The WSJ's Hit Piece On Gold

Tyler Durden's picture

The WSJ issues an amusing hit piece on why gold is nothing but a "Ponzi Scheme", ignoring the fact that by its definition the stock market is precisely the very same. Either way, since we are seeing no let up in the currency debasement department of Central Banks, and gold continuing to trade near record highs, it is a good thing to occasionally have a shake out of the weak hands. After all it will merely provide far better entry prices for countries like Russia, which as we disclosed recently, have been buying up all the IMF has to sell in the open market. At the end of the day - the opinion of Brett Arends or of David Einhorn, David Rosenberg, Jim Rickards, Eric Sprott, and, oh yeah, John Paulson.

Some philosophical snippets from the WSJ hit piece. No commentary necessary:

At some levels, gold, as an investment, is absolutely ridiculous.

Warren Buffett put it well. "Gold gets dug out of the ground in Africa, or someplace," he said. "Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

And that's not the half of it.

Gold is volatile. It's hard to value. It generates no income.

Yes, it's a "hard asset," but so are lots of other things—like land, bags of rice, even bottled water.

It's a currency "substitute," but it's useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking "facility" still trying to settle their debts with cigarettes. That's gold. It doesn't make sense.

Some cherrypicking of facts:

As for being a "store of value," anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.

Why gold is a ponzi:

Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks. And a growing amount has come from recycling—old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold's incredible durability—it doesn't waste or corrode—is bullish for the market. It's bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising?

In a word, hoarding.

Gold investors, or hoarders, have made up all the difference. They are the only reason total "demand" has exceeded supply.

Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.

What do we call an investment scheme where current members' returns depend entirely on new money brought in by new members?

A Ponzi scheme.

We now realize we had it all wrong - it is not Keynesianism that is the biggest ponzi, it is gold, whose price suppression practices by JPMorgan and the LBMA cabal is now the target of a DOJ inquiry... Oh oops, the WSJ forgot to mention that part.

The WSJ's "powerful" conclusion

Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation.

But I don't trust it as an investment.

Something tells us that John Paulson, who has 30% of his fund now tied into gold, will read this article and rush to sell, sell, sell. Or not.

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EscapeKey's picture

In other words - our friends in the finance industry can't milk you for what you're worth, if you invest in precious metals. So just don't do it, ok?


SWRichmond's picture

You are too kind; what they're really saying is: "...when you buy physical gold you place your net worth where it can't be stolen by the government or by the Wall Street market pump and dumpers or by the central bank.  If you do that, we will call you stupid!  So there!  Only stupid heads buy gold!  Please keep your money in our fraduluent system, where we can profit from it!"

Hephasteus's picture

We should all have one purse. Jesus can't save if he's in prison for breaking and entering.

American Sucker's picture

They can steal it. They've done it before.

faustian bargain's picture

And the peasants can put heads on pikes, they've done that before too.

WaterWings's picture

stupid heads!

A Ponzi scheme = GLD

Let's see if he even mentions it in following pieces. This is so hilarious that people will actually believe it.

How can you square this golden circle? I'll tell you in Part Three.

I can't wait!

NoLongerABagHolder's picture

Gold is worthless as far as wanting to eat or smoke it as the article says. It is only a unit of trade.

When you think about it - the green crap in your wallet is the same thing.

As a unit of trade...... I'll take gold over the green crap. That gold will buy me more cigarettes and food than the green toilet paper in my wallet.

That's why you own gold.

akak's picture

I cannot eat the Wall Street Journal, nor can I use it as construction material, or as fertilizer (no matter how much it's content might resemble a certain dark brown kind of the latter), or as a submarine,  so therefore I declare it worthless.

Apocalypse Now's picture

Excellent, the finance industry depends on paper and over the last ten years the market and investors/pension fund wealth is lower while firms like Goldman Sachs have been skimming billions from the pool of funds.  It's a zero sum game so it's in their pockets.

Perhaps they shouldn't use a quote from Warren Buffet since he is duplicitous.  In addition to him stating that derivatives are weapons of mass destruction while he made ridiculous derivative bets that didn't involve hedging for his business, he has previously bought roughly $1 billion in silver that had nothing to do with his business.  Warren Buffet turned out to be the mystery buyer for massive silver purchases, and they were for investment purposes when he felt the price was right.  Whatever you could say about gold being dug up and put into a vault can equally be said about silver or any other precious metal. 

