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Investing In Gold (Because Central Bankers Will Never Get Religion)
Submitted by Jared "The 10th Man" Dillian via MauldinEconomics,
“A gold mine is a hole in the ground with a bunch of liars standing next to it.”
I started investing in gold in 2005. Not a bad time, right?
Here’s why I started: I was the ETF trader at Lehman Brothers at the time. A couple of guys came by to talk about this crazy idea they had about a gold ETF. I think one was from the World Gold Council and the other was from State Street. The WGC guy brought along a 10-ounce bar of gold. At the time, it was worth almost $6,000.
The ETF was SPDR Gold Shares (GLD).(* Please see disclosure below)
I ended up buying GLD, because I’m a trader. Trading stocks is what I do, so it’s easy for me to buy something with a ticker. I didn’t even know you could buy physical gold. It was 2005 or 2006, so I’m not even sure if the online bullion dealers were up and running yet. If you wanted to buy gold, you’d have to be in the know, go to some hole-in-the-wall coin dealer, get your face ripped off.
I have owned GLD since. And along the way, I learned a lot about investing in physical gold, and I bought that, too.
But that’s not the interesting part.
I Loathe Gold Culture
One of the things I figured out as I was starting to invest in precious metals is that a lot of the other guys investing in gold and silver were… not the kind of guys I really wanted to hang out with. Neckbeard McGoldbug. You know the type.
I’m talking about the ridiculous conspiracy theories, the bizarre politics that are so far right, they’re left. The hatred toward banks. I still don’t understand it. These are supposedly right-wing guys who found themselves on the same side of most issues as Matt Taibbi and Elizabeth Warren. The apocalyptic outlook, the relentlessly bearish views, the outright refusal to participate in one of the biggest (and most obvious) stock market rallies ever.
I am allegedly a right-wing guy—and I’ll own it—but I am not that.
The other thing I discovered about these guys is that it’s useless to try to sell newsletters to them. They don’t believe in intellectual property.
So part of my gold investing career has been figuring out what I am and what I’m not. I guess you could call me a classical liberal and monetarist who takes a keen interest in gold.
Freeze It, Personalize It, Polarize It
As the gold rally crested and rolled over, the mainstream financial media really started to go after the gold bugs. They were super annoying on the way up, and the (mostly liberal, Keynesian) pundits were crushing them on the way down. It’s gotten to the point where the only people left buying gold are… Neckbeard McGoldbug, and they’ve been thoroughly maligned for it.
If you recall, the whole idea was that quantitative easing (printing money) was going to create a lot of inflation. Plus, the budget deficit was about $1.8 trillion at the time, so we would have to monetize the debt. It was a pretty good argument. And it worked for years.
Then it stopped working.
The inflation the gold bugs predicted never happened. It was the biggest hoax perpetuated on investors, ever. So the beatdown from the Keynesians continues to this day, on Twitter, on blogs, in the news.
But maybe the gold bugs weren’t wrong—just super early.
I’m Not an Economist, But…
I do remember this from a class I had: the quantity theory of money.
MV = PQ
I’m sure this looks familiar to many of you.
So M, the supply of money, has gone way up:
But V, money velocity, has gone way down:
Given constant Q (quantity of goods), P (price) remains pretty much unchanged.
So we will eventually get our inflation—if money velocity turns around and heads higher.
There aren’t any good theories as to why money velocity continues to plummet. At least, I haven’t read any. I think we will have a similar inability to predict when it rises.
This is overly simplistic, but I’m a simple guy.
Gold Is/Is Not for the Long Run
There are people who say gold should be x percent of your portfolio in all weather. I get it. It tends to be negatively correlated with other stuff, so it reduces the volatility of a portfolio.
And as long as central banks are doing what they’re doing, the long-term case for gold is pretty much intact, recent price action notwithstanding.
But let me tell you this. If central banks ever got religion and pulled a Volcker and hiked rates to the moon, it would be a remarkably bad time to hold gold.
