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For all gold bugs out there, Miller Taback's Peter Boockvar on that much debated element, Au 79. Let the discussions begin.
Hat tip Susan
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I ve seen number of people mentioning that GOLD is a decent inflation hedge. Is there any historical data / study supporting such conclusion?
p.s. I am aware that commodities in general are, especially if they are part of index. And if the next 5 years are going to be deflationary rather than inflationary, commodities (most) are total toast.
I see gold as more of a storage of wealth (purchasing power) and not necessarily an investment or hedge against something. And im talking physical gold in your hands. If you dont hold it, you dont own it.
But I have a lot more silver than gold, way more upside I think.
I do however hold some gold mining stocks, and i consider those an investment or hedge, as those assets will probably outpace the price of gold when the major inflation wave finally hits.
Vegas, me too...Gold stocks have been very king to me over the years as has gold, but I trade them, I do not worship them. I do not trade bullion, just stocks. I might sell bullion and buy back in to arb the AUD. I am not a gold bug, but gold has certainly served me well. ( Bought gold in 2004 and sold very little)
In my view, gold is not properly thought of as a store of value, but rather a medium of exchange, a currency. We can split hairs over the difference between the two, but the point is, to trade it effectively you have to know the currency markets, manipulation and all, not the commodities markets. I've seen amateurs blow up over and over again in the gold trade until they figure this out.
They say, "The gold market is manipulated!"
I say, "Show me a currency that isn't."
LOL. Well I just watched the video, and I didn't even have to say what I just said. Bookvar gets it.
Fisher,
I just treat gold stocks like any other stock, but i keep a core a holding of gold and only sell/buy on currency fluctuations...so far so good. So, I treat gold as a currency...just as you would cross trade fiat I sometimes, though very rarely, cross trade gold. Like you say, its all manipulated to one extent or another.
The gold stocks are a different animal than bullion, I agree. I think of my positions in miners as akin to owning an uncertain amount of gold stored in the ground. It's very difficult to value gold miners, which also happens to make them susceptible to big bubbles and big busts. I suspect we'll see a bubble in gold and the gold miners before the Great Recession is over and done. Bernanke and crew are working their asses off to create an asset bubble somewhere, and this time, I think its going to blow up in their faces and send gold to generational inflation-adjusted highs.
Or so it seems to me.
There's plenty of historical data backing it up, but nothing is of any significance with regard to the price of gold until 1971 (the year the Bretton Woods agreement ended). The best way to show the conclusion is compare the increase in the price of gold from 1971 to now and the S&P 500. When you do that you have keep in mind that gold is a just a hunk of metal. It doesn't make cars or computers or play music. It just sits there. In 1971 to now the price has risen from $35/oz to $940/oz.
The thought fallacy that people have with gold is that they think that when the price is going up or down that gold's value is going up or down. It's not. You're simply retaining your purchasing power versus a fiat currency. So even if a general price deflation occurs and your gold falls in price (relative to the US Dollar), the prices of everything else have fallen as well. The same is true with price inflation. The great thing about using gold as a savings vehicle is that consumer prices generally don't inflate at the same rate (less) that capital goods prices do.
The initial rise from $35 should be ignored because $35 was not a real price. It was a fixed price.
Look only at the period in which there was a market price for gold, eg from 1975 to date. I think the results will disappoint you.
Holy shit, you're right! Gold was $180/oz (max) in 1975 and now it's only $940/oz. What a terrible performance! Let's see what other shit cost in 1975. Average home price: $39,300. Average Annual Income: $14,100. Average monthly rent: $200. Average cost of a new car: $4,250. A gallon of gasoline (during oil price caps and fewer government taxes): $.44.
So if I multiply all that shit from 1975 (and I forget that there have been substantial improvements in all this stuff since 1975), what would I get? (a $760 increase from $180 is 4.22) House: $165,800. Income: $59,500. Rent: $844. New Car: $17,940. Gas: $1.87 /gallon (which I won't bother to guess how much gasoline taxes have gone up since 1975). SO back to the original point: physical gold is not an investment (you're right), it's merely a saving vehicle to retain your purchasing power.
Check the price out in 2000.
In the long run we are all dead.
Today's is a fixed price too...
People now are getting paid the SAME WAGES as they did in 2000. But are prices at 2000 levels? HELL NO. So they go into debt, adding more layers tothe USA debt ponzi scheme.
