/2009 - 15:30 | 89093 agrotera
agrotera's picture

Just make sure you have a few spare sets of arrow proof ankle boots Achilles.

Mon, 10/05/2009 - 10:23 | 88797 lookma
lookma's picture

Reductio ad absurdum at its best, with some contemporary politico-economic humor for good measure:

"In that case, Hlavacek continues, the value of the artifacts at the time the vanquished surrendered them in the middle of the seventh century would have been $2.0347. And it is here that we come face to face with human tragedy. If those two little dollars had been invested and continuously reinvested, in 2% consols in the year 650, they would be worth $991 billion today. At 2.5%, the would be worth $762 trillion; at 3%, $568 quadrillion, or maybe just enough to pay for the Obama administration's projected health-care initiative."

Mon, 10/05/2009 - 10:38 | 88825 Anonymous
Anonymous's picture

In attempting to demonstrate its lack of intrinsic value, some ignoramus stated above that "Gold has no pupose."

I would argue that in a debt-based, fiat monetary system (such as ours) gold is the ultimate and only means by which debt can be extinguished.

No purpose, indeed.

Mon, 10/05/2009 - 11:12 | 88874 Achilles
Achilles's picture

ignoramus :)

I am alone in this fight, so i am giving up here. Too many of you are long gold.

I will stop here, but i think if you are really considering to invest in gold, i am challenging you gold bulls, to find the achilles heel of gold and i will find reasons to go long gold.

 

Mon, 10/05/2009 - 12:33 | 88924 lookma
lookma's picture

The achilles heel of gold is a well managed fiat currency.

See e.g., Paul Volker and raising interest rates (as opposed to printing it like crazy to try to maintain slammed interest rates).

 

Mon, 10/05/2009 - 13:17 | 88958 Anonymous
Anonymous's picture

Silly body part - we're not gold bulls, we're gold bugs. We don't invest in gold, we own gold. Gold investment can be defaulted or devalued like all other paper.

Mon, 10/05/2009 - 15:44 | 89102 agrotera
agrotera's picture

Achilles, you are describing the end game where NO ONE has food, and naturally, food comes before anything else.  The gold bugs are not dealing in that ABSOLUTE scenario.  So, you are having an apples vs oranges argument.

The price of gold, in my opinion, is off because of a demand shift that was created by the change in our world that came with emerging markets becoming developed markets, period.  There are other things to discuss but as an "investment" the demand shift issue is my reason to be long gold.

Mon, 10/05/2009 - 11:02 | 88870 Anonymous
Anonymous's picture

Back to Adam Smith again and "Wealth of Nations".

On a large enough scale or a long enough time-line everything is a moving average zero sum game.

The long term price of gold will always return to parity with the amount of labor it takes to get it out of the ground plus reasonable profit. Thought of another way, as presented in this parody, the amount of time and effort it takes to find it.

Money is all about speed, turnover, rate of exchange.
If you take a commodity that the world needs, and you sit on it, you will drive the price higher, but the gain you take on this rise comes at the expense of some other commodity.

Geologists are finding that the deeper they can follow a vein, the larger it generally becomes. Like with oil, technology continues to press the bounds of what is possible and many new gold mines are approaching depths never heard of, never thought possible just a few years ago.

Thus, the adage that the higher the price the more supply will soon come to market never changes and that gold that is buried may go from $600 to a $1,000 but it will only remain at a $1,000 if that is what it costs to continue to dig ever deeper to reach it, or find it, or recycle it, in aggregate. Again, if it takes a $1,000 to get it out of the ground, then the price of everything else will soon rise to meet it such that the $1,000 you get will only buy you the equivalent of what $600 would have got you when you bought gold instead of a consumable commodity.

To a certain extent, the short term price will also then reflect the excess between what is spent and what is recovered such that the enormous expense of the billion dollar mines that are in operation currently have no reasonable hope of ever fully recovering the future value of the investment (a billion dollar start-up cost without depreciation or amortization credits invested in something that returns, lets use the 2% interest) and the excess amount that stockholders throw into these lost ventures in the perpetual dilution of stock and thus shareholder equity is returned in a short term increase in the price of the commodity. What goes in one end comes out the other.

So one way to truly remain even is to invest in a theoretical balance in both gold and in the gold miners and the best way to get rich and stay that way is to find a way to make more than you spend in the very short-term.

Mon, 10/05/2009 - 16:37 | 89185 Anonymous
Anonymous's picture

And yet, for all that technological advancement in mining, gold production has been falling y-o-y since the beginning of the decade... in the face of ever escalating gold spot prices.

You don't make money with gold, you save money with gold.

Mon, 10/05/2009 - 11:17 | 88879 Anonymous
Anonymous's picture

The lesson to be learned here is that usury requires fiat currency. Otherwise its inherent imbalance will self-destruct too fast. The natural growth cannot support compounding interest payments in excess of that growth, EXCEPT by exploiting further resources and pushing them to their breaking point AND manipulating the flexible fiat currency.

The system does exhibit some stability for short terms of time, in which time, gold should be released into the market to exchange for moderately stable fiat and put into the interest earning machine. However, once the limits of stability are breached and inevitable bankruptcies, defaults, and state policy which imperil the purchasing power of currency become evident, it is time to again move assets to a stable (less able to be manipulated) medium, GOLD.

Thus fortunes may be alternately put at risk to earn higher returns in favourable economic weather and fiat exchanged then for AU once conditions imply systemic default, state mischief in the economic institutions, or peril of confiscation due to war, riot, turmoil, change of government.

Smart money most be eternally vigilant and nimble, seek returns when the establishment of the virtuous economic cycle is in its youth and middle age, preserve those returns and capital by the universal hard money of AU when conditions turn malevolent.

