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Presenting A Scientific Theory For The Fair Value Of Gold (With 88% Accuracy)

Tyler Durden's picture





 

The greatest mystery in finance is and always will be what the fair value of gold is. Unlike stocks, where fair valuations are usually based on some multiple of cash income, earnings, or dividends, gold has no inherent dividend, nor a positive carry, and thus value is confined the realm of the intangible. Some pundits have considered the fair value for gold a price which covers the currency in circulation in a given country on a dollar for dollar basis. Others attribute a floating valuation to gold such that is convertible to any asset at a specific ratio, to account for inflation over the ages. Yet others dismiss any valuation attempts outright as hogwash, claiming that gold has any value to it solely due to insane and deluded gold bugs manipulating the gold market ever higher, contrary to the earnest attempts of shorters such as a JP Morgan and Sempra who are merely trying to keep gold priced as fairly (i.e., closely to zero) as possible. Due to the various (and numerous) conflicting opinions, we read the following paper from University of Albany professors Faugère and Van Erlach "The price of gold: a global required yield theory" closely. In it the authors observe that gold is priced to yield a constant after-tax real return related to long-term productivity as defined by real long-term GDP/capita growth.

While we sincerely recommend that anyone who has even a passing interest in gold read the paper in its entirety, we present the key sections.

Assessing the fair value of gold largely remains a mystery in Finance. While in some instances the existing literature has found empirical relationships between gold prices and macroeconomic variables such as inflation and exchange rates, little evidence has been offered for connections between gold and other asset classes. To date, there is no comprehensive theory of gold valuation showing how inflation, exchange rates and other asset classes may together affect gold pricing; or how gold and other asset classes may be affected by common underlying factors.

In this paper, we offer a gold asset pricing theory that treats gold as a store of wealth. We demonstrate a theoretical and empirical link between gold price, inflation, and foreign exchange rates and the general valuation of the stock market. Our approach is based on a generalization of Required Yield Theory (Faugere-Van Erlach [2003]). Required Yield Theory explains the valuation of financial assets via investors’ general requirement to earn a minimum expected after-tax real return equal to long-term GDP/capita growth.

We hold that since gold fulfills the unique function of a global store of value, its yield must vary inversely to the yield required by any financial asset class, thus providing a hedge in the case where such assets are losing value. Our theory explains about 88% of actual $USD gold prices and 92% of actual gold returns on a quarterly basis, including the peak prices of gold, over the 1979-2002 period.

The extant literature has well documented empirical relationships between gold price and global macroeconomic variables such as inflation and currency exchange rates. For example, Sjaastad and Scacciavillani [1996] show that after excluding the sharp rise in gold prices in the early 1980’s, about half of the variance in $USD gold prices during the period 1982-1990 appears to be accounted for by fluctuation in real exchange rates. Ghosh, Levin et al. [2002] find that gold is mostly an inflation hedge in the long run. They further attempt to justify short-term gold price volatility by appealing for example to changes in the real interest rate and $USD vs. rest of the world exchange rates fluctuations.

On the other hand, the empirical record weighs heavily on the side that gold pricing apparently is related neither to GDP growth nor to other asset classes. Lawrence [2003] concludes that there is no statistically significant correlation between real returns on gold and changes in macroeconomic variables such as GDP, inflation and interest rates, and that the return on gold is less correlated with returns on equity and bond indices than are the returns of other commodities. Standing in contrast to the above findings, Coyne [1976] focuses primarily on gold as a hedging instrument and finds that for periods in which the gold market was free to fluctuate, gold tended to move in a direction opposite to the price of other financial assets.

Sherman [1983] makes a noted theoretical attempt at demystifying the pricing of gold. He uses a linear regression model to estimate elasticities of demand for gold. The key explanatory factors are exchange rates and unanticipated inflation proxies. While several useful relationships are studied, these relationships are assumed a-priori and not theoretically derived.

Barsky and Summers [1988] focus on the Gold Standard period and develop a general gold valuation model that views gold as a non-monetary durable good providing a stream of “consumption” services over time, like Jewelry or objects of art. They theoretically show a relationship between the inverse of the log of gold price and the real interest rate, which seems to hold empirically over the period 1974-1984. In their model, gold is a non-depreciable asset earning a yield equal to a government bond yield.

However, by rooting their model in the Gold Standard era, and extending their approach to the current era, they are not addressing the nature of Gold as a store of value, that is, a hedging instrument against inflation and the collapse of the value of other asset classes. In this paper, on the other hand, we undertake the analysis of gold along this exact line.

A brief overview of the proposed Required Yield Theory.

Throughout the history of civilization, gold has been the single most important global store of value. To this day, it fulfills this unique function. For the purpose of extending Required Yield Theory to gold pricing, we postulate the following: 1) The global real price of gold essentially is a real P/E ratio for gold, where “earnings” represent purchasing power or a global price index. 2) The global real price of gold must vary inversely to all other main financial asset classes’ real P/E to preserve the real value of any investor’s capital against adverse movements in the values of financial asset classes.2 3) Law of One Price: exchange rate fluctuations must impact local currency-denominated gold prices to eliminate potential international gold arbitrages. 4) Mining supply must be stable in relation to supply movements in the aboveground stock and the worldwide stock of gold per capita should not increase in the long run.

Condition 1) recognizes that even though gold does not produce actual earnings, its primary purpose is to provide a stream of services by maintaining real purchasing power over time. The same unit of gold can serve to purchase a representative basket of economic goods repeatedly. We define the forward P/E for gold as the price of gold divided by expected next period’s GDP deflator. It is easy to check that the real price of gold is the same as the real forward gold P/E ratio.3 Condition 2) insures that gold behaves as a store of value, that is: capital flows to gold are dictated by changes in the minimum expected return achievable by other asset classes. It is important to emphasize that gold per-se does not require the same yield as other assets, as it stands outside of the conventional realm of investment goals, and acts mostly as a global hedging tool against financial downturns, and inflation.

Hence, our theory postulates that movements in the global real price occur because of the precautionary demand for gold, which largely depends on changes in the inverse real P/E (or required yield) of other assets classes combined. A consequence of this postulate is that a decline in the value of the stock market index does not necessarily entail flight to gold when, for example, expected stock earnings are also falling to maintain a constant real P/E ratio. On the other hand, flight to gold will happen when stock market prices are dropping faster than expected earnings due to acceleration of inflation for example.

In addition, since gold is a global homogenous durable commodity its price must be equalized across countries after currency conversion, which is stated in condition 3). Finally, condition 4) states that the supply of gold must be stable so that investors’ precautionary motive is fulfilled without major price movements driven by supply shocks. Indeed this condition seems to be characteristic of the precious metal mining industry. Later on, we provide a formal argument that shows that this must be the case under our theory.