Obama's policies may not be working as well as many had hoped:
1st 100 days - There are 2.9 million more people unemployed in May than there were unemployed in January. The unemployment rate went from 7.6% to 9.4%. Since May 2008, we have lost 5.5 million jobs. The biggest losers
were:
Manufacturing 1.5 million lost
Finance & Prof Serv 1.5 million lost
Construction 1.1 million lost
Retail & Leisure 1.3 million lost
good finance articles http://www.bit.ly/12NCJR
In a credit contraction, there may be terrible deflation in prices of "levered assets" like housing (as the credit becomes unavailable to support the prices of these assets) while prices of un-levered assets (gold being the most un-levered asset of all) inflate driven by excessive printing of fiat currencies.
Think about this if mortgage rates were 10%+(potential scenario) or if suddenly mortgages were unavailable to the bulk of the population housing prices would deflate dramatically.
In a credit contraction, there may be terrible deflation in prices of "levered assets" like housing (as the credit becomes unavailable to support the prices of these assets) while prices of un-levered assets (gold being the most un-levered asset of all) inflate driven by excessive printing of fiat currencies.
Think about this if mortgage rates were 10%+(potential scenario) or if suddenly mortgages were unavailable to the bulk of the population housing prices would deflate dramatically.
What a crappy way to present a video. Clip syndicate sucks.
The original good video is here:
http://www.bloomberg.com/avp/avp.htm?N=video&T=Boockvar%20Interview%20on...
Buy high, sell low. Or just hold it and treat yourslef to a gold-plated coffin!
sounds better than a stock plated coffin. Heard a good point made today about commodities and stocks. Both are going up at the same rate so essentially we are going no where in real terms.
Man, I wish you guys would expand on your heated ideas.
i love the "kick the can" analogy.
Admittedly, consumers around the world have stopped consuming. But, now with our blossomed emerging world there are people that have new hope for prosperity that they never had any hope until recently and gold is one part of solidifying that image. Many developing nations that never had gold reverves, started building official reserves in the early 2000's. So, even without all the current bets going on over inflation/deflation, we have an underlying dynamic that, in my opinion, shifts the demand curve. Gold is a sign of wealth, so, aside from all of the industrial uses, and the countries starting new official reserve supplies and all the side bets on the commodity, the fact that people like to use it as a sign of their own success is, in my opinion, a very big force causing a shift in it's demand curve.
Gold bugs seem to be planning for the worst. But if/when those times come, how much is your gold fund equity or gold certificate going to be worth? Nada.
Sell gold. Buy ammo. If things get worse, ammo will be far more valuable than gold. And if things get better, at least it will be fun to dispose of it.
Why Ammo? Are you anticipating civil war, mass crime waves...what exactly is your prophecy here?
Marc Faber in today's GBD report:
" My doctor advised me “to cut back on predictions, “because as Mark Twain observed: “prophecy is a good line of business, but it’s full of risks.”
LOL
Unnecessary. This is the rollover of one 'reserve' currency to another. It's happened before and will again. Painful for many, and the 'rich list' may change, but by and large I expect the US authorities will be well able to deal with even severe citizen uprisings.
Especially since I don't expect the *biggest* names at the top - the wealthiest families - to change. They've been the world's richest for generations and are not about to be surprised by this latest shift. So the social structure will probably remain about the same, and I don't think we'll see a Revolution either (so no Mad Max, sorry, fun as it would be).
Ren, it is hard for me to judge civil unrest in US as I am not there, but what you say makes sense. What is very scary is the thought of people who do not normally have a lot of experience with guns buying ammo and guns to use to protect their gold or what ever! Sounds like a disaster waiting to happen, esp if kids get in to the guns and ammo!
When you look at civil unrest around the world, guns do NOT make it any better. Neither do machetes or what ever the killing tool du jour is...( sorry , I veered off topic)
I'm not there either. (Nor I bet are most of the posters on this thread judging by the US times shown...)
But I *was* there...back in the day. Either way, +1 on your "no experience" point. I think those buying guns/ammo to prepare are kind of buying their own graves, whether it's against other armed citizens or (worse) the US military - because I DON'T believe in a fall of the rule of law - if anything, a move to a more 'fascist' regime would be my bet if we're playing Miss Cleo.
The best prep, without a Mad Max scene, is to find a place least likely to be involved in a gun battle at all. If a gun battle happens, then I doubt it will matter who has the most ammo after the smoke clears.