Soros recently said gold would be in a bubble while his fund doubled its gold position.  While the media tried to distort the message by their propaganda headline of Soros believes gold is in a bubble, the reality was that you want to invest in asset classes before they become bubbles.  However, because precious metals undermines the banking cartel they actively manipulate prices while hot money flows push up all other asset classes - precious metals may be the only discounted asset class available in a ZIRP environment where we have to be concerned about counter party risk. 

I see the scenario as game theory or the prisoner's dilemma.  If nobody panics, on paper we could all be "wealthy", all the capital would be long stocks, and the whole "wealth/market cap" would be more than the sum of its parts in pixel land or on paper.  If people are more hopeful about the future, prices should increase, if there is low or no growth perceived then prices should decrease.  This ponzi only works with smooth demographics.  When people decide to leave paper then those that panic first win (when the paper financial product prices are highest).  When/if paper collapses it is important to secure hard assets since a crisis of confidence undermines trust and collapses paper promises. 

BB is not diagnosing this correctly, it is a crisis of confidence that is destroying the system (no equation for that)- we need perp walks, enforcement of laws that protect investors, and structural changes to ensure fairness.  Without these actions to restore trust, the game is truly over as we all rush into gold (also not in his models).  We are the frog and they are the scorpion as we try to swim through this downturn.  Although they think they can just keep stealing it will just be battle bots fighting over their liquidity rebates.  If they feel the system slipping from their grip they just might institute a police state to maintain their control of the system.

mikjall's picture

When will people quit calling anything they don't like a "Ponzi scheme"? It's just a sign of thoughtlessness and stupidity. So is using "going forward" in every third sentence.

43 Steelie's picture


But there is no way you can refute the fact that social security is inherently the biggest ponzi scheme in the world. By definition that is what it is supposed to be.

mikjall's picture

I don't know what work "inherently" is supposed to do in your statement, but anyway, I do deny that Social Security is a Ponzi scheme. It's a fraudulent pay-as-you go pension program. It's fraudulent because taxpayers are led to believe that social security taxes are used exclusively to support pension payments for themselves and for others, which is not the case. Not every fraudulent scheme is a Ponzi scheme. Not every pay-as-you go scheme is a Ponzi scheme. A Ponzi scheme is a certain kind (only one) of fraudulent investment scheme, where it is falsely claimed that returns to investors come from assets owned by the scheme yield interest, dividends and/or capital gains. If you use "Ponzi shcheme" to mean whatever you like, it ceases to have any useful meaning at all. Ditto for "Socialism", "Fascism", the "free market", and so on. I recommend that we all try to talk clearly and to talk sense, insofar as we are able. Orwell explained this very well to all of us, and we had better listen.

lookma's picture

A Ponzi scheme is a certain kind (only one) of fraudulent investment scheme, where it is falsely claimed that returns to investors come from assets owned by the scheme yield interest, dividends and/or capital gains.

Good thing SS isn't a lockbox full of G debt.

robobbob's picture

Yes overuse can lead to diminishment, however if the handcuffs fit.

Then what is your definition of a Ponzi? In essence, I always thought it was collecting dollars today by promising a larger future payout then the total take in, without providing REALISTIC means of growth,

where as SS collects and spends todays dollars by promising to make larger payouts in future inflated dollars collected from a diminishing labor force with sub-inflation wage growth?

Of course when Ponzi schemers run out of rope they make a dash to extradition free banana republics, where Dot Gov puts a gun to the peoples' heads and demands PAY MORE.

oh yes, I do see how that is different.

whydtinogo's picture

Agreed - while gold has no stream of cash flow and can only be "valued" by what somebody is willing to pay for it doesnt make it a ponzi scheme.

Spitzer's picture


as FOFOA says, you can lend out your gold at interest

mikjall's picture

Right. Thank you. And it's rather strange that Buffett - of all people - doesn't see (or pretends not to see) that the principal value of gold, and the way in which we value it, lies in the fact that it can be exchanged for goods, edible or inedible. Its value consists in what, and how much, people are willing to trade for it. In the light of the astoundingly successful exchange-value record of gold over several thousand years, I wonder why this endless debate goes on. If someone doesn't believe in gold, they should simply not buy it. Fine. Buy why maintain this debate which we know, as a matter of experience, convinces no one?