The authors provide the following useful brief overview of the gold market (obviously the price/oz is as of the paper's writing ca. 2005. The current price is approximately 3x the $380/oz used in this calculation):

The total aboveground value of gold in the world is currently around $1.9 trillion at $380/Troy oz. ($380/Toz. x 32,150.7 Toz./Metric ton x 155,000 Mtons) compared with the approximately $15 trillion value of the US stock market and $22.4 trillion for US non-financial debt outstanding. Gold mining is a $31 billion per year industry with gold prices at $380/Toz. Given that the price volatility of gold is around 10% per year, it is easy to see why production companies heavily engage in hedging their future production. Ibbotson, Siegel and Love [1985] estimated that gold bullion represented 5% of total investable world wealth. Today, total world gold bullion represents 5.1% of the combined US stock and bond capitalization of $37.4 trillion; and a thus a much smaller proportion of total world wealth than the Ibbotson et al. study.

The rate of growth of gold extraction has essentially matched world population growth over the past 30 years. IMF data show that the more developed nations’ population grew a compounded 1.45% from 1972 – 2002, while total world population grew a compounded 1.89%. The global accumulated stock of gold grew from an estimated 98,000 tons in 1974 to 145,000 tons by mid-2001; implying a 1.46% growth rate. Thus, the world stock of gold per-capita has remained relatively stable over this period.

 

A preliminary empirical investigation of the price of gold reveals a non-trivial connection between real gold prices and the US stock market. Figure 1 below shows that gold’s real price varies inversely to the S&P 500 P/E, and thus with the earnings-to-price ratio. Figure 1 shows the high correlation between indexed USD real gold prices, inverse S&P 500 forward P/E ratio and 10-year T-Bond, over the period 1979-2002.

The theory we develop below predicts and explains this high level of correlation based on viewing gold as a global store of value.

Cutting to the conclusion, it appears that the authors' theory provides a valid basis for extrapolating gold prices, beyond mere voodoo and predicting prices based on cow manure patterns.

We have extended the Required Yield Theory (RYT) developed by Faugere-Van Erlach [2003] to value gold and to determine its return. RYT states that since global assets are priced to yield a global constant real return, and since gold is a global store of value, its price will vary directly with the global required yield and the global inflation rate. In the course of developing this asset valuation model we introduced a new exchange rule parity based on required yields comparisons across countries.

Specific predictions include: 1) the real price of gold varies proportionately to the change in long-term economic productivity as measured by GDP/capita growth. 2) Real gold prices vary proportionately to changes in the foreign exchange rate (direct quotation) when the domestic required yield is constant. 3) When the foreign exchange rate is constant and there are no major geopolitical or natural crises, real domestic gold price increases with domestic inflation. 4) When our new exchange rate parity rule holds, then effectively the real domestic price of gold is mostly determined by the domestic required yield. This entails that foreign exchange effects will impact the domestic real gold price to the extent that equalization of required yields is not taking place worldwide and/or that PPP is violated as well. 5) In the long-term, the gold per-capita supply remains constant. 6) The average long-term absolute price of gold is marked-up cost where the profit margin is given by the global average long-term per-capita rate of GDP growth.

While we suspect that central bank activities, hedging activities, supply/demand fluctuations, global real GDP growth changes or changes in global income and capital gains tax rates, affect gold prices as well, the valuation approach developed here performs very well absent these factors, with over 92% accuracy in predicting US Gold returns over a 23-year period. We leave an investigation of the role of these other factors for future research.

As for the practical implications of these findings:

In the long run, the gold mining industry’s real profit margin is constant and equals the real per capita productivity. The price of gold, on average, must be the average production cost plus a constant mark-up. Furthermore, in order for the real value of gold to be maintained on a per investor basis, the stock of gold has to grow at a rate that can be no greater than population growth in the long-term. If the supply of gold grew at a lesser rate than population growth for reasons other than depletion of the exhaustible ore, gold price would grow faster than inflation and the quantity demanded for gold would drop. Eventually the supply of mined gold will dwindle, which will drive prices up unless world population experiences zero growth in the foreseeable future. In that circumstance, far off in the future, a substitute medium of storing value may be discovered and used.

Another prediction of our theory of gold pricing is that the decrease in proportion of gold total value as compared to world wealth is explained by RYT in the fact that relative to financial assets, the long-term nominal value of gold must increase at the inflation rate, whereas the value of other assets rise with inflation plus real productivity. Thus, the proportion of investable wealth declines at an annual rate equal to real per share earnings growth or GDP/capita growth.

While we are certain that this paper's findings will not even bring the massive divide between gold fans and pessimists even an inch closer, having a solid, reproducible basis in which to reproduce the authors' results could be sufficient for some crazy quant to put together a HFT algo which will trade gold based on the postulates presented herein. And with an 88% prediction rate (absent major outliers events), we are confident that this could be an appropriate problem to reverse engineer (if it hasn't been already).

Full paper by Faugère

 

 


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Fri, 02/19/2010 - 22:10 | Link to Comment Gold...Bitches
Gold...Bitches's picture

'fair value' is much higher going forward.

Fri, 02/19/2010 - 22:20 | Link to Comment pslater
pslater's picture

Ignore a 92% correlation at your own peril.......your conclusion of 'fair value' suggests a collapse of other assets - which I agree with!

Fri, 02/19/2010 - 23:42 | Link to Comment Anonymous
Sat, 02/20/2010 - 01:23 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:54 | Link to Comment Anonymous
Sat, 02/20/2010 - 21:17 | Link to Comment Anonymous
Sun, 02/21/2010 - 12:54 | Link to Comment Anonymous
Sat, 02/20/2010 - 14:46 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:06 | Link to Comment Jerome Lester H...
Jerome Lester Horwitz's picture

Edwin Viera Jr. - What Is A "Dollar"? An Historical Analysis Of The Fundamental Question In Monetary Policy

Well worth the read!

Before you can determine what a dollar is worth you first have to understand what a dollar is.

http://www.fame.org/HTM/Vieira_Edwin_What_is_a_Dollar_EV-002.HTM

Sat, 02/20/2010 - 14:17 | Link to Comment Anonymous
Sat, 02/20/2010 - 15:34 | Link to Comment Anonymous
Fri, 02/19/2010 - 22:11 | Link to Comment Hephasteus
Hephasteus's picture

Huh?

Fri, 02/19/2010 - 22:18 | Link to Comment pslater
pslater's picture

Arguably one of the most valuable (and timely) pieces ever done on ZH.  I'll be working on some spreadsheets real soon......

Fri, 02/19/2010 - 23:09 | Link to Comment VegasBD
VegasBD's picture

Well that explains why most of it went right over my head.

Or it could be the bottle of Makers Mark I just found in my cabinet...