I disagree:
You'll always be able to buy ammo with gold (for a price) unless the SHTF muy pronto. Even then, you could probably make a deal in the heat of the momement.
I can forsee plenty of circumstances where you cant buy gold with ammo (wrong caliber, oversupply of bullets, etc)
That said, I think you should have ample quantities of each at ready hand
agrotera, great points. It is true not only that "Gold is a sign of wealth" in places like China, India, Thailand, Malaysia, Singapore, and Vietnam- it is the primary sign of wealth. I live in Bangkok, and there are gold "banks," where one can quickly and easily buy and sell gold in the form of 23K jewelry, bars, etc., on just about every major street and in every big market. Thais/Sino-Thais tend to put a large amount of their savings in such gold jewelry, not only because it is tangible and a hedge against inflation, but also because it is highly liquid and portable, which counts for a lot in places which have long history of natural disaster, war and civil upheaval. It has been said that one reason the Thais were able to weather the financial crisis of '97 so well was because so many people had large stores of gold. These are also deeply conservative countries, and the tradition of storing wealth in gold is not likely to fall out of favor any time soon.
Hi Anonymous, i love what you said -- this is what i picture in my head. I think there is a conservative and primal instinct in all of us that wants to protect our turf, and you outline one very effective way that people are doing just that. Thank you for your words!
True about gold as show of wealth to an extent. But Asians are also price conscious and astute business people for the most part. Indian gold buying was down this year because of PRICE. Hindu Times has/had an article on it, just google it.
So they are not so showy that they are blinded by price.
Demand for gold not picking up due to high prices
India's demand for gold has failed to pick up as high prices of the commodity has kept away a significant number of buyers, a senior economist said.
"Buyers have stayed on the sidelines mainly due to high prices (of gold). The first marriage season of the year has come to an end and there are no signs of demand for gold picking up," National Commodity & Derivatives Exchange Limited (NCDEX) Economist, Manasee S Gokhale, said in a report here.
http://www.hindustantimes.com/StoryPage/StoryPage.aspx?sectionName=RSSFe...
I think 'inflation' is a red herring talking about gold.
Gold is a hedge against fiat/credit uncertainty, not inflation or deflation per se.
Gold's 7% from its peak, according to Boockvar, in the US, where *deflation* is generally acknowledged to have been the issue. (I won't say 'problem' as I don't think it is.)
Gold traditionally has done well in deflationary periods as in high inflationary ones - in uncertain times when the fiat/quality of credit is in question.
CASH does well in deflation, and REAL cash (as opposed to failing fiat) does well in very high inflation, so it really doesn't matter to gold holders whether inflation or deflation is the order of the day, because gold is cash and no-one's liability. That is the same whether in deflation or very high inflation.
Gold has been our only buy-and-hold the last few years. We'll sell ours when we can be reassured that whatever fiat/paper/currency is stable.
I thought Tabak raised a good point at the end, regarding the possibility of gold confiscation. Given how heavily the Fed (and its arms, GS and JPig) are leaning on the spot price, and how consistent they have been for years with this, I think they're much more aware of gold than the average investor and will not hesitate to confiscate once the well-connected are stocked. That's assuming the average small investor is even aware of gold as a 'global cash' and is nimble enough to take advantage of such foreign havens as there may be.
gold is money par excellence without rival. i will not develop the idea but i will hint that frn are nothing but exchange media - they are not money.
the statists and fascist establishment have demonized gold because it and it alone limits government reach and preserves freedom. thus they have waged an unremitting war on gold in academia, government, and anywhere else they can spew their lies.
peter's most important point about gold is that it and nothing else can extinguish debt. all other forms of debt and currency are nothing but obligations of someone else eventually resulting in fast breeder reactor "money" creation. gold is unique in that it is not the obligation of someone else - one reason why it is money.
in order for a complete economic enema to occur gold and the dow will have to equal. one ounce of gold to buy the dow. i believe they will meet in the middle of where they are now.
and for those dodo bird arguments about gold not earning dividends, interest or being edible i won't waste my fingers.....
one other important note about gold is that it is extremely managed and manipulated by the government and gold cartel sponsored by the treasury dept. it has been occurring in varying degrees of fanaticism since the london gold pool of the 1960s. the manipulation is to preserve the pre-eminence of government fiat dollars which in turn is used to control the people. gold = freedom - a point well undestood by our founding fathers and our masters.
everyone should own gold.
BRAVO and AWESOME!