On the other hand, throughout history, there have been times where people were very sad that they didn’t own gold. I talk about one of them here.
It’s very real, and the history of fiat currencies is also quite sad.
I am the furthest thing from an alarmist. I don’t think the dollar, or the euro, or any other currency is going to collapse, at least not imminently.
But I also think the Fed doesn’t want to raise interest rates, possibly ever.
The ECB is printing, and you have the prospect of direct monetization.
Japan is just insane.
Even Sweden is printing money.
And I can see a scenario where Canada, Australia, and Norway are all doing it too.
So: if the whole world is printing money, I’m okay with being long gold.
But in 2015, you really shouldn’t care about what people think.
*Disclosure: at the time of this writing, Jared Dillian was long GLD, SLV, and physical gold and silver.
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I'd rather have been stacking phyzz 2 or 3 years too early than be even 10 fucking minutes too late after the shit hits the fan.
There are still plenty of so called analysts and financial advisors out there that somehow believe, or want you to believe, a 0% allocation to gold, even in our current monetary environment is correct. Here is an organized rebuttal to their BS.
"They told me to hold confetti and I said, a, noo, no, no!"
1000 years too early.
"There aren’t any good theories as to why money velocity continues to plummet. "
what's the mystery? historical record indebtedness, so strung out that not even zirp leaves the glombies with disposable income. Merchant banks getting money for nothing with avenues to make a margin without the necessity to create loans
Exactly. This guy is an idiot.
Old money is already quietly getting out and buying up metal and artwork.
Amschel Rothschild stated that he gets out of bubbles 90% of the way to the top, and lets the risk takers squabble over the last 10%.
Funny how the author feels he must start with a little disclaimer "I'm not a goldbug these guys are crazy" before professing the same kind of reluctance towards fiat money and central banking.
As a philosopher once said, truths are first ignored, then laughed at, then fought, and finally adopted. We are in the early adoption stage.
"Neckbeard McGoldbug"
I...won't stop anyone else from murdering you in the street, Jared.
You should pick your friends carefully. And the group that is right and has been right despite the lies and manipulations of those "in charge", is FUCKING ANGRY.
THERE. WILL. BE. BLOOD.
I see a woodchipper in his future,
just before his imminent demise, and just after he shits his pants.
I am shocked... SHOCKED!! to find out that this guy worked for Lehman Brothers from 2001 to 2008.
had the pleasure to work with Lehman people from 2009 onwards including senior managers......you would not believe the hubris
"Neckbeard McGoldbug"
I thought they were called lumbersexuals...
I was the ETF trader at Lehman Brothers at the time.
After reading what this guy has spewed out
No fucking wonder Lehman went bust!
I am the furthest thing from an alarmist. I don’t think the dollar, or the euro, or any other currency is going to collapse, at least not imminently.
WTF
It's always slow to start with burst's of collapse but in the end all fiat ...............goes to nothing.
Guess this guy is young...............not much time on this planet.................or very blind to how a things have gone up (ie purchase power down) especially since 1971.
And if as he states he is a trader..............he should be using GSR..............to a great advantage..........but hay ho.
This artical stinks of a made up story................for what purpose I ask??
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Ok so the big story here is that goverments are printing money out of thin air and Gold is a good investment in such a climate. Why did it take such a ridiculos story to make that point?
I actually read an article this week that concluded that the primary reason that gold is going down in price is the very fact that all the major central banks of the world are printing massive quantities of "money". I had to read that a couple times to make sure I wasn't skipping a word or two in there. Then I thought: 'well maybe it's just satire'... but no, the writer was serious in his assertion. In his opinion, money printing makes stocks worth more, and gold worth less. So far, he has been well within his rights to state such a "fact".
So far.
Well it's a logical conclusion for a reason not grasped by the author. If you can print unlimited money then you can use that infinite supply of money to suppress the price of PMs. Until you can't.
Stocksuckers believe the 'market' will always go up with a few small corrections, here and there. Stocksuckers are stupid and historically challenged.