Fri, 02/19/2010 - 23:50 | Link to Comment percolator
percolator's picture

Since I assume you live in Vegas and I do too, we ought to get together as I'm fond of bourbon and hate to see people drinking alone.

Sat, 02/20/2010 - 12:34 | Link to Comment gmrpeabody
gmrpeabody's picture

Maker's Mark......well at least some of us are doing alright.

 

I drink alone, and when I do, I prefer to be by myself.

Sat, 02/20/2010 - 00:41 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Hey, pslater, if you do run some spreadsheets (checking correlations between 2005 and now for example), please advise the ZH community, in this thread or the next convenient gold thread.

The paper is way too dense to plough through on a Friday night for me, the math alone will take me sometime to digest.

Still, if the authors are right, this is an important set of knowledge for those of us who like gold.

Gold...Bitches said fair value is about to increase substantially.  I agree.  If fair value goes up like FOFOA thinks, then, well, the authors may have gotten it all wrong.  Or maybe not, I will have to read the paper to better judge their conclusions.

In these crazy times, we may soon get to see!

fofoa.blogspot.com

Sat, 02/20/2010 - 11:33 | Link to Comment Anonymous
Sat, 02/20/2010 - 21:48 | Link to Comment Crodus
Crodus's picture

Well, do you feel as if there is new knowledge in this article? Much of it falls back on common sense once you have the field data to form an opinion with some backing. The market value of gold has "a non-trivial connection between real gold prices and the US stock market," which bases itself on its dependence on an established trading system. Trying to find the lurking variables that it is dependent upon is the trick. Dependence hides when the bubble grows because the system's strength drives away the need to look for connected ties between parallel industries. It changes with the entrance of weakness in a sector of the market and the shifting investment wealth (buying frenzies, HFT, apocalypse-worshippers) overload one sector and bring the dependence/independence of it into focus.

Also, I don't think people appreciate the workings of crisis when they aren't happening. Gold has been rising the last decade but everything else lost its appeal in the later half of this blessed millennium.

As a part of the younger generations, I'll hold a grudge to those in the US who blew the chances of a superpower and mourn the patriots who gave us a missed chance.

Fri, 02/19/2010 - 22:23 | Link to Comment Get_to_the_choppa
Get_to_the_choppa's picture

This is why I love and hate ZH.  Here I was all set to turn off the brain for a bit and go watch some of the Olympics on tee vee, and now I'm going to have to read this paper.  Actually I think it's mostly ice dancing tonight so maybe not so much of a loss...

Fri, 02/19/2010 - 23:20 | Link to Comment WaterWings
WaterWings's picture

Love your damn avatar. And not to grafitti your billboard:

Eventually the supply of mined gold will dwindle, which will drive prices up unless world population experiences zero growth in the foreseeable future.

What about reverse-growth from because of massive die-offs from starvation, bio-engineered catastrophes, and straight up hot lead?

 

 

Fri, 02/19/2010 - 23:24 | Link to Comment Bear
Bear's picture

Zero growth by 2060

Fri, 02/19/2010 - 23:36 | Link to Comment WaterWings
WaterWings's picture

In that circumstance, far off in the future, a substitute medium of storing value may be discovered and used.

Well if it ain't a precious metal it'll be the same murderous musical chairs ad nauseum.

Sat, 02/20/2010 - 06:40 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:09 | Link to Comment chumbawamba
chumbawamba's picture

Yep.

There can be only One.

I am Chumbawamba.

Sat, 02/20/2010 - 13:09 | Link to Comment dumpster
dumpster's picture

soros buys gold

rogers buys gold

poulson buys gold

india buys gold

china buys gold

sinclair buys gold

hedge funds buying gold

paupers  yep lol

Sat, 02/20/2010 - 14:46 | Link to Comment chumbawamba
chumbawamba's picture

Chumbawamba buys gold.

Enough said :)

I am Chumbawamba.

Sat, 02/20/2010 - 17:08 | Link to Comment Anonymous
Sun, 02/21/2010 - 11:05 | Link to Comment Anonymous
Fri, 02/19/2010 - 23:33 | Link to Comment VegasBD
VegasBD's picture

Best name/avatar on ZH!

Sat, 02/20/2010 - 01:30 | Link to Comment Get_to_the_choppa
Get_to_the_choppa's picture

Aw shucks fellas. *kicks a rock*

 

Sat, 02/20/2010 - 10:33 | Link to Comment chumbawamba
chumbawamba's picture

Ow! FUCK!  Watch where you kick those things!!

Sat, 02/20/2010 - 00:39 | Link to Comment percolator
percolator's picture

10-4 on that choppa.  If ZH does not stop posting so much quality content I might sue them for ruining my social life.

Fri, 02/19/2010 - 22:27 | Link to Comment Jay
Jay's picture

I like to price gold against gasoline for a rough idea of whether gold is cheap or dear. In 1960 gasoline was about 30cents a gallon and gold was $35 per ounce, so it took about .0086oz of gold for the gallon of gas. Now it takes about .0027oz for the gallon.

Fri, 02/19/2010 - 22:33 | Link to Comment swmnguy
swmnguy's picture

That's a good one.  I read somewhere that an ounce of gold, ever since Roman times, would buy one a good suit, belt and shoes.  Nothing too extravagant, but good enough stuff.  Again, an attempt to quantify the price in terms one can readily grasp.

Fri, 02/19/2010 - 23:06 | Link to Comment Anonymous
Sat, 02/20/2010 - 13:39 | Link to Comment Bam_Man
Bam_Man's picture

And technology and global trade have greatly lowered the production cost of suits, belts and shoes.

Fri, 02/19/2010 - 23:09 | Link to Comment dark pools of soros
dark pools of soros's picture

sounds like a fine value

Fri, 02/19/2010 - 23:12 | Link to Comment VegasBD
VegasBD's picture

Think thats in the crash course videos.

But Ive found that to be true about a lot of things.

Gold tends to always buy the same amount of 'stuff' with a natural amount of deflation over time from better manufacturing processes.

Fri, 02/19/2010 - 23:45 | Link to Comment Hansel
Hansel's picture

I expect an ounce to be more valuable than your comparison now, i.e. maybe 1/4 or 1/10 ounce for the same garb.  The reason is there are far more people around now such that the amount of all mined gold yields about 1 oz per person globally, and additionally you would need to considered that large amounts of said gold is held out of circulation by central banks.  I've been thinking of many different metrics for the worth of gold.  Another comparison I've thought about is what price of gold would be required to balance the Federal Reserve's balance sheet after applying an appropriately marked down valuation to the assets on the Fed's balance sheet, including an interest rate for Treasuries I think more appropriate given the deficit problems, so that assets equal liabilities (the Fed's liability side consists of cash).  One can come up with all kinds of different prices.

