The Two Items Every Investor Needs to Know About Gold Right Now

Phoenix Capital Research's picture

Warren Buffett once noted, Gold doesn’t do anything “but look at you.” It doesn’t pay a dividend or produce cash flow.

However, the fact of the matter is that Gold has dramatically outperformed the stock market for the better part of 40 years.

I say 40 years because there is no point comparing Gold to stocks during periods in which Gold was pegged to world currencies. Most of the analysis I see comparing the benefits of owning Gold to stocks goes back to the early 20th century.

However Gold was pegged to global currencies up until 1967. Stocks weren’t. Comparing the two during this time period is just bad analysis.

However, once the Gold peg officially ended with France dropping it in 1967, the precious metal has outperformed both the Dow and the S&P 500 by a massive margin.

See for yourself… the above chart is in normalized terms courtesy of Bill King’s The King Report.

According to King, Gold has risen 37.43 fold since 1967. That is more than twice the performance of the Dow over the same time period (18.45 fold). So much for the claim that stocks are a better investment than Gold long-term.

Indeed, once Gold was no longer pegged to world currencies there was only a single period in which stocks outperformed the precious metal. That period was from 1997-2000 during the height of the Tech Bubble (the single biggest stock market bubble in over 100 years).

In simple terms, as a long-term investment, Gold has been better than stocks.

Moreover, I think there is considerable value in Gold today as an investment. Many investors argue that Gold has no intrinsic value. I disagree with this assessment as it does not consider the nature of the financial system.

Let’s compare Gold to the US Dollar.

Every asset in the financial system trades based on relative value. Ultimately, this value is denominated in US Dollars because the Dollar is the reserve currency of the world.

However, even the US Dollar itself trades based on relative value. Remember the Dollar is merely a sheet of linen and cotton that is printed by the Fed and is backed by the full faith and credit of the Unites States.

In this sense, the Dollar’s value is derived from the confidence investors that the US will honor its debts.

A second item to consider is the fact that the Dollar’s value today also derived from the Fed’s money printing. Indeed, a Dollar today, is worth only 5% of a Dollar’s value from the early 20th century because the Fed has debased the currency.

As a result of this the world has adjusted to this change in relative “value” resulting in a Dollar buying less today than it did 100 years ago.

In this sense, Gold’s value is derived from investors’ faith in the Financial System (ultimately backstopped by the Dollar) and the Fed’s actions.

If you remove this confidence, then the entire system collapses as the reserve currency is no longer perceived has having value.

The problem with this setup however is that the US, like almost every other country in the world (I’m including China which is sporting a Debt to GDP ratio north of 200% if you account for its Shadow Banking liabilities), has made promises that it cannot possibly keep.

The US “officially” owes nearly $17 trillion in debt. However, if you include unfunded liabilities this amount surges to at least over $80 trillion and likely north of $100 trillion.

These are promises the US has made. And the US Dollar’s value is based on the belief that the US will honor these promises.

The US is not isolated in this regard. Indeed, the problem of unfunded liabilities exists throughout the world.

In the case of Europe, the situation is so bad that the average EU country would need to have an amount equal to over 400% of its GDP sitting in the bank, earning interest at the government’s borrowing rate, in order to fund its unfunded liabilities.

The same goes for Japan and even China where the shadow banking system has liabilities north of 200% of China’s GDP.

These are promises that cannot be kept. And when these promises are broken confidence in the system will be broken. This will inevitably lead to a period of currency collapse. After this, ultimately there will be a need to restore confidence in the system.

The only way to do this will be by backing currencies with Gold again (or a basket of items that includes Gold).

Given the limited amount of Gold in the world, (a little over 171,000 tons) and the enormous amount of US Dollars in the world, this would require a revaluation of Gold to north of $10,000. Dylan Grice formerly of Societe General lays this out beautifully in the below chart.

I cannot possibly predict when all of this would happen. All I can state with 100% certainty is that ALL fiat currencies throughout history have failed.

