Guest Post: Gold's Value Today

Tyler Durden's picture

Via John Aziz of Azizonomics,


Way back in 2009, I remember fielding all manner of questions from people wanting to invest in gold, having seen it spike from its turn-of-the-millennium slump, and worried about the state of the wider financial economy.

A whole swathe of those were from people wanting to invest in exchange traded funds (ETFs). I always and without exception slammed the notion of a gold ETF as being outstandingly awful, and solely for investors who didn’t really understand the modern case for gold — those who believed that gold was a “commodity” with the potential to “do well” in the coming years. People who wanted to push dollars in, and get more dollars out some years later.

2009 was the year when gold ETFs really broke into the mass consciousness:

Yet by 2011 the market had collapsed: people were buying much, much larger quantities of physical bullion and coins, but the popularity of ETFs had greatly slumped.

This is even clearer when the ETF market is expressed as a percentage of the physical market. While in 2009 ETFs looked poised to overtake the market in physical bullion and coins, by 2011 they constituted merely a tenth of the physical market:

So what does this say about gold?

I think it is shouting and screaming one thing: the people are slowly and subtly waking up to gold’s true role.

Gold is not just a store of value; it is not just a unit of account; and it is not just a medium of exchange. It is all of those things, but so are dollars, yen and renminbei.

Physical precious metals (but especially gold) are the only liquid assets with negligible counter-party risk.

What is counter-party risk?

As I wrote in December:

Counter-party risk is the external risk investments face. The counter-party risk to fiat currency is that the counter-party — in this case the government — will fail to deliver a system where that fiat money will be acceptable as payment for goods and services. The counter-party risk to a bond or a derivative or a swap is that the counter-party  will default on their obligations.


Gold — at least the physical form — has negligible counter-party risk. It’s been recognised as valuable for thousands of years.


Counter-party risk is a symptom of dependency. And the global financial system is a paradigm of interdependency: inter-connected leverage, soaring gross derivatives exposure, abstract securitisations.


When everyone in the system owes shedloads of money to everyone else the failure of one can often snowball into the failure of the many.

Or as Zhang Jianhua of the People’s Bank of China put it:

No asset is safe now. The only choice to hedge risks is to hold hard currency — gold.

So the key difference between physical metal and an ETF product is that an ETF product has counter-party risk. Its custodian could pull a Corzine and run off with your assets. They could be swallowed up by another shadow banking or derivatives collapse. And some ETFs are not even holding any gold at all; they may just be taking your money and buying futures. Unless you read all of the small-print, and then have the ability to comprehensively audit the custodian, you just don’t know.

With gold in your vault or your basement you know what you’re getting. There are other risks, of course — the largest being robbery, alongside the small danger of being sold fake (tungsten-lined) bullion. But the hyper-fragility of the modern banking system, the debt overhang, and the speculative and arbitrage bubbles don’t threaten to wipe you out.

Paper was only ever as good as the person making the promise. But increasingly in this hyper-connected world, paper is only ever as good as the people who owe money to the person making the promise. As we saw in 2008, the innovations of shadow banking and the derivatives system intermesh the balance sheets of companies to a never-before-seen extent. This often means that one failure (like that of Lehman brothers) can trigger a cascade that threatens the entire system. If you’re lucky you’ll get a government bailout, or a payout from a bankruptcy court, but there’s no guarantee of that.

Physical gold sits undaunted, solid as a rock, retaining its purchasing power, immune to counter-party risk.

I think more and more investors — as well as central banks, particularly the People’s Bank of China — are comprehending that reality and demanding the real deal.

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fourchan's picture

either you have it or you dont.

Max Fischer's picture



Fantastic comment!  So true... either I have it, or I don't.  Great insight.   


The Big Ching-aso's picture



If you have a lot of gold then your heirs may not turn to silver prematurely.

The Big Ching-aso's picture



"Man who seek gold in woman also find out she good at gold digging too."