Sat, 02/20/2010 - 00:49 | Link to Comment faustian bargain
faustian bargain's picture

A nice suit, not even a bespoke one but only made-to-measure, is going to cost you way more than $1000.

So the whole suit thing runs into the steak-vs-hamburgers deal.

Sat, 02/20/2010 - 01:52 | Link to Comment Anonymous
Sat, 02/20/2010 - 06:11 | Link to Comment Hansel
Hansel's picture

Maybe.  But the argument gets into the whole "is gold money" predicament.  At 1 oz/person if gold is the only real money (which I realize it probably isn't), you are saying that the entirety of a persons wealth, on average, will only buy a suit.  I was implying that a fair value of gold is higher than its current price around $1100.

Sat, 02/20/2010 - 06:20 | Link to Comment Hansel
Hansel's picture

Here's more food for thought.  The U.S. has 262 million oz of gold worth $292 billiion at today's market price.  That gold is the country's accumulation of wealth through its entire history.  This years deficit at ~$1.5 trillion is ~5.1 times its entire gold supply.  Last year was about the same.  By printing (debt-backed) money in the fashion we are, we claim to produce 5x the wealth (in gold) accumulated in 222 years, every year.  Which money has more value?

Sat, 02/20/2010 - 10:13 | Link to Comment mouser98
mouser98's picture

i think you could increase the value another magnitude by comparing gold reserves to public debt "reserve", currently at $12.4 billion.  that yields a factor of X42

 

Sat, 02/20/2010 - 12:19 | Link to Comment Anonymous
Sat, 02/20/2010 - 15:08 | Link to Comment Hansel
Hansel's picture

If you give me some gold in return.

Sat, 02/20/2010 - 23:14 | Link to Comment Anonymous
Sun, 02/21/2010 - 00:39 | Link to Comment Hansel
Hansel's picture

Clown, do you think of your wealth as 1 house and 1 car, or as a house worth $XXXXX dollars and a car worth $XXXXX dollars?  I'll put words in your mouth and say yes, but those things are only worth what you can sell them for.  Enter money.  If U.S. dollars aren't money and gold is, see my prior posts.  Mental midget.

Sat, 02/20/2010 - 15:52 | Link to Comment faustian bargain
faustian bargain's picture

I agree that the undistorted value of gold is going to be way more than $1100 (today's equivalent). I think the entirety of a person's wealth is not represented by the amount of money they hold though...unless you expand the word 'money' to mean anything that has a value...which would be impractical.

Sat, 02/20/2010 - 16:22 | Link to Comment Hansel
Hansel's picture

If you're still reading... People currently measure their wealth in dollars.  Their house isn't money, but they think of it in terms of how much they they can sell it for, so it would seem a country's assets are backed by the country's available money.  A 1:1 price of assets to money probably is unrealistic because all assets won't be sold simultaneously.  But the ratio of money to assets implies a certain amount of leverage in the system, and I don't know what that ratio should be. In a capitulation event, for instance when a large number of people are foreclosed and need to sell at the same time, the leverage ratio will move towards a 1:1 ratio.  From what level it comes down, I don't know.

Sat, 02/20/2010 - 16:49 | Link to Comment DosZap
DosZap's picture

Not to be a smart ass, but less than 3/4's oz. per human.

And total amount since record keeping 165,000 metric tonnes.............

Last valuation ratio  I heard was approx $96,000.000 USD per oz.

But, then I am not Chumbawa........

Sat, 02/20/2010 - 19:39 | Link to Comment Anonymous
Sat, 02/20/2010 - 09:30 | Link to Comment malvotron
malvotron's picture

Try that in early 2000's...

Did they have Primark back then?

Fri, 02/19/2010 - 22:31 | Link to Comment swmnguy
swmnguy's picture

88% or 92% correlation?  Interesting.  Of course, 93.4% of all statistics are made up on the spot.  But this paper I'm going to have to read, if only to check every so often.  If this makes any sense at all it could be really valuable.

Fri, 02/19/2010 - 23:35 | Link to Comment WaterWings
WaterWings's picture

13. The Omnibus One-World Government, Unified Currency, Dollar-Abolishing, Free Trade–Advocating Theory of Everything:


To make, first reheat old theories about elite organizations that supposedly control various world governments and would like to create a single, unitary, global regime—the Bilderberg Group, the Council of Foreign Relations, and the Trilateral Commission. Add a healthy portion of slightly newer but equally discredited theories about the Amero, a pan-North American currency, and the NAFTA superhighway, a planned thruway from Canada to Mexico said to be six football fields wide. Freshen with the economic-crisis-born idea that Ben Bernanke is trying to destroy the value of the dollar. Add a pinch of tea-party spice from former Alabama State Supreme Court Chief Justice Roy Moore, who believes there's a plan underfoot to have a United Nations guard at every American's door. The finished product should taste a little like this.
Proponents: Alex Jones, finance blog Zero Hedge, WorldNetDaily, conservative news site NewsMax, Roy Moore.
Kernel of Truth? Eh, sounds plausible to us.

 

http://www.newsweek.com/id/233518?GT1=43002

You're right. Must not be true. At least give me some credit.

Sat, 02/20/2010 - 00:02 | Link to Comment Anonymous
Sat, 02/20/2010 - 07:45 | Link to Comment Crime of the Century
Crime of the Century's picture

Everything you ever needed to know about Newsweak:

http://iowahawk.typepad.com/iowahawk/2009/05/please-stop-reading-me.html

 

Sat, 02/20/2010 - 00:53 | Link to Comment faustian bargain
faustian bargain's picture

Also, we eat puppies' brains while they're still alive, in our monthly coven meeting at Stonehenge.

Sat, 02/20/2010 - 09:27 | Link to Comment Anonymous
Fri, 02/19/2010 - 22:51 | Link to Comment FranSix
FranSix's picture

This paper is a lot more worthwhile in determining the value of gold during a deflation.  Its an inflationary trend paper, though it does show a chart with the calculation of the real value of gold since 1913.  Note that during the depression, gold's real value was almost 30X the original price fix due to the massive wholesale decline of prices.

http://www.resourceinvestor.com/News/2010/1/Pages/Edison-says-goldvaluat...

Mirror file:

files.me.com/fransix/rz2686

Sat, 02/20/2010 - 11:55 | Link to Comment hettygreen
hettygreen's picture

So what you are saying is the nominal value of gold was $35 per oz but those dollars it converted to had greater purchasing power in the deflation. Could not the same thing happen today without gold, you know, actually travelling to the moon in nominal terms?