GoldBricker's picture

As Dogbert once said: "Do not pay too much attention to the advice of rich people. They do not desire company."

akak's picture

With the pro-establishment gold haters, it is NOT a debate over gold --- as you say, 5000 years of history have conclusively declared that debate won by the gold camp.  This is actually a battle over propaganda, with the political-financial establishment fighting to maintain their control over their corrupt and failing fiat paper regime.  Any resemblance between their duplicitous anti-gold propaganda, misinformation and self-serving lies, and true and honest debate, is just a facade and a ruse to lull and confuse the masses of financially and historically ignorant rubes.

nuinut's picture

At the root of everything people don't like, and having been shouting "ponzi scheme", is the basis of the fiat money system: the endless issuing of debt.

And it meets all the definitions of ponzi scheme, mikjall.

So it is quite right that people should be acknowledging this. The worlds biggest grifter, and his shills are now pulling out all the stops to avoid this exposure. For example.

Best explanation of how this ponzi will collapse that I have read is here: "It's the Debt, Stupid"

Pay particular attention to the diagrams in the second half, extra helpful for the more visual learners amongst us, like myself.

AimlowJoe's picture

I got some. And I've got some rice and water and cigarettes. So I'm all good.

Aimlow Joe was here.

docj's picture

WSJ == Equities uber alles

bada boom's picture

Hey WSJ,

First take the plank out of your own eye, and then you will see clearly to remove the speck from your brother's eye.

The Rogue Trader's picture

You can't eat Fiat either....Fucktard WSJ

Pure Evil's picture

Sure you can. Didn't you see that woman in the Subway commercial eating that 5 dollar bill.

Just make sure you wash the bills first, FRN's are infested with germs, viruses, drugs (especially cocain), and human filth (I'll be you didn't know a large percentage of the human population refuses to wash their hands after visiting the commodus.)

Big Red's picture

I was waiting for my wife, so I could see the foot traffic, and when she came out of the restroom at the fast-food place we had to eat in that day, she said that whomever had been in there didn't even stop and wash their hands - I told her it was a nurse. I also noted the hospital...

Crab Cake's picture What is a Ponzi scheme?

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

Why do Ponzi schemes collapse?

With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.

Gold is not an investment, nor is it a good medium of trade, it is a means by which to store wealth.  Ponzi scheme....meh, what idiots.   If one is going to call gold a Ponzi Scheme, then what does one call the stock market because it fits the above description better than gold? 

Postal's picture

And Murdoch wants to charge for this crap?

Turd Ferguson's picture

Let's see:

1) Have WSJ run hit piece on gold the day before the "big" jobs report

2) Issue some insane, census and b/d model-adjusted jobs number

3) Try to scare out weak longs and give cover for JPM and GS to establish new shorts

4) Crash gold market back well below 1200

5) Create impression "seasonality" has kicked in so that more selling ensues

6) Ultimately drive gold back down toward 1100 to buy more time for paper assets


This is their plan. Will it work? 

tmosley's picture

I hope so.  I'm coming into some money in July and want to buy, buy, buy!

DoChenRollingBearing's picture

I'm in your boat tmosley.  As income arrives, part of it goes to gold.  I had thought that I had enough, but, no I do not.

Buy!  Yes I will.  Besides, having bought gold for decades (small purchases) from $400 and up, my average cost basis is not too high.

bada boom's picture

Maybe they can replay the tungsten rumor as well.

lsbumblebee's picture

Harvey Organ is reporting that the Comex is busted:

"The big drop in OI in June was due to the massive standing of longs for physical gold:

1. the Friday OI of 13,000 contracts or 1.3 million

2. the exercise of options by gold holders. They were not fooled by the lowering of the gold price by the cartel banks...and then the subsequent loss of 24000 OI gold contracts due to the fact that these guys stood for and received their delivery slips. Only the almighty will know if these delivery slips have real gold in them or they are just a piece of paper with no gold behind them.

Thus so far, 18,230 contracts of gold have been served upon. If this is not a typo then this is a massive amount and my bet is that this will surely bust the comex."


jesusfreakinco's picture

Good find.  Thanks for the link.

morph's picture

Gold is just a traditionalist investment though. Why is gold so valuable, why not something else? There are rarer and more useful things on the planet.


tmosley's picture

Useful for what?  Trade?  Or industry?