The Peak Oil Poet's picture




i surely do love silver
i surely do love gold
they'll be as they are trusted now
and since the days of old

they way they feel good in your hand
they way they gleam and shine
there's nothing quite so lovely
there's nothing that's so fine

and trust, that's something few have felt
in printed paper bills,
is what you can't help feeling when
your secret stash gold fills

when all is falling 'round our ears
and markets crash and burn
it's saftey that you cherish most
it's not a "sound return"

and so i'll love my metals
so precious and so fine
i'll hold them 'til i need them
in the coming long decline

'cause these are the true money
that always hold their worth
and if they are a "relic"
well, then so to is the earth

The4thStooge's picture




and if they try to take my gold

they've made the wrong descision

i some other metals

which I fire with precision




CompassionateFascist's picture

epic poetry. Post Ponzi-collapse, lead is indeed going to be the prime medium of "exchange" for some time to come.

prole's picture

He's a post-ponzi poet, and he didn't even know it.

When they come for your gold, give them free lead instead

peekcrackers's picture

I have never seen a gold Coin , bullion , or Round   that says .

"this NOTE  is leagle tender For all DEBITS public and Privet "




flacon's picture

Yes that is interesting. Not even our zinc and steel (in Canada) coins talk about being a NOTE for DEBTS. Could it be that perhaps the metal itself is the asset to extinguish debts? Hmmm.... I wonder how many universities teach these concepts.... Does anyone know why Ben Bernanke, or Timmy Geithner doesn't suggest to the government that revaluing gold could extinguish the debts? Why on earth do they insist on squeezing a rock (us) to milk it of every drop before they just admit that the paper NOTES are worth less and less...


Oh... I get it... they are after the FRUITS OF OUR LABOUR! That's what they want, not gold, they want OUR PRODUCTIVE CAPACITY for themselves. 



peekcrackers's picture

Taxes on  our asses to create the slave masses

diesheepledie's picture

Exactly. ^ Someone who actually gets it. That is precisely what FRNs and digital fiat are. They are units of your labor. And if you have them they can be used as "Hall Passes" to be exchanged for momentary freedom, or for others toiling on your behalf. Yes they are SLAVE DEEDS. Far more valuable than any shiny metal. 

disabledvet's picture

Exactly WHOSE debts get extinguished numb nuts? Not yours that's fer shore! Now "go make an Army with all that gold you claim to have" you pathetic boob.

prole's picture

Poof! He's an army of one, sir.



WhiteNight123129's picture

A lot of Silver mines have lead as a by product.


chirobliss's picture

Oh gawd, another guns'n gold circle jerker!

jomama's picture

what happened to your 'mr. earth citizen represenative' sig?

prole's picture

He's decided to change it so:

Maxie Fischer

Pedanticus Imbecilus

Praetor's picture

I thought it was

Max Fischer

Fuckwittius Maximus

TWSceptic's picture

Still contains more value than the response you posted.

BeetleBailey's picture

...and, you don't...have anything....


WhiteNight123129's picture

Max Fischer, the only way not to be lost in uncessary convoluted intellectualism is to remember basic truth, immutable true statements. That what people in science do, they start with the obvious. We have an entire school of idiot economists that tell us that you can spend more than you earn and it is ok because there is a convoluted explanation that those who defend it fake to understand ( they rely on faith). The school of economics today ressemble the catholic church organizing lengthy debate to figure out how many angels could stand on the head of a pin. Empirical evidence show that excessive debt lead to ugly corrections and large debasement driven inflation, I urge you to get the data from Kenneth Rogoff, but you will tell us that this time is different I guess because you have a smart explanation? I know some unbelievably bright people in the scientific community, they have NO intellectual arrogance, the concept is foreign to them, they actually have a tendency to be a bit not very self confident. On the opposite I have seen many idiot arrogant lawyers and economists by training full of themselves. 

xela2200's picture

Also, you either get it or you don't.

caconhma's picture

It is of interest that for the last 40 years Nobel prizes in Peace and Economics had nothing to do with either science or truth. For all practical points of view, Nobel Prizes were just propaganda tools used to promote bogus "values" as well as fraudulent and baseless speculations.

The so called New World Order, with the Zionist Central Banking Mafia in control of mass media, political and economic institutions, has used either colonial slavery or wars to promote their agendas. They not only destroyed endless human live and inflicting endless human suffering but also destroyed endless countries and the Western civilization as we know it.