This failure has been based on a loss of confidence. And the only way to restore confidence is to limit the ability of Central Banks to print money.

This will inevitably lead to some form of a Gold backed currency. Gold has been used as currency for over 5,000 years. It will be considered currency again in the future. When it does, the price of Gold will be much higher (remember, Gold has risen over 34 fold in the last 40 years).

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Best Regards

Phoenix Capital Research







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Puncher75's picture

Hard to read an article with so many gramatical and spelling errors.....but I agree

LawsofPhysics's picture

Stop it stop it stop it!!  This is all you need to know (be it gold or toasters)-->  When fraud is the status quo, possession is the law.

the grateful unemployed's picture

people on both sides of the argument tend to miss the point, when they value gold in terms of dollars. how many dollars is it worth, how many dollars will i have in ten years, when the dollar loses it value will gold give me that value back? what's their reason to buy gold (to protect the value of the filthy lucre laying in the bottom of my purse)

what is an iphone? something that just looks back at you? gold is the essence of intangible wealth. it strips all the phony fiat currency games and consumer gadgets away, and reveals itself. its pure economic wealth and each day it becomes separted from the value of the dollar more so.

gold ownership is not about worshipping golden idols, (the dollar will do for that), because gold is very democratic, personal and unique. its simplicity in wealth, without greed or ostentation (well some governments and leaders may do that, but they don't need gold to worship monetary gods) gold is the next big thing, but its not that big at all.

ConManipulation's picture

I'll gladly pay you next Tuesday....for an ounce of Gold today.

Magnum's picture

Gold is s hedge against bad government.  In other words, there has never been a better time to buy it.

mademesmile's picture

Sometimes it's nice to be looked at.

Hulk's picture

there's a shocking chart over at KWN , showing gold will rise over 100%, that everyone should go look at !!!


topshelfstuff's picture MOSCOW, March 30. /ITAR-TASS/. An action in support of bank Rossiya which has decided to work exclusively with the national currency will take place in Moscow on Sunday.

The Golden Symbol of Russian Rouble installation in front of the bank’s office in Perevedensky pereulok in Moscow will symbolize the rouble’s stability and its backing by the country’s gold reserves, the action’s organizers explained to Itar-Tass.

lakecity55's picture

The game probably desired by the Real Mr Bigs @ the B for IS!

They can now profit by trashing Mr Dollar Bill.

"Gentlemen, the last flight of Au has left the Fed for our Secret Vault."

inky's picture

Waste of time analyzing what is going on in the short run. When gold & silver take off it will take most people by suprise.

bardot63's picture

Finally, an article on gold from Phoenix Capital that actually tries to make just a little bit of sense.  PHCap shows ignorance, still, to say gold and silver went to bubble territory in 2011.  Once again, PHCap fails to recognize that the 2011 price levels were brought down by bullion banks dumping paper gold, and not because gold and silver were in a bubble, by any definition of bubble you care to use. The fact is, gold and silver were showing the true nature of the dying dollar in 2011, the dollar and debt being the true bubble.  PHCap contradicts its own bubblespeak, when it writes "Indeed, for Gold to even realign based on the Fed’s actions, it would need to be north of $1,800. That’s a full 30% higher than where it trades today."  Can't have it both ways, PhCap.

Firepower's picture

Firepower say:

If man have gold enough to please

Better have bullets enough to guard...

dizzzave's picture

So if the true cost of gold is somewhere between 2000 and 10000, why are people selling?


Why would anyone sell if they thought the price was set to explode?

The wheels on the bus are going to fall off's picture

because they listen to the projections of the banks and have weak hands!

lakecity55's picture

Yes, they are victims of the MSM propaganda.

On a long enough time line, Au will Never Let You Down!

weburke's picture

the true cost of gold is suffering and death. plenty of guys have discovered that over centuries. and, the reason my wedding ring is actually a mood ring, no gold on me thank you. Totally controlled as you know, so, question is, what do the controllers have in  mind for the price.

