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Why Gold Is Still a Good Long-Term Investment

George Washington's picture





 

Washington’s Blog

Utah has declared gold and silver to be legal tender - with the value
of the coin determined by the weight of precious metal it contains

As the New York Times notes:

The law is the first of its kind in the United States. Several other
states, including Minnesota, Idaho and Georgia, have considered similar
laws.

World Bank president Robert Zoellick noted last year:

Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

Alan Greenspan told the Council on Foreign Relations:

Fiat money has no place to go but gold.

***

If
all currencies are moving up or down together, the question is:
relative to what? Gold is the canary in the coal mine. It signals
problems with respect to currency markets. Central banks should pay
attention to it.

China is buying a lot of gold. As CNN Money reported on May 20th:

China
edged out India to become the world's largest buyer of investment-grade
gold products, according to a World Gold Council report.

 

In the first quarter, Chinese consumers purchased 90.9 metric tonnes in gold bars and coins, valued at $4.1 billion.

 

That's more than double the amount Chinese consumers were buying a year ago.

 

***

 

"You
have a growing middle class that has increasing disposable income that
is also concerned about upward inflation pressures," said Carlos
Sanchez, a precious metals analyst with independent metals research
firm CPM Group.

Indeed, commentators such as Ambrose Evans-Pritchard and Byron King
have argued that China's hunger for gold will put a floor on gold
prices. Specifically, they argue that China will "buy the dips" in gold
prices, effectively putting a minimum on how low gold prices can go.

Moreover, with virtually all of the world's countries printing money like mad, it is not gold - but rather fiat currencies themselves - which are in a bubble. In that light, gold is not overpriced.

And as I noted
last year in an exhaustive roundup, there are many other reasons that
physical gold could be a good long-term investment (even if there are
sharp corrections in the short-run) including:

1)
sovereign defaults; 2) shortages of physical deposits; 3) the dollar;
4) central banks; 5) declining production; 6) inflation; 7) deflation;
8) uncertainty and distrust in government; and 9) flight to safety.

Note: If governments start raising interest rates world-wide, it might be time to sell gold.
But there doesn't seem to be any risk of that in the near future, as
virtually every government which has the ability to do so is still
printing money like a drunken sailor.

I am not an investment adviser and this should not be taken as investment advice.

 


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Wed, 06/01/2011 - 15:40 | Link to Comment lasvegaspersona
lasvegaspersona's picture

FOFOA has a blog devoted to understanding why gold is and always has been valuable. He has a concept called Freegold (I think it should have a better name). What is missing here is a discussion of the roles of money and why a fiat currency very well fulfills the role of 'unit of account' but fails as a 'store of value'. Spending some time thinking about these different aspects of money has led me to understand why inflation and investment success in gold 'investing' is irrelevant. I have also become convinced that only physical 'in the hand' gold counts. As the dollar finally tanks, the APs (Authorized Participants of the ETF GLD) and others with access to bullion will have it and all that will be left for 'investors' is the useless currency that has just failed. 

We are about to experience the financial events of many lifetimes. There is a right and there are many wrong ways to play this. Get it right and you will do what TPTB have done time and time again...preserve wealth. Get it wrong and you will loose everything backed by the failed currency. 

It is definitely worth the time and effort put into to understanding what is happening. We will see hyperinflation and then a great 'reset'. If you come to believe as I do that this is inevitable then your course will be clear. Good luck in your studies. This is one test you will want to ace.

Wed, 06/01/2011 - 15:17 | Link to Comment Slap That Taco
Slap That Taco's picture

There are no good reasons NOT to own metals.  I would say even if you bought at the top, an ounce is an ounce is an ounce.

 

A piece of paper may be a bag of groceries today, a cigar lighter tomorrow.

Wed, 06/01/2011 - 15:07 | Link to Comment geno-econ
geno-econ's picture

My wife has always wanted gold jewelry. Probably thought my earning power or duration was limited or not stable, so she could look pretty just in case. Now citizens are having same thoughts about America and clamoring for gold and silver---not for long term investment, but for stability against fake {fiat} currency or loss of Uncle Sam as a provider .