Stockroaches < goldbugs.
PaperBugs...
Exactly. They started aggressively suppressing price in April 2013. That's when gold started begging me to buy it. It's still begging.
Oh they've been suppressing it for a bit longer than that. I suggest do a little reading up on a fellow named Peter Munk.
That sounded something like a 'Bubble Theory".
Goldbugs, yes. Neckbeards, weird. What about those few who hold gold but by holding their nose? Just as similarly or better minded as any wall-streeter, but motivated by adherence to that quintessential unknown, God and his possessions. Seeing that feudalism in its worst form was transformed to capitalism/communism which was merely another way to clamber above one's fellow man in order to use "force from a distance". Extraction from the precious abilities of one's fellows, by the small squeezes everywhere, force and fraud. Hoping that dialectical materialism and the management assumed over a few or numerous serfs will reward one with riches and power. Subtle those demons are, delicious their spoils. Any contravention of the laws of the much greater spheres led to degredation, although the temporary pleasures are wonderful! Are you hearing?, all you banker subordinate and banker elite?
No one wants gold. Its purchase is merely an emblem of hope for a true, equitable and non-"pirate" system. Where the "vig" or unwanted extraneous and useless mis-products of a system are recognized by quality engineers, they are swiftly eliminated. Very extraordinary that it persists (writ large) in our many institutions. A true gold-bug hates GOLD. It is held only until such time that a more closely established purity of economic exchange can be renewed. It is held only when the putrefecation of the system is so over evident that no other labour-preserving token is functional. It is held by those who hold their talents and small accumulations as being "stand-alone" outside the gov't-state matrix. And they hate it. But they hate more the poor leadership, the corruption, the contempt which all the sacred institutions, laws, and small social devices that is the eventuality of monetary rot.
They strive for freedom. They yearn for all the better angels within themselves and their peers. And they hold a token only until the time when that paradigm is much better approached.
Neckbeards? Better than silk-suit, over-spending, vessels of filth who promulgate a matrix of cruel dominion. Everyone knows that those persons could not exist on the level and equal playing field without their means of creating large differentiations by the matrix institutions. In fact most would starve. Never could they pretend to any independence. Orcs and leaches, syphocants and pretorians of the dark arts.
"No one wants gold."
I will gladly dispose of problem or waste gold for a nominal fee. How much you got?
Seriously? How is that possible?
Indeed. This paragraph shows the author's inclination for excessive and/or blind faith in status quo:
But the real clincher was the author's admission of being long GLD and SLV. Hah! Good luck widdat paper.
This author didn't make his first gold puchase until 2005, and it fact it wasn't a gold puchase at all, but an etf purchase - not even close to being the same thing. And he further states that he didn't know he could purchase physical gold!
I have to assume this auther is still wet behind the ears, and certainly should not be stating views on a topic he knows almost nothing about.
Disclaimer: I made my first physical gold purchase in 1986, and have been buying ever since. I have never purchased a gold etf.
The author probably doesn't think the PPT is real.
President's Working Group on Financial Markets -
http://www.archives.gov/federal-register/codification/executive-order/12...
I bet that until you mentioned it, he didn't know what a 'PPT' was.
The hatred toward banks. I still don’t understand it.
Seriously? How is that possible?
He's one of Jon "we have to pass TARP to save the system" Mauldin's twits.
I thought Satanism is a religion?
Fuck paper gld and slv I'll take physical at whatever the price the cheaper it is the most I can have. It's not for sale and time soon so take it to 500 gld 1 dollar slv who cares
"goldbug" is a derogatory label applied by the khazar banksters and their zio media to anyone wise enough to protect their wealth with physical gold.
The same exact thing M. A. Rothschild, the founder of this clusterfuck spawned in his Frankfurt pawn shop did.
All fiat currencys are valuable as a medium of exchange because the moron public has total ignorance and this confidence in the guys pushing it on them. It's a generational game run by bankers. It's a Confidence Game in its purest form, IOW a total fucking con, your money is a con, it will never have value. That's not conspiracy theory it's a material fact. Physical all the way, baby.