Fri, 02/19/2010 - 23:16 | Link to Comment greased up deaf guy
greased up deaf guy's picture

ot - four bank failures this evening...

http://www.fdic.gov/bank/historical/bank/index.html

La Jolla Bank, FSB, La Jolla, CA with approximately $3.8 billion in assets and approximately $2.8 billion in deposits was closed. OneWest Bank, FSB, Pasadena, CA has agreed to assume all deposits. (PR-034-2010)

George Washington Savings Bank, Orland Park, IL with approximately $412.8 million in assets and approximately $397.0 million in deposits was closed. FirstMerit Bank, N.A., Akron, OH has agreed to assume all deposits. (PR-033-2010)

The La Coste National Bank, La Coste, TX with approximately $53.9 million in assets and approximately $49.3 million in deposits was closed. Community National Bank, Hondo, TX has agreed to assume all deposits. (PR-032-2010)

Marco Community Bank, Marco Island, FL with approximately $119.6 million in assets and approximately $117.1 million in deposits was closed. Mutual of Omaha Bank, Omaha, NE has agreed to assume all deposits, excluding certain brokered deposits. (PR-031-2010)

Sat, 02/20/2010 - 00:36 | Link to Comment faustian bargain
faustian bargain's picture

total cost to the DIF: $1.0655 billion

Sat, 02/20/2010 - 00:44 | Link to Comment Bear
Bear's picture

FDIC is broke ... we pick up 1.06555 Bill ... you and me each $3.55

Sat, 02/20/2010 - 00:55 | Link to Comment faustian bargain
faustian bargain's picture

Hate to tell 'em, but FDIC ain't the only thing broke.

Sat, 02/20/2010 - 11:55 | Link to Comment Careless Whisper
Careless Whisper's picture

ONE FUCKIN' WEST takes over another bank !?  how many bazillions did sheila give away to that hedge fund this time?

Sat, 02/20/2010 - 18:53 | Link to Comment Rusty Shorts
Rusty Shorts's picture

OneWest = Goldman Sachs

Fri, 02/19/2010 - 23:17 | Link to Comment Bear
Bear's picture

TD says: "The greatest mystery in finance is and always will be what the fair value of gold is."

I say: "The greatest mystery in finance is and always will be what the gold value of the dollar is."

Fri, 02/19/2010 - 23:45 | Link to Comment WaterWings
WaterWings's picture

What does your average Reuters commenter think the fair value of our Commander-in-Chief is?

http://www.reuters.com/article/comments/idUSTRE61G38U20100217

Sat, 02/20/2010 - 00:39 | Link to Comment Bear
Bear's picture

I'd short Obama .... but cover in July when rage has subsided .... then go long in Sept when 'Tea Party' is identified as a terrorist organization

Sat, 02/20/2010 - 13:13 | Link to Comment dumpster
dumpster's picture

another mystery in finance

 

is keynesian economics and why so many are cluless about the real  purpose of gold //

 

and then show even more stupidity by proving it .. with anal remarks about gold

Sat, 02/20/2010 - 17:01 | Link to Comment DosZap
DosZap's picture

Hahahaha.............

Interesting convo.

Bottom line, IMHO, Gold, like everything else, is values based on WHAT someone is willing to give you for it...goods, services, labor.

Depending on the circumstances, and current needs, an Ounce of Gold, may be only worth ONE meal.

Or 50.........or 500!

 

Sat, 02/20/2010 - 17:08 | Link to Comment dumpster
dumpster's picture

well right now .. in all, currencies they will pay .. vs. via ,, us dollar 1150

. .. and as the fiat goes down , soon they will pay 1600,, then higher ,

its in relation to the amount of fiat.. to balance the financials of the USA,, in dollar terms .

in the mean time your analysis sucks ,, another one with out the ability to chew walk and think all at the same time

probably a freckled zit faced youngster ,, with addled brain .. fed a mixture of keynesian mush and pavlovian gruel  ,, at rhe sound of the whistle stand to attention

now is not the time to be stupid ,,,

Sat, 02/20/2010 - 00:02 | Link to Comment Lionhead
Lionhead's picture

I disagree with the premise that assets must have a "P/E" ratio or correlation on a linear analysis model that doesn't account for investor fear & panic for this most emotional asset. Another attempt by academics to design a "model" using the wrong concepts for an ever evolving market over time. From the same folks that brought you the "efficient markets" concept. Moreover, does anyone trade stocks on their P/E ratios or yield only?  Rubbish...

Sat, 02/20/2010 - 08:56 | Link to Comment Anonymous
Sat, 02/20/2010 - 09:47 | Link to Comment George the baby...
George the baby crusher's picture

I subscribe to your premis with resolve.

Sat, 02/20/2010 - 00:04 | Link to Comment Anonymous
Sat, 02/20/2010 - 00:35 | Link to Comment Eally Ucked
Eally Ucked's picture

What a silly discussion this is, if we look at the gold, it's just a metal but it has very important characteristic, nobody knows how to counterfeit it and its supply grows at the pace of population growth. Goverment of USA tried to highjack that property guaranteeing exchange rate to USD but shortly decided it's not possible because their needs were much higher than gold standard allowed them to spend. So this is very important characteristic which is very hard to find with other stuff. You like paper that's ok with me, our predecesors did not like that idea but you are much smarter than barbarians, you are enchanted with it's magic power to muliply by using interest. Who cares what the real value of gold is, it's just comparison tool for value of services or products, and because of limited supply it's not going to go crazy. What value has US paper dollar? Paper value+green stuff on it+US goverment word? What if we have rogue President who says "we don't have enough money, lets print it"? At least with gold you cannot do it, I know it's good for Americans because if they are short of money they print them, but why Greece cannot do the same? Because world trade is in USD and enforced by military might, who wants Greek drachma, you or me I don't think so. The moment international trade changes from USD to whatever, my preference is my new currency Doo-Doo's, finally my retirement problems would be solved, USA ids doomed, why? Just think about it.

Sat, 02/20/2010 - 03:21 | Link to Comment Anonymous
Sat, 02/20/2010 - 00:42 | Link to Comment Instant Karma
Instant Karma's picture

The paper acknowledges the decreasing proportion of total wealth accounted for by gold, as opposed to paper assets like stocks, bonds, etc. But the paper fails to account for psychological factors. When people have faith in their government, the stability of their country, world peace, their currency, the integrity of their financial markets (stocks and bonds), like we did in the US in the 1990s, paper assets soar and gold flounders. When people lose faith or confidence in their country, or currency, or stocks, or bonds, people flock to traditional stores of value such as gold. Like now.

Countries like the US, Japan, and the Eurozone seem to be mathematically unable to balance their budgets without enormous social strife, and hence are putting themselves in a position where servicing the debt will become impossible in the not too distant future without some creative financial solutions.