This is the problem with gold bugs: faith in gold becomes an all-encompassing religion that blinds believers to the facts.
Gold has not been a good inflation hedge since 1975.
I prefer owning gold miners like Randgold (Symbol: GOLD). It's a bit like being the dealer selling the drug. You dont have to be a drug-user, or a gold-buyer to profit from this strange "barbarous obsession".
Here is a link to inflation-adjusted price of gold:
http://goldprice.org/inflation-adjusted-gold-price.html
Anon, Central banks know that...they just hope the rest of us don't figure that out!
I agree with the premise that gold is a catastrophe hedge, whether that be inflationary or deflationary. Gold is money, and most certainly fits all the criteria for money.
Confiscation is out of the question though. In 1971, the US government said gold no longer matters, and for them to go back on that proclamation would be disasterous. The back door confiscation has already occured, through the holders of the gold and silver ETF's.
Furthermore, a new reserve currency unit will be introduced sometime in the near future, and will contain a gold component.
Has Fiat ever been stable for more than 40 years??? That statement sounds like an oxymoron to me.
'Has Fiat ever been stable for more than 40 years??? That statement sounds like an oxymoron to me.'
Yeah it kind of is in the 'long term' (where we all wind up dead). Considering my age I'll be happy for just a fiat 'stability' of 40, 50 years - if they bring in a new fiat that looks to last a few decades, I don't mind selling my gold into that and spending it all by the time I die. (No kids so no inheritance to worry about.) I just don't believe at all in any of the fiats on offer at the moment.
Or hey, even a fiat that lasts a couple decades - then buy gold with it if it starts to die before I do...
If confiscation is that remote, that's good as far as I can tell. The less government preying the better. But I don't trust them. They've gone back on many things they've 'said' before (like what the Fed will buy for instance) and my guess is if Goldilox or JPig want more gold and J6P appears to have some, the US government won't give a damn what it said in 1971...IMHO.
But then, how likely is it that J6P will have any. So it's prolly academic this time around.
If you look at the period in which gold has traded freely (i.e. ignore the initial rise after Nixon ended price controls on gold) - gold has been a lousy investment.
It was valued in countries where there was no alternative. Places where there was no rule of law, or viable securities markets, and you needed something you could smuggle out of the country.
I grew up in such a country, and had to smuggle out money (dollars, then regarded as the hardest of hard currency). My father bought gold in the Seventies, and watched it decline in value for three decades. The price in inflation-adjusted terms is still well below where it was in the mid-Seventies.
Over the past 5 years I have made money owning Randgold, a (no longer) small and extremely well-managed mining company that is run by South African mining engineers (the best in the world) and owns a number of gold mines in stable African countries. The stock is volatile, so I have added to returns by writing calls and puts as the pendulum swings from high to low.
Having grown up in an African country that experienced hyperinflation and a currency collapse, I find these dire catastrophic predictions of the dollar's demise slightly hysterical. Like democracy, the dollar is a terrible currency - but it beats all the alternatives.
makes sense, thank you.
p.s. Is there any reliable statistical data on actual metric gold demand vs supply, anyone?
Hawaii54 , you said, "it was valued in countries where there was no alternative. Places where there was no rule of law or viable securities market..."
It seems that our capital markets have big pockets of lawlessness which i think is another reason why people want gold....
I wish you would tell more about why you think the dollar demise is slightly hysterical...
Thank you!
The dollar is right in the middle of the range it has traded in against the pound for the last 20 years.
It isn't far off the original euro price. It seems like it has been oscillating around 100 yen as long as I can remember.
Sure, it declined by 40% under Bush but there seems to be no shortage of demand worldwide for the currency. Long-term, og course, the US will decline from its position of extraordinary hegemony post-1945. But then of course, in the long term, we are all dead...
"There's plenty of historical data backing it up,"
I apologize but such an answer, just doesn't cut it for me.
p.s.
Marla, have you ever (or anyone to that matter), run a regression on gold prices vs inflation on monthly bases? I wonder what the correlation is & how sound the significance level is.