"I’m talking about the ridiculous conspiracy theories, the bizarre politics that are so far right, they’re left. The hatred toward banks. I still don’t understand it. These are supposedly right-wing guys who found themselves on the same side of most issues as Matt Taibbi and Elizabeth Warren. The apocalyptic outlook, the relentlessly bearish views, the outright refusal to participate in one of the biggest (and most obvious) stock market rallies ever." ... isn't this why we read ZH? :-P
Uhm rates rose in the 70's as gold did. It was only after Volker hiked rates above inflation that gold dropped. So if by raising rates is bad for gold you mean above inflation then ok but inflation is very high, at least 10%.
"But let me tell you this. If central banks ever got religion and pulled a Volcker and hiked rates to the moon, it would be a remarkably bad time to hold gold."
If the Fed pulled a Volker now, the cost of servicing the debt would exceed government tax revenues.
This guy is a FUCKING MORON.
IF the fed pulled a Volker now, the cost of servicing public debt would grow so large that we'd either have to drop the military entirely just to service the debt, or drop most social programs to service it. It would literally be fiscally and politically impossible to reconcile. Naturally, since congresspeople are retarded goldfish with a vote, this won't happen. This guy thinks these are conspiracy theories, but only because he's never taken any of his daily thoughts on the economy to their logical conclusion. This also says nothing, nothing at all about what would happen to the stock market if T-Bills were suddenly paying 12-18%, it would crash immediately from everyone crowding into such a high guaranteed return.
He's worse than moron, he's a financial wetback.
Plus he later writes
But I also think the Fed doesn’t want to raise interest rates, possibly ever.
but somehow fails to reconciliate these two views in any way.
But where this Jared Dillian and most of the Neckbeard McGoldbugs are in complete agreement: They hold gold to make money.
That is complete bullshit reasoning.
One holds golds to preserve some, and hopefully quite a bit but not necessarily all, of your purchasing power!
Gold Rush. How the hell are Parker and Hoffman able to find gold. They have to be the biggest idiots who make poor decisions.
"I’m talking about the ridiculous conspiracy theories, the bizarre politics that are so far right, they’re left. The hatred toward banks. I still don’t understand it. These are supposedly right-wing guys who found themselves on the same side of most issues as Matt Taibbi and Elizabeth Warren. The apocalyptic outlook, the relentlessly bearish views, the outright refusal to participate in one of the biggest (and most obvious) stock market rallies ever."
Does this include 3 billion Asians?
"So part of my gold investing career has been figuring out what I am and what I’m not." Let me help, McDouchebag... you are an imbecilic A-hole.
"The inflation the gold bugs predicted never happened. It was the biggest hoax perpetuated on investors, ever." Ever hear of Shadowstats, you colonroach? Might spend a few shekels to find out where inflation really is at... Or don’t you believe in intellectual property?
And enjoy the buggering you will take when the corrupt GLD explodes and cash settles just as physical gold becomes unavailable and the dollar is dropping like your old man's trousers at Obama's bath house..
"But let me tell you this. If central banks ever got religion and pulled a Volcker and hiked rates to the moon, it would be a remarkably bad time to hold gold."
Uh..no. The country with it's record national debt of $19 Triillion would be broke. They can't raise interest rates too high, or they would have to fully monetize the debt, or default.
Thank you for playing "I have the intelligence of a five year old, but can come up with sound theories." Bring on the 11th man!
1 ounce of physical Gold
$175 Quadrillion Zimbabwe $$$
Over all those years, this guy didn't learn much as he still has faith in the Banking system. It is the Banking System that today holds the Markets and the Monetary / Fiscal systems in that which we think of as Society, that is about to Collapse (all that hangs off its teats) and we will all hear the splat and then feel the pain.
Mileage will vary.