Their arrogance is out of control. It will not only destroy millions of innocent lives but also will destroy the Mafia.

Gold, as it has done for many thousands years, will survive them all!

theTribster's picture

Every organization that matters has been bought or stolen, that simple. Nothing can be believed that they say, nothing can be trusted that they do, these are the purest form of criminals.
When this finally falls apart it is these same people that will be hunted like animals, their money won't save them as the new politicians see that being with the people IS the way to go, this will happen after they realize that horrible death is their only other option - yeah, they'll be rich but also they'll be dead.
It is coming fast and they know it, by the end of the summer (or sooner) we'll be in a global revolution - no where for them to hired but Russia or China - if they'll have them....
A popular bumper sticker some years ago is very applicable: "Kill them all and let God sort them out"...

dougngen's picture

I have a question, you say "zionist central banking mafia" but I thought the center of all banking was in London.? can you explain, I'm really curious because I hear this phrase often but don't know the genesis of it.

anonum's picture

"It's better to have some and not need it, than to need some and not have it."

Likstane's picture

I'd like to smack Ben in the head with a gold bar, and then ask him if it felt like money.

Half_A_Billion_Hollow_Points's picture

in other words, gold ETFs are converging to their fundamental value, zero

The Big Ching-aso's picture



If you repeatedly hit his head with a gold bar it would resemble the Dome of the Rock.

Vendetta's picture

One cannot knock sense into a brickhead.  Brickheads crush themselves under the weight of their own faulty thinking.   - V 2012 AD

noses's picture

Whacking. You're oing it wrong.


You should use a similar sized wad of bills and hit him with them, too. And *THEN* ask him what fheels like the harder currency.

spentCartridge's picture

A smack in the mouth would be better.

Knock all of his fucking teeth out.


Deo vindice's picture

  either you have it or you dont.

And by far the most don't. Still being entertained into oblivion.

fourchan's picture

can you imagine the price if the .001% (or whatever tiny percentage)


of physical holders, increased to even 10 percent of the population?

WP45's picture

Just 1% and I'd be in the 1%.

The Big Ching-aso's picture



I knew a gal who thot she had gold between her legs.  She was right except it was 2' above that in the form of a sunken chest.

Vendetta's picture

we didn't need that information, thanks for sharing anyways.

Deo vindice's picture

To those who down-arrowed me...

Are you saying that most people DO have gold?  Really?

And you disagree that most people are so tied to their entertainment(s) as to be oblivious to the reality of the situation?

Wow. Glad you are at least reading ZH. Maybe you'll learn something...

IBelieveInMagic's picture

Oil is the real hard currency. And the US of A owns in it spades ... in the Middle East.

The Big Ching-aso's picture



Gold can buy you a lot of things in life especially later in your golden years when you involuntarily pee your pants.

noses's picture

Your forgetting that the US is currently getting seriously pwned by China and India.

IBelieveInMagic's picture

I didn't know China and India had "boots" on the ground and on Naval ships in the Gulf! I thought they just provided serfs in the ME. The oil flows only to the extent that the US/swappable currency countries allow. Period. Anything else would result in some unpleasantness for sure.

sessinpo's picture

IBelieveInMagic                 2383115

Oil is the real hard currency. And the US of A owns in it spades ... in the Middle East.



Comments like the one above are being proven to be idiotic much like man caused global warming.

Fact: The US imports more oil from Canada and Mexico, Canada being #1

Additionally, the leftist mantra that the US has only 2% (proven reserves) of the world's oil but uses 20% plus is currently under debate and if is premature to say where the US stands on oil reserves. However, it is clear, that the US has more oil then the 2% because of new technologies and discoveries such as oil shale. We also have an abundance of natural gas. Quite frankly, I have no problem using other countries resources that they are willing to sell to us. Later down the road, it is those same foriegn countries that may be energy dependent on the US.


aphlaque_duck's picture

I have no problem using other countries resources that they are willing to sell to us.

Except that they are NOT. We have a gun to their heads which says their oil sells in USD.


Real Money Wins's picture


Better than anything in your wallet or your portfolio!!