Wed, 06/01/2011 - 15:00 | Link to Comment chdwlch1
chdwlch1's picture

I'm not a conspiracy bug by any means, but when it comes to the PM markets it's impossible to ignore the overwhelming evidence supporting a conspiracy.  TPTB realize that an outright confiscation of PMs wouldn't fly in today's world like it did in the 30's. With that in mind, I keep coming back to the "Cash for Gold" concept as the modern day equivalent of 30's confiscation.  I'm sure some of the dealers are in it for their own profits, but my guess is that the major buyer in this racket is our own govt.  Why not? Just print some more fiat to trade with the troubled masses that are scrounging to pay their bills and juice up US gold reserves in the process.  It wouldn't surprise me at all if this turns out to be correct in the future.

Wed, 06/01/2011 - 14:53 | Link to Comment aphlaque_duck
aphlaque_duck's picture

Americans have been brainwashed for over a century to eschew gold. Just a couple days ago there was an article on the front of the NYT business section explaining what a terrible idea it is.

But outside the US it is highly prized and many cultures older than ours have a tradition of keeping personal savings in gold. So it doesn't matter how clueless Americans are about it. The rest of the world is loading up and that will drive up its nominal price higher regardless of whether we're actually using it here.

Wed, 06/01/2011 - 14:27 | Link to Comment Franken_Stein
Franken_Stein's picture

 

If you question gold & silver's value, then ask anyone you know or meet, the shop owner around the corner, the bus driver, the man in the street, if he/she regards gold or silver as valuable and whether he/she would accept it as money.

 

Just do a little local socio-economic experiment on your own and find out for yourself.

This will say so much more about the true value of PM's than any gallup poll presented to you by the oh so trustworthy MSM.

 

Thus you can already pre-examine society for the endgame to come.

 

Wed, 06/01/2011 - 14:26 | Link to Comment geno-econ
geno-econ's picture

Bought small amount of gold Krugerrands back in early 80's for $600 and it went down to $350 before recent price above $1500. Over 30 year span it does not constitute a good long term investment. However ,it may now be a good inflation or currency security play if you think the USA is toast---and only if toast compared to other economies.  Of coarse if to big to fail bank anywhere goes under, reprucussions will be global .  It's more a short term security play and better than selling apples --as in fruit 

Wed, 06/01/2011 - 15:25 | Link to Comment Slap That Taco
Slap That Taco's picture

 I don't agree with you-you are talking like PM's are stocks or bonds.

 PM's are in the same category as a roof over your head, food on the table,home protective devices and security alarms in your home.

 You can buy a stupid stock or bond, but is a PM purchase EVER stupid?  I think not.

Wed, 06/01/2011 - 14:50 | Link to Comment High Plains Drifter
High Plains Drifter's picture

technically speaking , gold and silver have been in a bull market since about 2001?  correct?  some say it will last 25 years. i say it will last for who knows how long. charts have to be thrown out the window. as robby noel used to say, before he moved back to south africa, we are in unchartered territory.........

Wed, 06/01/2011 - 14:12 | Link to Comment bubba1231
bubba1231's picture

 

GW,

 

You are a disgrace and a traitor to your country.  Nobody gives a rats A$$ what you think of gold or any other subject.  Since you believe the US Govt committed 9/11 your opinion on anything is worthles.  Go live with the Ayatollahs where you belong.

Wed, 06/01/2011 - 14:48 | Link to Comment Hook Line and S...
Hook Line and Sphincter's picture

Bubba saw his wife sucking off another man. His wife looked at him with indignation and contrived pity and said, 'wasn't me'. Bubba's subconscious couldn't integrate what was seen with his ego, so he went back and bought his wife flowers and apologized for his terribly wrong, hurtful, and inaccurate accusation.

Wed, 06/01/2011 - 15:11 | Link to Comment Hugh G Rection
Hugh G Rection's picture

Ahh leave Bubba alone.  It's not his fault his family tree doesn't branch.

Wed, 06/01/2011 - 14:44 | Link to Comment High Plains Drifter
High Plains Drifter's picture

is that all you got?  george is a american insurgent and he will soon take out his yugo M76 and start taking care of business.

Wed, 06/01/2011 - 13:51 | Link to Comment AR15AU
AR15AU's picture

If governments start raising interest rates world-wide, it might be time to sell gold. But there doesn't seem to be any risk of that in the near future, as virtually every government which has the ability to do so is still printing money like a drunken sailor.