Hence gold has been alternatively been hitting new highs in Euros or US Dollars recently. If a conversion of just a fraction of paper wealth in the G7 into precious metals occurs as confidence is lost the price of gold will continue to hit new highs. I would argue gold should be valued as some fraction of total world money and debt, and probably should be about 10,000 per ounce.

However, with the worldwide depression, the buying power of money has actually been increasing for those who have it, so that has tempered the rise in gold, in spite of the fact that the financial systems and currencies look increasingly fraudulent.

One must also point out that people in a country who fear collapse or ruin or disintegration will of course convert their currency into something else, either other currencies, other bonds, other stocks, or gold. For example, if you're a rich Saudi Arabian and you fear that someone, say, Iran, is looking to literally destroy your country, you might be inclined to convert much of your assets into something else.

Because if a country fails, or is conquered, its currency, bonds, and stocks in its corporations are worth what? Little or nothing?

Gold actually hit its most recent lows in the late 1990s when the US reigned supreme, the cold war was over, the US Dollar was king, our economy was humming, our budget was sort of balanced, and stocks world wide were soaring. Also, interest rates yielded a decent return.

Now, in the span of a decade, its all unravelled. China is rising, the G7 is faced with depression and unserviceable debt, stocks have floundered for 10 years, bonds yield nothing, the US Dollar is a joke, as are most other currencies.

Sure, they might be sucking me in to cut off my knee caps with a gold price collapse, but I'm willing to put some of my assets into precious metals. Call it insurance.

Sat, 02/20/2010 - 05:54 | Link to Comment subarctictom
subarctictom's picture

Yes in deed , gold is a response to fear or lack of confidence in your political 'leaders' , and uncertainty and its more stabilizing influence as a store of value. Quantifying the element of fear and uncertainty can perhaps be done buy looking at spikes during political hot events???

 

  Great paper , Its  almost 1 am an here I am , reading ZH.

Sat, 02/20/2010 - 07:54 | Link to Comment Crime of the Century
Crime of the Century's picture

Which is why it is accurate to identify someone as wise and prescient who accumulated in good times at low prices, someone as observant and teachable who accumulates at a higher price at the signs of pressure, and someone as foolhardy and negligent who mocks and denigrates insurance until the last moment and desperately attempts to accumulate in a parabolic uptrend.

Sat, 02/20/2010 - 00:46 | Link to Comment Anonymous
Sat, 02/20/2010 - 13:12 | Link to Comment Anonymous
Sat, 02/20/2010 - 00:47 | Link to Comment Anonymous
Sat, 02/20/2010 - 00:53 | Link to Comment Anonymous
Sat, 02/20/2010 - 00:57 | Link to Comment Anonymous
Sat, 02/20/2010 - 01:01 | Link to Comment cocoablini
cocoablini's picture

This is a load of BS. I use the suit algorithm. An ounce of gold= one decent, new Armani Exchange suit. It was like this when I bought a suit for a wedding in the 90's and it works now. And that Greek dude probably liked Italian suits as well.
In seriousness, it's close but this article is great info. Thanks

Sat, 02/20/2010 - 01:14 | Link to Comment putbuyer
putbuyer's picture

Tell Marla - hows about some radio zzzzzzrrrooooo tomorrow night...

Sat, 02/20/2010 - 01:16 | Link to Comment Anonymous
Sat, 02/20/2010 - 13:17 | Link to Comment dumpster
dumpster's picture

to a starving man an oz of gold .. buys the can of soup,, and a loaf of bread , and returns about 1100 bucks

you guys are clueless ,, gold any where in the world can be redeemed at spot, cash on the barrel head,,

 

with an oz of gold the person already knows where to get his soup, his bread ..

now to a person so clueless and anal .. they would make such a stupid remark

Sat, 02/20/2010 - 13:26 | Link to Comment dumpster
dumpster's picture

a oz of gold  has very little value for every day transaction

 

so ding head ,, take it down to the coin shop ..

your head is swimming in muck

gold is for smart people who can chew gum and walk at the same time

 

Sun, 02/21/2010 - 11:08 | Link to Comment Anonymous
Sat, 02/20/2010 - 15:24 | Link to Comment Gold...Bitches
Gold...Bitches's picture

refine it and mint it (maybe around $300-400./oz.) which should create a floor for prices.

sorry, its higher than that.  thats just the lift cost once the mine is already in existence and past commissioning.  add in the costs of leasing land, permits, enviro studies, mapping, trenching, drilling, NIE's, PEA's... - its a lot higher than 300-400.

Sat, 02/20/2010 - 01:37 | Link to Comment Argos
Argos's picture

Let me preface my comment with, "I love gold and wish I had more."  Now, after saying that, this paper is NOT scientific.  What a load of crap.  Good thing they are not in my grad school class.  How about the simple fact, gold is worth what people are paying for it.

Sat, 02/20/2010 - 01:42 | Link to Comment Anonymous
Sat, 02/20/2010 - 02:09 | Link to Comment Escapeclaws
Escapeclaws's picture

I think what they are saying is that the price of gold is correlated with the reciprocal of the P/E ratio of the S&P. I was never good at deciphering economists' math. There are always 15 variables or more in a given equation. It took me until eq 8 to realize that the previous equations were difference equations.

Somebody could run a spreadsheet on the S&P "E/P" ratio and see how well it correlates to gold. I can't tell if they are just doing a correlation analysis without looking for an underlying causal factor. I don't understand their underlying theory, assuming the causal factor lies there.

Someone had previously pointed out that gold does well when real interest rates--as opposed to nominal interest rates--are negative.

Although I love gold, the metal, I can't understand why people fuss so much about an asset that has gone from about $300 per ounce to $1000 an ounce in 10 years. Is this such a spectacular return? Aren't there better ways to invest money?

Sat, 02/20/2010 - 08:08 | Link to Comment zhandax
zhandax's picture

In normal circumstances, you would, of course, be correct.  But remember this; current gold investors are looking at the next ten years, not the last ten.  We are past return on capital and forward looking at return of capital.  Waking up more or less intact in 2012 is the next success story for those of us who will not be attending bilderberg this year (and maybe them as well)

Sat, 02/20/2010 - 02:24 | Link to Comment WilliamShatner
WilliamShatner's picture

Can someone give me the cliff notes on this?

Too tired to read that after a long week at work.

 

Sat, 02/20/2010 - 04:05 | Link to Comment faustian bargain
faustian bargain's picture

"It's life, Jim, but not as we know it."

Sat, 02/20/2010 - 09:09 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:46 | Link to Comment gmrpeabody
gmrpeabody's picture

"I'm a doctor, Jim, not a miracle worker"

Sat, 02/20/2010 - 15:12 | Link to Comment chumbawamba
chumbawamba's picture

"I'm a doctor, Jim, not a bricklayer!"