Here is an article on Gold that is a bit tedious but may help with that question:
Jastrom's study analyzes the purchasing power of gold in England and the United States from 1560 to 1976, employing a meticulous methodology that:
1. constructs unified series of the price of gold since 1560;
2. constructs unified series representing the level of wholesale commodity prices in every year since 1560
determines the statistical relationship between these two series in such a way as to measure the purchasing power of gold since 1560;
3. analyzes the behavior of that purchasing power in periods of inflation and deflation; and
4. assesses the extent to which gold served as a hedge during inflationary periods and a conservator of purchasing power during deflationary periods.
http://blog.mises.org/archives/002808.asp
It is very academic but useful.
cool
Cool
Boockvar, no deflationist he, did not mention that before we get to his expected period of inflation, we have to first pass through possibly up to several years of deleveraging, downsizing, deflation, declining asset prices...call it what you will.
Gold will not go far until this is over, barring (I expect) a series of major and minor roving currency crises a la Iceland writ large. Gold has not had a stellar history as an inflation hedge, except over the longest of long-terms. Longer than our lives, probably...
Gold reacts to uncertainty and to crisis, not to expansionary or restrictive credit conditions.
In the next few months or years, you can safely expect each incestuous central bank to continue to buy the others' debt issues - with increasingly debased paper. But until consumer deleveraging is complete there will be no pickup in price inflation. That could take a while.
In the meantime, I suspect that gold will be a reliable but unspectacular store of wealth.
Agree with your last line but disagree with the nature of the 'meantime'. I don't think it will be asset price deflation that keeps gold reliable but unspectacular (a plod), and inflation that breaks it out at the end.
Volcker said that their big mistake in the '80s was 'letting gold go so high'. The one lesson the government took to heart from that time: Control Gold.
During this time of uncertainty - which will last for years - the one thing that will keep gold spot a plod is the ability of the government to manipulate via ETFs/the Comex.
I suspect when (not if) that manipulation stops - for whatever reason and I can think of several - gold spot will stop being a plod at that time. In government-manipulated markets (PMs, equities, houses, TBonds or toxic assets), you pretty much have to rely on history, logic and your gut to come to an 'investment price'. (As opposed to a short-term trading price.)
Like equities, the 'investment price' of gold at this particular time, is a hell of a lot different from what 'the market' numbers would show.
I expect gold as a plod will last only as long as the Comex is strong. And I don't have much faith in that considering the deterioration of so many other Western 'institutions'. Others, who believe more than I do in the power of Western governments/CBs, consider gold a barbarous relic. If the latter is true, it will be for the first time in history...and 'it's different this time' can be the most expensive four words in our language.
Gold is a hedge against a "discontinuous" currency event. Low probability, to be sure, but exactly what the current financial witch doctors are brewing up.
No argument with the poor investment value of gold since the '80 spike -- but that is the point, no? It has done pretty well since 2000...
The risk to gold is extended deflation. Short stocks against your gold with appropriate capital and stops (to each his/her own). Or preserve cash in anticipation of a deflationary rise in the dollar and buy more gold later. At all costs have 15-30% in gold today.
It could go to the moon. Cant go much below 650 without a collapse in energy costs and demand. Sounds like a reasonable investment proposition to me.
We just went through the closest thing to worldwide economic meltdown in anyone living's lifetime, and yet gold went down during that "event".
There are opportunities to make money trading the stuff, but it isnt the holy grail.
"We just went through the closest thing to worldwide economic meltdown in anyone living's lifetime, and yet gold went down during that "event"."
You write as if the event has completed. Good luck to you during the Fourth Turning (hint, according to this theory, the fourth turnings generally don't last 1-2 years)..
To follow up on my previous point about the Fourth Turning, one of the problems with Western civilization/culture, is that it only considers time as liner and ignores the cyclical nature/component of time. If you doubt that time is cyclical, merely look at the four seasons (short-term) or the fact that history seems to reiterate (same general themes, different specifics) every hundred years or so. My point being, if you do accept the cyclical nature of time, then we are in the fourth turning (crisis, or winter, phase/turning). Marked by uncertainty, death of accepted social institutions (financial system, anybody?), etc. Give me actual money/physical assets like gold or silver to store my wealth during times like these. Each turning of time represents a generation span, approximately 20-25 years. If you accept Strauss and Howe's premise, this turning will last us to anywhere between 2015 and 2030. Again, give me gold or silver to store my wealth during a long period of uncertainty/decay/instability. JMO.
"At all costs have 15-30% in gold today."
Unless one runs a hedge fund, those % allocations are a little bit too high with the respect of risk adjusted returns.
Ummm, you should check out John Paulson's holdings. He is about 45% gold and miners.
I wouldn't want to compete with a supercollider (computer) when it comes to trade execution & ability to buy underlying protection, etc.