Gold is the most useful material for facilitating trade because it is durable, easily divisible, each unit is exactly the same, rare, and has a steady supply.  The closest anything else comes to that is either platinum or silver, and both of those lack the steady supply, being used in industry, and silver is not as durable as gold (ie it oxidizes).

You use gold for savings.  You can certainly invest in other things and get a better return over some time period, but gold is so undervalued right now since it is not used as money.  If you buy it now, and it returns to its role as money, your purchasing power will explode.  It's as simple as that.

Mako's picture

"your purchasing power will explode"

Haha, once the credit system goes poof, production of virtually all items is going to go poof. 

Those gold mines will be shutdown.

tmosley's picture

Why would I care about gold mines?  I already have gold.

Industrial bases don't turn into vapor when credit disappears, they simply go down in price, especially in terms of gold.  The owners of gold will be the ones who preserve civilization as faith in paper disappears.  But don't worry, even fatalists such as yourself will still be able to get a job working for the (new) man.  You wages will probably amount to something like an ounce of gold a month, if you're skilled.  Otherwise, it may be an ounce every two months, or every three.

dumpster's picture

mako your constant storm of balony ,,

in the face of what is happening in the  world makes

your forehead glow with B.S

why are European nations now planning a gold backed currency... why is Russia, china,

why does Richard Russell dean of the stock market for 50 years ,, recommend gold ,, out of stocks

it gets so frantic your complete lack of comprehensive understanding of economics ,

savings is the root of growth , productive activity,

sure some credit is necessary to grease the wheels of a productive society ,,

but this debt and credit has to be sustainable ,, and paid for out of the current future  cash flow of sustainable enterprise

Microsoft built a billion dollar company sans credit ;

out of control credit and living beyond the ability of current production to pay for credit , is the Keynesian wet dream a failed system '

get up to date ,.. go read and get some understanding .. Austrian text books,,,

until then your foaming at the mouth and pure disillusioned thinking makes mises roll over in his grave ,, and hayek's road to serfdom a self fulfilling action in your deluded and self proclaimed ignorance of things economic

fiddler_on_the_roof's picture

But most who bought PC, used credit to buy , credit provided their employers VC funding, expansions etc...Mako has  logic, it is just that I don't think the world will end. Before that we have to get One World Currency. so Mako has to wait.

Anton LaVey's picture

True, but Gold is beautiful, rare, and it can be fashioned into jewelry that last a long time.

And this has been the case for a very, very, long time... See here, for instance :

And, so, Gold has represented incorruptible wealth for a long time, contrary to "rarer and more useful things". This being said, feel free to invest in Rhodium, for instance, I heard the returns were good.

Sabremesh's picture

Gold is "useful" as a store of value - if it were used for other purposes, it wouldn't meet the criteria of an effective store of value, would it? 

dumpster's picture

 rarer and more useful things

your brain  not being one of them


what a  braindead misunderstanding of the role that gold plays,, in the financial area of international trade

where do these ideas spring from ,,, 30 years of intense watching the latest TV sitcom

The next three big big shoes are about to hit the floor. The bang will reverberate around the world. The Spanish, Portuguese, and Italian banks will next go belly up and quickly, as they sink with PIGS debt and other credit assets tied to fallen property. Spain will make the most shrill sounds, for a simple reason. They were the worst offender in holding onto mindless unreasonable lofty property values. Their bank books have the biggest drop to realize, after re-entry to reality. The crises underway in the remainder of PIGS nations will continue unabated, and usher in magnificent events where a legitimate gold-backed currency arrives, urgently needed to provide stability.





sumo's picture

Gold is essential to the electronics industry, to give one example, because of Gold's physical properties: its resistance to oxidation and its high electrical conductivity. You'll find gold plating on connector and relay contacts, gold bonding wires inside ICs, etc etc. Just about every electronics device in your home and office will have some gold in it.

When the price of Gold skyrockets, it becomes profitable to scavenge the gold from old circuit boards for recycling.

If you're a electronics design engineer, the "barbarous relic" is an essential material for component and product design.

Al Huxley's picture

This kills me.  The quality of propaganda is really degenerating lately, although this is consistent with my theory that the elites hold the general population in such contempt that they must now routinely have contests to see who can float the biggest lie without getting called on it.  Look soon for articles explaining why BP's oil spill in the Gulf will actually benefit the environment and/or economy.