This is a loss of confidence in our "leadership" which just happens to be controlled by the Banking system. As the man points out, the Velocity of Money has almost hit zero and races rapidly to the bottom. This is the loss of confidence.
Those that preside today ("leadership" would you follow any of them anywhere?) do not have the necessary basic intelligence (nowhere near Intellect) to fix anything and are hence ignorantly occupied in making the pain really transmuted into infinite pain and engaged in what they believe is filling their own pockets.
Tomorrow will not just be another day, it will be another and very different World.
Lesson for the day: Gold value does not vary, it is an Universal constant.
It is all around Gold (the metal) that are variables and today these are all going to hell and that includes all GLD apart from Bullion the metal.
The Dark Age comes:
http://verbewarp.blogspot.com.au/2006/07/global-economic-collapse-new-gl...
http://verbewarp.blogspot.com.au/2006/08/global-economic-collapse-part-i...
P.S. Gold is the only Universal Standard that we poor unaccomlished savages and barbarians know with any certainty. Gold is the accomplished of the Metals Kingdom and the absolute proof of Universal Intellect (and we don't have it... yet).
Ho hum
Actually, gold had its most explosive move higher in the late 70's when Volker started raising rates.
NOMINAL rates. Gold moves inversely to changes in real rates. It's called opportunity cost.
"The hatred toward banks."
That be me. However, I don't hate the banks, and banksters, I hate their behavior, grift.
Liberty is a demand. Tyranny is submission.
sooooo....when the markets collapse, who will be leaping out windows? Neckbeards holding physical? I think not.
AU is just an asset with a long track record. Land, food, water, forests, ocean front, and Arms have an even longer track record.
Every asset on the planet has its time and place, and fraction of allocation that varies with time. There's a time to buy it, a period to hold it, and sometimes there's a time to sell it and wait for another season to buy it.
Rational people with an IQ>90 know this. Some irrational people (quasi-religious PM zealots) refuse to accept or admit this, and this is where they lose credibility and become objects of humor and satire.
I own plenty of PM phyz, but even so I wish I hadn't bought when I did (near the peak), and had the cash to buy it now.
“A gold mine is a hole in the ground with a bunch of liars standing next to it.”
My Great Grandfather approached a miner in the 1890s in Anaconda, Colorado.
This is the Cripple Creek Mining District.
He offered the miner chump change for the Claim and proceded to move his digging over 1000'.
Great Gramps spent the next couple years scraping Gold off the surface ground using several Oxen.
He was'nt married at the time but was engaged to a woman named Mary McKinney whom he named the mine after.
He sold the Mine but the mine name stayed.
This is a very sucessful mine, one that was constantly finding Lodes and four times up to the '50s struck four-foot Mother Lodes (veins) of Gold.
Dillian's full of shit!
(All i've said here is verifiable thru a search engine. Great Gramps last name was Houghton.)
Not to leave out Great Gramps son, my Grandfather, who worked across Poverty Gulch from the McKinney at the Connelly Mine and was buried alive December 26th, 1932 at 9:30 a.m. when the mine shaft collapsed.
His remains are still in that mine.
Shit's in my DNA.
I talk about one of them here. ... this fuck knuckle looks like a failed Mexican drug dealer - why the fuck has ZH posted dribble form this dickwad
Where does the author not see inflation?
Thanks Jared.
Here are some more signs of a coming recession.
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record...
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
Here is the starting point.
http://michaelekelley.com/2015/04/28/next-recession-will-start-with-this-country/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
"But let me tell you this. If central banks ever got religion and pulled a Volcker and hiked rates to the moon, it would be a remarkably bad time to hold gold."
If they ever got religion??? LOLOLOLOLOL...what, do you think the central banks have simply FORGOTTEN to raise rates or something? That it just hasn't occurred to them? "Hey, what if we raised the rates? Holy shit, that's it--let's just raise the rates!" You dumbass--they haven't raised the rates because they CAN'T raise the rates. That's the whole point! They're TRAPPED--and they know it...