I disagree...  raising interest rates will signal that REAL inflation is coming (the kind that government CPI fraud can't hide), which will only stoke the commodities further. When governments *START* raising rates will be about the best time to hold, period. Its only when governments get those rates above 10% (US included) will you need to head for the exit.

 

Wed, 06/01/2011 - 13:43 | Link to Comment steve from virginia
steve from virginia's picture

I'll wait for the Pope to come out (of the closet) and declare god's support for gold as money or non- fiat or whatever.

Then, I'll run out to the store and buy something. It will make me feel better, which is what consumer goods like gold are supposed to do.

Gold is not a good investment now b/c you have to sell it in order to make use of its putative 'purchasing power'. However, it will be a good investment 'in the future'.

Just all the rest of modernity's lies: utopia is right around the corner, just one more 'innovation' away.

Fusion. Electric carz. Gold. Better rubber vomit.

That gold is considered an innovation says all that needs to be said about our current state of affairs. Why not wampum instead of gold? It was also money for thousands and thousands and thousands of years.

A breakdown of the system means all the system's fetish objects are also broken. Having the system broken enough and the fetishes are completely worthless and that means gold. The trajectory of the system is to follow Alan Greenspan into the great big garbage disposer in the sky.

Wanny buy something? Go to 7-Eleven and buy some beer.

Wed, 06/01/2011 - 15:05 | Link to Comment Hugh G Rection
Hugh G Rection's picture

Troll from Langley-

 

Keep up the disinformation campaign asshole.  I hope your mother is proud to have a 9-11 denier, PM basher, servant of satan as a son.

 

Fuck you and Fuck the Federal Reserve.

 

Sincerely,

Hugh

Wed, 06/01/2011 - 13:45 | Link to Comment Fat Ass
Fat Ass's picture

What the hell is the point of worthless "thought-piece" .. no wait, "vague-thought-piece" .. "articles" like this?

I could program a bot to dash off articles better than this, and I'm not exaggerating.

ZH, it's just silly.

Wed, 06/01/2011 - 13:56 | Link to Comment Magnix
Magnix's picture

That explains everything about predictions in gold and our economy. I got tired of reading bunch of crazy articles on ZH.

http://www.thedailybell.com/2415/The-Aden-Sisters-on-Money-Metals-Where-...

 

 

 

 

 

 

 

 

 

Wed, 06/01/2011 - 13:36 | Link to Comment Confuchius
Confuchius's picture

Gold and Silver are not "investments".

Gold and Silver are insurance against what's coming.

Gold and Silver are "unbacked" by any central banksters as they are real money and have always been, since "money" was thought up so many thousands of years back.

 

For those readers who wonder "what's coming" picture your paper fiat "money" of whatever stripe going to zero value.

Your Gold and Silver, however, will always obtain exactly what they have always obtained.

They require the "laws" of no party and the agreement of no party.

The Ultimate Insurance.

Forget the daily "paper money prices".

In a short time now the paper price will be infinite as no Gold and no Silver will be available from any source for any amount of "paper money".

 

Wed, 06/01/2011 - 14:19 | Link to Comment NotApplicable
NotApplicable's picture

Gold and Silver are not "investments".

Gold and Silver are insurance against what's coming.

Absolutely! 

Gold and Silver are money (as in the first sentence of GW's article). Money can be invested in a business in order to gain a positive return, but investing in money directly is merely showing a preference to hold money (for whatever reason). Only the Forex casino provides the appearance of investment gains, and even that is merely arbitrage amongst various fiat money competitors.

Money is either held, consumed, invested elsewhere or otherwise divested. It is not an investment within itself. While it doesn't happen so much now, before gold took off, when I would be telling people to buy G&S, their first rebuttal was always the "But gold isn't a good investment!" line. Then I would agree wholeheartedly (disarming them), and proceed to explain the situation in insurance terms, which they could easily understand being familiar with the idea of financial responsibility. Then once you explain that this is the only insurance where you get to hold the premium, it all starts to click.

But first you have to get past the trap of gold being an investment. Thanks for giving me the opportunity to point this out, GW.