Taint Boil's picture



Gold is not an investment, gold preserves wealth. If the price of gold goes to $10,000 then a loaf of bread would cost $27.00. 


1 gram of gold = $40 = 1 toaster 


1 gram of gold = $400 = 1 toaster 


1 gram of gold = 1 toaster

RaiZH's picture

But what if the value of gold is being undermined (or manipulated) ? 

Also I hear a lot about gold buying the same stuff as say 100 years ago... but with an increase in productivity in most cases, should I not get a bit more?  

lakecity55's picture

From a numismatic point of view, Au and Ag can increase in "value."
I often acquire coins I believe will sell at a higher value over the Au content later.

Also, during certain periods of time, PMs can go below a fiat value or rise above it, thus presenting a "profit" were one to sell at that point.

Generally, though I have to agree: Insurance and Preservation. My advice to novices is a mixture of bullion, standard coins like eagles, maples, kangaroos, plus what I call Heritage, or historical issues.

Keep Stackin"

Taint Boil's picture



I agree, numismatics and when price drops below the fiat value would be exceptions to the rule. I stack American Silver Eagles myself and could really care less about spot price – to a point.

Latitude25's picture

Tapering is a lie because the pipeline of 0% loans to the big banks is expanding even as QE winds down.  Money creation leads to suppression of the gold price.

What you need to know about central bank gold buying:

AdvancingTime's picture

I contend that never before has mankind diverted such a large percentage of wealth into intangible products or goods and this is the primary reason that inflation has not raised its ugly head or become a major economic issue in recent years. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.  If money suddenly flows into tangible goods seeking a safe haven inflation could soar even as debts go unpaid and promises are left unfilled. More on this subject in the article below.

AdvancingTime's picture

Call me a skeptic but I contend that the illusion of value should not be held to close. The value of a building can be altered when a tenant goes bankrupt. The value of a currency drops when everyone starts to sell it and even the value of gold can drastically change if a government confiscates it and makes it illegal to buy, sell or even own can.

What something is worth can be difficult to determine. And most of all tell me the value of a promise on paper or implied, remember if you own gold that is represented by a certificate, you own a piece of paper. More on what makes "something" valuable in the article below.

Quinvarius's picture

So they are going to make it illegal for the Russians and Chinese to buy up all the gold western banking morons give away?  You know what the Socialists are going to confiscate?  Your stocks.  Your pensions.  Your bank accounts.  And they are already doing it.  If you can't hold it and hide it, you don't own it.  Gold cannot be confiscated unless someone agrees to give to have it confiscated.  Even when Roosevelt gave everyone paper for their gold, he paid for it with paper money that was on the gold standard.  Otherwise everyone would have ignored him.

At any rate, every time the confiscation stupidity starts, you know gold has bottomed and the puts on GLD have decayed.

RaceToTheBottom's picture

The price of buying Buffett's anti gold stance was billions if not Trillions of crony handouts.

Buffett used to be a Silver investor before his opinions were purchased.

The wheels on the bus are going to fall off's picture

Sometimes it is good to take a step back and realise that ivestment in physical bullion is based on good fundamentals right now, notwithstanding the constant manipulation and supression by the one bank.

For me, the longer the manipulation and supression goes on, the better, i am in it for the long run.

Rogue Economist's picture


Looking at the likelihood that we can return to using Precious Metals as a monetary instrument with the Collapse of the Fiat system.

Discuss this Podcast at the Frostbite Falls Table inside the Doomstead Diner.

Warning: Gold Bugs probably won't like it.


Quinvarius's picture

More likely gold holders will just laugh at it's ignorance.  When you start off with the premise that gold ever stopped being money, and that people who understand the nature and history of real money are some kind of "bug", you are just lost in the woods from go.  Yes, once again, fiat will attempt to attach itself to gold to save its credibility.  Just like in the first depression, just like after WW2, just like in 1980-81, once again gold will be repriced to match the printing and save the paper. 


Seal's picture

there's a third "item" also - for every once of gold on the COMEX there are about 100 paper ounces trading