I am Chumbawamba.

Sat, 02/20/2010 - 17:50 | Link to Comment gmrpeabody
gmrpeabody's picture

+100

Sat, 02/20/2010 - 13:36 | Link to Comment Anonymous
Sat, 02/20/2010 - 13:51 | Link to Comment Bam_Man
Bam_Man's picture

"He's dead, Jim." (The USD)

Sat, 02/20/2010 - 07:44 | Link to Comment Anonymous
Sat, 02/20/2010 - 08:01 | Link to Comment Crime of the Century
Crime of the Century's picture

"Gold is a beach ball held underwater"

~ Peter Degraaf

Sat, 02/20/2010 - 08:17 | Link to Comment MarketTruth
MarketTruth's picture

"In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." --- Alan Greenspan, 'Gold and Economic Freedom' (1966).

-------------------------------------

 

A Note on Government Gold Policies

 


www.federalreserve.gov/Pubs/IFDP/1997/582/ifdp582.pdf

"Governments can achieve a welfare gain roughly equal to that from an immediate sale through alternative policies. One such policy is specified in the bottom panel of Chart 5. Under this alternative policy, governments loan out all their remaining gold in each period. In the future when all gold now owned by private agents, whether above or below ground, has been used up, governments sell in every period whatever gold is necessary to make the price be what it would have been if they had sold all their gold immediately. The quantities of gold available for private uses are the same under the alternative policy as with an immediate sale. However, there is an important difference: under the alternative policy, governments relinquish title to their gold in the future and then only gradually. Therefore, to the extent that government uses can be satisfied by owning gold but not physically possessing it, most if not all of the gains associated with maximizing welfare from private uses can be obtained with little or no reduction in welfare from government uses until sometime in the future."

 Please read the entire PDF for far more information. This is but one of quite a few government and Fed papers that may be quite revealing.

www.federalreserve.gov/Pubs/IFDP/1997/582/ifdp582.pdf

 

------------------------------

A few mor from the United States Federal Reserve:

www.federalreserve.gov/monetarypolicy/files/FOMC19950201meeting.pdf

----------------------------------

Admitted that gold leasing is all about suppressing the price. Greenspan's admission is still posted at the Fed's Internet site:

http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm

--------------

Barrick, a large gold mining company, confession to the gold price suppression scheme is posted at GATA's Internet site:

http://www.gata.org/files/BarrickConfessionMotionToDismiss.pdf

-----------------------

Maybe the most brazen admission of the Western central bank scheme to suppress the gold price was made by the head of the monetary and economic department of the Bank for International Settlements, William S. White, in a speech to a BIS conference in Basel, Switzerland, in June 2005.

There are five main purposes of central bank cooperation, White announced, and one of them is "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful." White's speech is posted at GATA's Internet site:

www.gata.org/node/4279

 

----------------------

more at www.gata.org/node/8052

Sat, 02/20/2010 - 08:22 | Link to Comment zhandax
zhandax's picture

By just looking at the domain, I must correct you.  This is the horsetheives local 209 note on gold policies and not the government's.  THE FED IS A PRIVATE CORPORATION.  I will grant that the two are currently joined at the hips (insert flippant comment here), but never forget the difference.

My edit button works as well.  I forgive you the added GATA reference since we support the same concept.

Sat, 02/20/2010 - 08:26 | Link to Comment MarketTruth
MarketTruth's picture

NOTE TO ALL: i have been EDITING my above post as zhandax has been editing theirs. My apologies for the edits as wanted to supply additional datapoints.

------------

Agreed, the Federal Reserve is owned by members, which are generally kept secret as i recall yet never-the-lesss a list can be found at www.save-a-patriot.org/files/view/whofed.html

In a court case involving a serious automobile accident that involved a US citizen and a member of the Federal Reserve using the 'company' car, it was found th US citizen could not sue the US government because the Federal Reserve is a private company/entity. Thus the Federal Reserve could be sued of course, yet not the US government.

Sat, 02/20/2010 - 08:21 | Link to Comment SWRichmond
SWRichmond's picture

This article is positively laughable.  All you need to read is these two lines:

the authors observe that gold is priced to yield a constant after-tax real return related to long-term productivity as defined by real long-term GDP/capita growth.

Our theory explains about 88% of actual $USD gold prices and 92% of actual gold returns on a quarterly basis, including the peak prices of gold, over the 1979-2002 period.

So what they're really saying is "we constructed a valuation model based on B school principles and treated gold like any other asset class.  We did this only over a brief period of time that is an historical aberration; a global regime of fiat currencies, central banking, and falling interest rates in the dominant West.  What we found is that, under these carefully defined and controlled circumstances, gold behaves like any other asset."

The fact that the article is sprinkled with "math" makes it all the more puerile.

 

Edit:  This is the kind of short time-window thinking that is going to get Gen Xers run over.  They've lived their entire adult lives in a credit bubble where these principles worked, and the paradigm shift is going to absolutely kill them.

Sat, 02/20/2010 - 10:40 | Link to Comment WaterWings
WaterWings's picture

This is the kind of short time-window thinking that is going to get Gen Xers run over. 

Agreed. "I don't see why you rail against the Federal Reserve so much. Fractional reserve banking seems to be working just fine. What are you so worried about?"

Sat, 02/20/2010 - 11:45 | Link to Comment chumbawamba
chumbawamba's picture

It's going to kill more than just the young pups.  Even the baby boomers are sufficiently indoctrinated that they're still hoping for a return of their inflated 401K values.

I am Chumbawamba.

Sat, 02/20/2010 - 13:18 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:05 | Link to Comment Jesse
Jesse's picture

 

@SWRichmond

I wish I had read your reply first, and saved myself some time in replying to this paper below.

You characterize it almost perfectly. 

I would only add that it is an old leftover cake, with more frosting applied.

Gold diverged significantly from this 'model' in 2002.  The price is market based, and participation from the public is still thin and selective, at least in the developed world.  It is telling us something.

Listen or not.  But the professors' paper is not tradable. That is the long and short of it. 

 

Sat, 02/20/2010 - 12:12 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:26 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:28 | Link to Comment hettygreen
hettygreen's picture

I find your simple refutation of this piece commendable, sensible and even courageous given the generally opposing view hyperbole I usually see spewed on this site. The article is just another theory seeking validation through overly complex bafflegab. Flaws aside, if the authors really wanted to convince the masses they might learn something by spending a little time on Twitter. Brevity being the soul of wit, so they say. 

Sat, 02/20/2010 - 14:05 | Link to Comment Anonymous
Sun, 02/21/2010 - 06:24 | Link to Comment Hephasteus
Hephasteus's picture

Ya that wasn't math because it just mumbled. Math talks loud and clear. That's rhetorik math.