Wed, 06/01/2011 - 14:25 | Link to Comment Temporalist
Temporalist's picture

That just gave me a new approach for discussion.  Thank you!

Wed, 06/01/2011 - 14:52 | Link to Comment Hugh G Rection
Hugh G Rection's picture

Historically PMs are insurance and not investments.

 

You guys are failing to factor in the paper manipulation of gold, but more so silver.  The value of Ag has been so suppressed, when it is finally allowed to be revalued, we will be able to obtain more good and services for the same amount of ounces.  In that sense silver is absolutely an investment.

Wed, 06/01/2011 - 13:33 | Link to Comment Gunther
Gunther's picture

Gold is in a bull market.

A change to a gold standard or high _real_ interest rates might change that. For now those possible end points seem really far away.

Wed, 06/01/2011 - 13:26 | Link to Comment Smiddywesson
Smiddywesson's picture

Despite all my posts on gold, I am really not a gold bug.  In the past, it has been a terrible investment.  However, this is not the past. 

I agree with GW.  People saying gold is in a bubble and price is destined to revert is like standing on the shore of the Gulf watching Katrina surge in and saying, "Don't worry, this is the high tide line."  Conditions have changed and all the old rules have gone out the window.

The two Greenspan quotes deserve consideration:

"Fiat money has no place to go but gold."
and,

..."If all currencies are moving up or down together, the question is: relative to what?"

There we have it right from the horse's mouth.  You can't devalue a currency if all the other currencies against which you wish to lower the value of your currency also need to devalue.  Instead, you need to devalue the whole system against some other means of exchange.  For historical, and practical reasons, that has to be gold. 

Gold has always been used as money, it is relatively scarce, and it isn't needed in large quanties by industry.  More importantly, central banks are buying large quanties of gold, not commodities, stocks, silver, or wampum. 

I have no idea what price gold will go to, but it will rise.  There wouldn't be a disinformation campaign against buying it, and they wouldn't keep hammering silver to scare PM buyers, if it wasn't going to rise.  This campaign by the central banks is not a public service, it is a life and death struggle to hold onto power.  Those with physical gold when the End Game hits have a chance to cash in.  They may have to lay low for a while so as not to see that gold confiscated, but at least they have a chance to hold onto their savings, if not see an appreciation (a big one).  One word of advice, don't let anyone know you have gold.  It will be considered patriotic to turn in your neighbors. 

Interest rates:  Normally, I would agree with GW that interest rates are critical to the price of gold, however, the old rules are changing.  Interest rates affect the price of currencies and PMs because they say something about a nation's commitment to its currency and to honoring its debts.  At some point soon, it will become apparent to everyone that which we already know, that the US and most Western nations have already passed the point of no return.  At that point, even interest rate changes won't matter to the golden juggernaut. 

They are all going to ignore the D word (default) and just default by changing the system to a gold standard.  Then they will claim credit for saving the world and the American way.  They write the history books, so be ready for another century of worshiping at the feet of Keynes, or at least the central banker's version of Keynes.

Wed, 06/01/2011 - 13:56 | Link to Comment fonestar
fonestar's picture

Nice thinkin' Tex...

I was thinkin' long the same lines actually.  Lot's of PM holders say that they wouldn't even bother to try and confiscate gold and silver these days.  I think that is wrong.  Especially in light of the whole bin Laden farce.

The staus-quo will resort to scapegoating anyone and everything ("speculators" and "hoarders") in a desperate bid to maintain power over the hungry untermenschen.

Wed, 06/01/2011 - 13:43 | Link to Comment Temporalist
Temporalist's picture

Good post.  I am also not a gold bug but it is apparent that something outside the system is needed from time to time and now, again as it has been in the past, is the time for hard assets.  Yes that includes farm land and storable food and guns/ammo and tools and energy, etc. but the medium of exchange is what historically someone would want to own and very little stores large amounts of wealth. 

When Volker started raising interest rates gold still went up.  The same will happen now and there is no way interest rates will rise now like they did in the 70-80's period - housing would get crushed, the debt would be impossible to service (if it isn't already), the U.S. is now a debtor nation (not a creditor like it was then).

There is so much that is fueling gold and it has been happening for 10+ years and looks like it won't stop for a few more at least.  I just wish I was smarter in 1999.

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