Thus prudential estate management is perennial. Seeking production while the sun shines and climate warm, retrenching, being satisfied with some inertia during the long cold winters.

Impudence in the changing faces of climate will frost kill the most froward of plants, that otherwise might live eternally to see sunnier days.

Mon, 10/05/2009 - 11:23 | 88882 brown_hornet
brown_hornet's picture

Can't debt be extinguished by paying off and not rolling over into new debt?   Cost=lower living standard.

You can use your shotgun to keep people from taking your toilet paper.

Mon, 10/05/2009 - 11:29 | 88887 Problem Is
Problem Is's picture

There is a common older tale:

"If Judas had invested his 30 pieces of silver for betraying Jesus in the Bank of Jerusalem at 2% interest in the year 33AD, how much would Judas' heirs have today?"

It turns out Judas' heirs would have to be paid with more silver than exists in the universe... physicists have calculated the number of atoms in the universe, they estimate how much each element is by abundance, etc.

It is a popular mind experiment among population biologists and "some" economists to show the fallacy of forever expanding, populations, economies, interest, debt.

It also usually points out the US court cases where accounts or bonds bearing interest for more than 70 years are ruled invalid by the courts.

They simply can not be paid.

Economies cannot expand at 3% forever, debt cannot accrue 5% interest forever, and populations will reach the carrying capacity of their environment (the earth) overshoot and die off.

These are facts that fat Larry Summers and his girlfriend Timmie Geithner along with many mutton heads in the academic discipline of "Economics" choose to ignore for a lifetime.

Hence the term, "educated idiot."

Mon, 10/05/2009 - 14:16 | 89020 Anonymous
Anonymous's picture

"Its price has been remarkably similar for centuries at a time."

Only if you pick your measuring points very, very carefully.

$45/oz in 1971.
$850 in 1980.
$300 in 1985.
$250 in 1999.
$1040 in 2007.
$750 in 2009.

Remarkably volatile, not remarkably stable.

P.S. adjusting for inflation does nothing for the volatility -- in case you were silly enough to try to make that case.

Mon, 10/05/2009 - 15:36 | 89096 TumblingDice
TumblingDice's picture

Remarkably stable. You demostrate the volatility of the dollar with those prices, not gold. Gold's real purchasing power has been the model of stability.

Mon, 10/05/2009 - 16:14 | 89144 Anonymous
Anonymous's picture

You claim that everything but gold deflated in
dollar terms MUCH MORE THAN HALF between 1980 and
1985?

Even for a gold bug, that's an extraordinary way to look at it.

Mon, 10/05/2009 - 17:39 | 89231 TumblingDice
TumblingDice's picture

First off, I'm not a gold bug.

Secondly I claim no such thing. I merely claim that the rising gold price was merely a side effect of the dollar's instability. When inflation was running rampant in the early 80s it caused gold to skyrocket and when it was curbe later on the price plummeted. It had nothing to do with the purchasing power of gold being volatile, it ha everything to do with the current and prospective purchasing power of the dollar being in question.

Mon, 10/05/2009 - 18:10 | 89277 michigan independant
michigan independant's picture

"And famine was sore upon the land"

Fate, Kismet, a store of value? never in mankind have I seen so much greed and disconnects over time. I live in the States and remember when our gold was grain and you better hope that rings true in the future.

 

Wed, 10/07/2009 - 01:56 | 91132 Anonymous
Anonymous's picture

Our fetish with Gold is borne out of our ancient History.

The Ancient Flying saucer Cargo Cult cross breeders/gene splicers of "man" had a need for Gold.

They needed it mined supposedly for the atmosphere of their Planet.

They mined it themselves until they got tired and created the slaves by splicing their DNA with the most intelligent of Earth's inhabitants, making sure to remove the genes that gave the creatures enormous physical strength.

Per ancient Sumerian Archeological findings, they called the modified being "Looloo Amelou"

Too bad some of the modern Archeologists who discovered this fact did not even know that today the Aramaic word "looloo" stands for precious jewelry(usually pearls) and "amelou" means worker hence jewelry worker or mine worker for the tools.

The descendants of the mine slaves became genetically and socially conditioned to value Gold above all else and since most of it was mined away vs the majority of the rest of the elements, it became very precious and very hard to mine since the easy stuff was already mined by the ones who rode on the Chariots of "fire"(aka spacecraft) of the ancient religious texts, Cuniform tablets and passed down tales that survived constant Earth changes.

The most fantastic thing about this tale is that it is the fact that shaped our history but don't let that bother the people who think they've got it all figured out and are laughing at the "absurdity" of such a tale.

You can get back to hoarding that Gold but unless you are adept at converting it to something that is needed for human sustainability, what will you do when the coming massive solar flare melts it all around you?

drink it? wait for it to cool down and eat it?(yes I know about the $1000 Gold sprinkled dessert)

barter away post apocalypse necessities for it?

In a post disaster world, even fools would not care for Gold unless it can improve their life of get them off the mortal coil to another planet that may be more hospitable to human life.

It's the final countdown. The only question is: can we terraform Venus and nudge it to a more hospitable location?

fUny1.blogspot.com

Sun, 10/18/2009 - 05:28 | 102550 Anonymous
Anonymous's picture

Nothing more to say after that. Yup, you've got the answer all right.

lulz

Wed, 11/25/2009 - 00:28 | 141521 Anonymous
Anonymous's picture

Two points

1) The higher gold goes the louder the anti-gold trolls obfuscate.

2) IMHO Yi-Chang Wang has explained gold's durability of value more lucidly than anyone else. For those of you who are confused over the question of investing in precious metals this is article makes it all understandable.

http://www.safehaven.com/article-1922.htm

Do NOT follow this link or you will be banned from the site!