How much is he leveraged?
Paulson is up 2% on the bullion in that 45% holding. Check it out! But it aint over till the fat lady sings so ... I will stay tuned.
Anglo-American is one of his largest gold holdings and it is a crappy company that has consistently underperformed its peers. I am not convinced that Paulson's past performance is necessarily a guarantee of future returns.
I read that he is buying GLD in gold not USD-- Is it available to everyone to purchase that way or is it a special placement for him?
The Link from Mises.org to Jastrom's, The Golden Constant is not not working as per post above. I will try to supply another link to the study. Apologies.
Chinese government has banned MMO 'gold farming', declaring that virtual currency can no longer be traded for real goods or services in the country.
This new law appears to mean that currency can only be exchanged for things such as in-game items, and the government hopes that it will now "curtail gambling and other illegal online activities". Richard Heeks at the Univertisty of Manchester estimates that gold farming rasies $200 million and $1 billion annually.
damn, now i have to go and find a job :P
The Performance of Gold during Inflation and
Deflation
Gold and the ’Flations
Fred Sheehan, Tel: 1-617-572 4562; Fax: 1-617-572 4508; E-mail: fsheehan@jhancock.com
p.16 of report. Sheehan summarizes Jastrom's study on gold in Inflation and Deflation.
http://www.gloomboomdoom.com/gbdreport/download/GBD0504.pdf
$ are being printed because they fear deflation (has everyone forgot this?) if i'm not mistaken the u.s. government multiplier is < 1.
if you really believe in inflation or armageddon then u take physical delivery and have an offshore bank domicile it or buy CEF (which i believe is fully audited and in canada as opposed to the gold etfs) to avoid roosevelt risk.
Dear Anonymous posters,
Would you please consider registering with your own unique moniker? It would be a pleasure to being able to distinguish you.
Very truly yours,
Agrotera
"Gold and the ’Flations Fred Sheehan,"
don't want to sound like an ass, but there are just too many graphs and irrelevant information in that particular report. It's seems like there wasn't a single hot or fearful financial subject that was omitted from that report.
no pun intended.
Sorry comrade, it was the best I could do as Mises has taken the link down to the actual study! But thank you Shaza for TRYING!
thank you!
gold,gold, gold,!!! .... let's talk about 'em stones:
http://www.youtube.com/watch?v=PluRW3_FEt0
Comrade, did you go straight to page 16 on that report? The gold report itself had no graphs...I think you were starting from the beginning of the report??? Sorry if it was confusing.
Saw this over at Denninger's site. A bank had to borrow at 7% in O/N. The low for the night was .01%
So who is about to blow up?
Maybe that's the 'September surprise' people keep talking about...
It is getting very confusing with all these Anon posters! I agree...hard to distinguish who you are answering at times!
Thank you Shaza!
I just want to know where the hell my avatar went...
Just for kicks and knowing full well that some of you know all this:
Gold is, over time, the BEST currency humans have come up with. Its the iPhone of currency products.
It is the de facto ultimate reserve currency of the ruling classes (Pharoahs, Dukes, Kings, Rockefellers, etc.) and wise-persons.
This is because of several highly unique properties that make it intrinsically useful as i) a store of value and ii) a medium of exchange (the two most important functions of a currency):
1) It is made in trace amounts inside STARS by a process of nuclear refining that is VERY well understood by modern physics. There are very finite, measurable, and quantifiable amounts of Gold anywhere in the universe, including our little planet.
2) Per item #1, Gold cannot be synthesized (like diamonds of late) in anything other than trace quantities via very expensive nuclear reactors or cyclotrons. The cost of synthesizing gold is $millions per gram, far above its market value. There have been some pretty serious scientific attempts in the 20th century to pull off this "alchemy" but the economics of Gold synthesis remain far outside of practical.
3) Gold does not oxidize - so it is impervious to the force that breaks down most other metals over time even as they sit around in vaults.
4) Gold is not perishable so it beats turnips, wheat, lumber, horses, slaves, etc.
5) It is very dense/highly concetrated, hence portable/hideable: a full grown human can pick up several million dollars worth of gold in two hands (400oz bars = ~$400,000 USD = 25lbs) and stow it, or carry it just about anywhere. This means Gold trumps oil, silver, etc. as a store of value/unit of exchange.
6) It is usually not taxed when purchased (although spreads on small amounts are painfully wide). So it trumps other highly taxed physical assets (furniture, antiques, etc.)