It's hard to imagine the author could be so connected and yet, so naive.
such nerve to declare
There will come a time not too far in the future where people flipping burgers, used to flip stocks and bonds.
Bankers are your best friends in good times and your worst enemy in bad times. That industry will be decimated when the zhit finally hits the fan. There will be 100 applicants for every job going.
Ive come to the conclusion that when it comes to money you are either a flipper or an investor. Flippers know the price of everything and the value of nothing, and investors know the value everything and whether the price is cheap or expensive. It is the conflict between value and price that puts investors in markets way too early and also out way too early.
There are 100 flippers for every valuer. And when it all comes down to it flippers are just paid gamblers!
I was studying economics in the late 70's. Nixon had only come off the gold standard in the early 70's.
One thing I was taught at University was that you cannot print the currency beyond the standard economic growth of the economy (eg the real growth - not some made up rubbish political figure).
If the economy expands by 10% so now its value is 110% you need to print 10% more money. That means that the amount of cash = the value of the economy and its goods and services.
Scenario 2. However lets say the economy grows by 10% and you increase the money supply by 22.22%. That means you have just devalued your purchasing power of each $ by 10%.
So in a growing economy with a static amount of gold - the price (note I didnt say value) of gold should keep pace with the amount of currency. In real terms the value of gold remains unchanged only the number of notes or digital currencies have changed.
However in scenario 2 you have a price of gold composed of two things the increase in economic growth of 10% and the additional printing of 12.2%. The price of gold is now 122. Its purchasing power remains unchanged. However a person holding just cash is infact 10% worse off. 122.22/110.
Last few months ive been reading the writings of Another. http://www.usagold.com/goldtrail/archives/another1.html
I remember at the time, there was concern that the Arab money would spill over into the markets and they would have so much purchasing power that they would own everything. And yes they quietly own a lot, but not as much as they could have.
When the USA gave up the gold standard they took up the oil standard and the Saudi's wanted that linked to gold. Only when the LBMA figures come out in the late 90's did the world wake up to the fact that the price of both gold and oil had been manipuleted lower for the previous 25 years, and now lets make that 40 years. (What normally happens when a market price is artificially supressed for a period of time? Yes you guessed it, like a massive spring. What about a market that has been manipulated for 40 years! OMG!
Look at the price of gold and oil and they have pretty well tracked each other since the 70's with an occasional wild swing.
Another's writings indicate that as of the late 90's the Saudis most likely had close to 15,000 tons of gold. By now they would most likely have 25,000 - 30,000 tons. Now while Another didnt get everything correct, he certainly opened the window on the real world of oil and gold.
Another writes very incitefully that currency is effectively worthless, except as a means of exchange for something else. It also depends on the other party accepting that piece of paper. Gold does not have that issue. Gold is Au.
If I were the Saudi's in the 70's with the most valuable resource on the planet, i wouldnt be stupid enough to accept an IOU called currency. Far better some $ to be spent immediately and the rest in gold. It is effectively a barter exchange of between two limited resources.
So back to currency in ounces of gold in the USA. In 1934 it was $34 per ounce of gold held by the USA. Today that figure stands at over $60,000 for the 8,134 tons held. (Must find out how much they had in 1934...)
Now our friend above can call me crazy but when gold resets to the true value, ill sell the majority of that gold and go buy something else productive and undervalued. And when it has done that, it will have performed its true purpose, as a store of value!
Unfortunately if you are a US citizen, to see the price of gold at $60,000 plus the link of the petro dollar must be broken and the USA will lose reserve currency status. But hey - im out here else where in the world. It aint too bad and youll get over it.
aaaaaaand there aint nothin you can measure anymore...
Who you calling a Neckbeard?
But the inflation did happen and it's just been unreported or disguised. Massive increase in rents for non home-owners (huge rise in house prices for home owners), massive increase in tuition fees and healthcare costs, massive increase in food prices hidden by making the packet sizes/weights smaller but keeping the price the same. And yet all the time we're told inflation is running below 1%.