Sat, 02/20/2010 - 08:20 | Link to Comment Anonymous
Sat, 02/20/2010 - 08:28 | Link to Comment dogbreath
dogbreath's picture

Rainy River Resources.

6 drills turning

4 million ounces

New resource estimate being prepared

current price  $1.20 per ounce

 

Sat, 02/20/2010 - 12:17 | Link to Comment Anonymous
Tue, 02/23/2010 - 00:05 | Link to Comment dogbreath
dogbreath's picture

www.rainyriverresources.com

 

come have a look at richardson township.  Great exploration personel.

 

Sat, 02/20/2010 - 08:41 | Link to Comment Anonymous
Sat, 02/20/2010 - 09:28 | Link to Comment Anonymous
Sat, 02/20/2010 - 09:53 | Link to Comment Instant Karma
Instant Karma's picture

Some intangible value to gold:

1. It's relatively untracable. Under the radar. Not in a brokerage account. Not in a bank account. Not officially listed under anyone's name. It's just a private store of wealth.

2. Taxes? I don't think so. Bought gold lower, now, want to cash out? No problem. Cap gains do not apply (to physical anyway).

3. Need to hit the road? Take it with you. Not sure how it works at customs, but at least within the country, it's portable.

4. Worried about someone cooking the books? Being diluted? An earnings decline? Not with gold. What if some nut case starts WW III? Not a problem, gold will hold up just fine.

5. What if your bank or brokerage or the country is hit with some massive cyber attack or EMP attack and the electronic records are compromised? Well, that would suck for everyone, but, as a holder of physical metals (or cash even), you're ok.

6. Gold, silver, platinum, etc. Insurance. Peace of mind. Liquidity. Privacy. Non taxed (for now). Not vulnerable to catastrophic cyber attacks or war. Where's that in the formulation of golds "value?"

Sat, 02/20/2010 - 10:50 | Link to Comment Anonymous
Sat, 02/20/2010 - 13:20 | Link to Comment dumpster
dumpster's picture

your accountant lol

so you buy a coin at 400   sell it for 1200,, and report the 800 gain to your accountant ,

 

your as dense as a lamp post ,..

 

 

Sat, 02/20/2010 - 13:24 | Link to Comment Anonymous
Sat, 02/20/2010 - 12:00 | Link to Comment chumbawamba
chumbawamba's picture

Thanks for reminding me all the reasons why I LOVE gold.

As far as taxation, they have to know you have it before they can tax you.

Needless to say, though I'll say it anyway: Fuck the IRS.

Also, the density of gold, if made into a shell, will protect sensitive electronics from any EMP attack.

Gold.  You can't eat it, but you can make useful shit with it.

I am Chumbawamba.

Sat, 02/20/2010 - 14:10 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Chumba, I did not know that a gold shell would protect electronics from an EMP.  Thanks for letting us know.

(A fairly new book titled One Second After is about what happens to a NC town after an EMP attack, great read)

10-4 re taxation.  And you can always give it away quietly when you are old...

I am an Asian Rolling Bearing.

Sun, 02/21/2010 - 06:27 | Link to Comment Hephasteus
Hephasteus's picture

Gold becasue it's infinitely or nearly so malleable can be spread into the thinnest of foils.

They used gold foil's to determine mass and energy of radiocative particles by letting it shoot thorugh the foil and measuring the scattering.

Sat, 02/20/2010 - 12:50 | Link to Comment Sun Tsu
Sun Tsu's picture

Poncho Villa kept the coins and left the paper on the trains. Why send the General of the Armies to chase some ordinary bandit?

Sat, 02/20/2010 - 13:42 | Link to Comment Anonymous
Sat, 02/20/2010 - 10:01 | Link to Comment Anonymous
Sat, 02/20/2010 - 14:26 | Link to Comment dumpster
dumpster's picture

gold and utility value

 

The answer is a total collapse of confidence in paper as a storehouse of value between 1/1/2011 to 6/30/2011.

Jim sinclair

 

get some utility value now lol,

Sat, 02/20/2010 - 10:09 | Link to Comment FranSix
FranSix's picture

One thing I like to do is test someone on their knowledge of the basic property of gold, pointing out that its inert and does not oxidize.  I also lay it on thick by saying that a millenium into the future, that same purified gold coin or bar will look exactly as it does now, without any change.  The usual reaction is disbelief.

 

http://www.theonion.com/content/news/u_s_economy_grinds_to_halt_as

Sat, 02/20/2010 - 10:12 | Link to Comment Anonymous
Sat, 02/20/2010 - 14:19 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Anonymous, thanks for sharing Wang's article.

FOFOA has his own probability price distribution curve, shaped like the normal distribution.  The median is $55,000 / toz (non-hyperinflated 2009 dollars), the prices at 2 s.d. are something like $20,000 at the low end and $90,000 at the high end.  Wooo hooo! 

FOFOA is a rather dense read, but I have learned a lot about gold from him as well as here at ZH.

fofoa.blogspot.com

 

Sat, 02/20/2010 - 10:30 | Link to Comment Anonymous
Sat, 02/20/2010 - 10:37 | Link to Comment Anonymous
Sat, 02/20/2010 - 10:42 | Link to Comment jdrose1985
jdrose1985's picture


Sat, 02/20/2010 - 11:03 | Link to Comment Alex in SFBA
Alex in SFBA's picture

Long time ago I found some stats that showed that an ounce of gold typically buys a good suit, in all times (they did 100 years of data I think).

I liked that idea, so now I'm using "a good suit" valuation model. If gold goes significantly above it, it's overpriced; below - underpriced.

At $1,000/oz it seems to be fairly priced. Of course it doesn't mean it can't get temporarily overpriced, i.e. go higher.

Sat, 02/20/2010 - 12:02 | Link to Comment chumbawamba
chumbawamba's picture

I have expensive tastes in suits.

Therefore: gold to $10,000/ozt.

I am Chumbawamba.

Sat, 02/20/2010 - 12:54 | Link to Comment gmrpeabody
gmrpeabody's picture

Why have I been under the impression that you didn't use clothes?

Sat, 02/20/2010 - 11:12 | Link to Comment JimboJammer
JimboJammer's picture

Again...  paper  us  dollars  and  gov.  bonds  are  junk..  just  paper.

buy  gold  maple  leafs ,   silver  maple  leafs ,  englehard  silver.

Quality  Wealth ...  don't  take  my  word  for  it  ..  see  the  new  video

at >>>   goldsilver.com   scroll  down  to  William  Black.

Get  out  of  stocks ,   ect.   get  ready  for  the  big  crash...

you  will  not  get  a  3  day  notice... 

Sat, 02/20/2010 - 11:43 | Link to Comment Anonymous
Do NOT follow this link or you will be banned from the site!