7) It is highly liquid: a person with gold can always convert it to other less outstanding currencies, or necessities. This liquidity factor plus portability trumps real estate and fine art.
8) It is not quite as liquid as paper money: this is GOOD b/c it prevents people from selling it on a whim, which over time, is a kind of enforced savings regimen.
9) In times of duress, it can be broken down for resale into smaller amounts by anyone with primitive technology (pliers to snip, a saw to produce shavings, etc.) hence, no foundry or re-striking/minting expense, although depending on the situation there may be re-assay costs to the seller - and having an accurate scale around doesn't hurt.
10) It has a consistent, well understood and practiced extraction and refining costs.
11) Total known reserves and rate of extraction have remained remarkably consistent over time - and been far outpaced by human population growth. # of gold troy ounces per human have never been lower.
12) It has hundreds of practical uses in electronics, medicine, and technology that provide a tidy floor for its price.
13) Jewelry and adornment are REAL uses (although many MALE business people find that hard to understand). This provides a tidy floor for its price.
14) It does not have TOO many industrial uses like Platinum and Silver that jack its price around.
15) It is easy to test its purity by several non-detructive methods.
16) The intrinsic value of Gold per the reasons listed above (and probably a few more) makes it the ideal substance to use as a store of value and medium of exchange on planet earth. So, its most important practical use is AS A CURRENCY. Demand for it as a CURRENCY is a REAL demand. This provides the most substantial floor for its price. Since there is a very small amount of gold in nominal present value compared to the outstanding amounts of global fiat currency, imagine the UTILITY value of Gold if it were STILL regarded and used as a primary global currency.
In closing: GOLD is comprehended and used as a primary currency by the rich who remain rich over generations. There's no better way to hold on to your fortunes through the good, bad and ugly of life on earth over time. How much of it you keep around in any given epoch as a percentage of your total net worth is entirely determined by your risk profile vis a vis world events. If the huns are approaching, you may be chasing the bid. It good times, you may proportionally favor real estate or junk debt. But when you own anything denominated in a fiat currency (especially government notes), you are long that currency and possibly short gold -- which is a good thing to be acutely aware of when your turf gets invaded by crazed warriors from the steppes or your finance ministers and chancellors get out of line ;-)
Thank you so much Mazarin, for the great post!
The market keeps rebounding. It needs to be much, much lower. Americans are
being scammed and nothing being done about it. rec. articles for slow news day http://www.bit.ly/12NCJR
Since I've been purchasing gold and silver since 1994 I've seen people lose their 401(k) in two large waves. I didn't take part in 401(k) either time (still haven't and likely won't). For example in this recent one, at a new position in the first half of 2007 I disallowed the obligatory contributions from the outset of my employment--much to the looks of confusion by coworkers and the Fidelity goon on the phone I had to almost yell at to comply--until in the last year in conversation I learned every one of them had lost huge amounts. When I asked, I learned that they had all stopped contributions at some point during 2008 (never of course mentioning it, perhaps out of embarrassment for treating me like a Martian). Anyway during both those large periods of losses bookending the last decade or so, I put the money I would have contributed for 401(k) instead into physical coinage. Look at where gold&silver were in 1994 and see for yourself; as I recall, gold was ~300USD/toz and silver was ~4.15USD/toz. In my particular set of circumstances, it has thus served me *very* well as a preservation of wealth.
You could have bought Berkshire Hathaway at $20,000 in 1992 and sold it at the beginning of last year at $140,000. Even at $86,000 today, the shares have returned more than your gold. And it hasnt cost you anything to store the shares, as opposed to the gold.
I've worked labor and as a skilled tradesman my whole life, and I've never had the sort of money to really play in the stock market at the kind of level you are talking about. 20K? I've never had that much money at one time. In case you missed the point of what I was saying, where most people have looked at their 401(k) as 'preservation' for future, I had no faith in it because I knew the casino they were putting it in, just as I have no faith in the general stock market (for exactly the sorts of reasons Zero Hedge even exists). For my small scale wealth preservation, its worked well enough for me. I've managed to save more of my wealth than most of my peers, and that was my point.
If the US defaults what impact will it have on gold?
Actually, Gold is a highly durable asset. It is the demand for the existing stock, as opposed to the new flow, that must be modeled. The willingness to hold the stock of gold depends on the rate of return available on alternative assets.<a href="http://goldstashforcash.com">sell gold</a>