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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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Sun, 04/29/2012 - 02:22 | Link to Comment shuckster
shuckster's picture

guns and ammo can be taken easily. gold can too. there is no safe asset

Sun, 04/29/2012 - 05:12 | Link to Comment prole
prole's picture

guns and ammo can be taken easily as long as you don't mind getting shot every day. gold can too. there is no safe asset.

Sun, 04/29/2012 - 12:40 | Link to Comment JimS
JimS's picture

shuckster: just curious, are you going to take my guns and ammo? Good luck pal.

Thu, 06/28/2012 - 22:56 | Link to Comment shuckster
shuckster's picture

no, i'm not going to take it. when a .50 call round passes within six inches of your head, it takes it off. when it goes through your stomach, it pulls all of your insides out and makes a yard sale out of them. it can go through 6 bullet proof vests and still travel half a mile

Sat, 04/28/2012 - 23:38 | Link to Comment Stoploss
Stoploss's picture

So, how do you hide the bullion, where you can get to it, before some one else does?

Also, how do you transport the bullion to the "buyer" and what do we expect to be "paid" with?

I guess the people walking funny would be the ones with the bullion shoved up their ass for safe transport?

It sounds so easy, just dig it up, run it down to the corner store, get some food and TP, loaf of bread, gallon of milk and a carton of cigarettes?

Sure, hop in the car and drive over!

No one has really thought this through have they. 

Old Bernie Madoff almost got away with the loot, he just did it wrong.

Sun, 04/29/2012 - 00:16 | Link to Comment toady
toady's picture

Two words; coin store

And for the sell side I'm sure you've seen a few 'we buy gold' signs recently.

But be careful. There are a lot of people looking tp rip you off.

Sat, 04/28/2012 - 23:48 | Link to Comment Dre4dwolf
Dre4dwolf's picture

When criminals run the Government, the banks, the stock market, the commodities market.


There is only one real form of ownership.


It's in your hand, or it isn't , Paper, digital paper and broken promises are worthless.


The rest of the world is just naive . . . don't trust anyone.



Sat, 04/28/2012 - 23:56 | Link to Comment shuckster
shuckster's picture

Buy our gold sheep! And then in five months from now, sell it back to us for $400 an ounce! It's such a terrific deal! BUY

Sun, 04/29/2012 - 00:10 | Link to Comment bezell
bezell's picture

Awwwwshuck!!!!!Only time will tell........repost these same comments in five months and hope gold is $400 an ounce and not $4000.Will definetely buy...Bye for now


Sun, 04/29/2012 - 00:29 | Link to Comment Aziz
Aziz's picture

Buy our dollars, sheep!

Sun, 04/29/2012 - 01:13 | Link to Comment Vendetta
Vendetta's picture

fiat sheep are a far larger market to take to slaughter than the gold sheep.  We will see how it ends won't we

Sun, 04/29/2012 - 02:30 | Link to Comment jomama
jomama's picture

i would buy a lot more if it were only 400/oz.

Sun, 04/29/2012 - 03:01 | Link to Comment TWSceptic
TWSceptic's picture

Since when is ZH selling gold? You obviously don't know what you're talking about. And $400 ? LOL when that happens I'll be loading up, not selling.

Sun, 04/29/2012 - 05:26 | Link to Comment Praetor
Praetor's picture

Troll numbers increasing, sponsored by the Fed. A sure sign gold will shoot up soon.

Sun, 04/29/2012 - 06:59 | Link to Comment Peter Pan
Peter Pan's picture

If you really believe that gold will be $400 in 5 months, why don't you an I come to an agreement for me to buy a couple of hundred kilos from you for $500 an oz in 5 months. One of us will be most happy and it won't be you.

Sun, 04/29/2012 - 12:29 | Link to Comment epwpixieq-1
epwpixieq-1's picture

I am "selling" gold only for Water (hopefully such times will not come to pass), till the new system that is to follow stabilizes, maybe in a couple of years or so, till than buy on the dips. In this context, having several ( hundred better ) ounces silver will make even the most bacterially contaminated water good for drinking. So GO Silver!

I am preparing for everything else on my own, for the time when I need it, and meanwhile having a lot of fun. In my arsenal I have some unique self engineered tools that can deliver an instant 50-100KV at 0.5A for energy independence and self protection, without relying on the power grid system.

Based on your advice, in about 5 months, I am going to buy another 100 physical ounces at $400, I pray for this time to come. I hope that you are not charging for the "investment advice" though :)

but if you do I will pay you $400 bucks without any problem, just do not demand an ounce physical for it may be a hard thing to come by, even will through some bonus :)

Sun, 04/29/2012 - 12:32 | Link to Comment JimS
JimS's picture

The only way gold will be $400 an ounce in 5 months, is if the Dow is at 1300, and the S&P is at 130. That would be possible, but as you will note, gold will still be holding its value.

Sun, 04/29/2012 - 00:14 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture



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

Counterparty risk is the biggest thing keeping people out of financial markets these days, especially after the massive MF Global theft of customer funds.

Any small player still trusting big players is a fool.  You're dealing with criminals and pirates who loot in broad daylight while government looks the other way.

Nothing in an "account" is safe anymore, because that "account" is controlled by criminals, and yes it includes your 401k "account", IRA "account", pension fund "account" etc.

What you hold in your hands is the only thing safe from financial pirates in pinstripe suits.

And that's not even true about the currency, they're debasing it as we speak.

Sun, 04/29/2012 - 00:38 | Link to Comment q99x2
q99x2's picture

If f'n Gold did not seem to be correlating to the S&P recently I'd buy some. But, I believe the FB put has to play out first or the market has to decline without taking Gold with it before I'm in.

Thing I don't like about it is that it makes it difficult to swim with. But a small robot sub may do the trick.

Gold was $20 an oz in 1862. Clint Eastwood had $140,000 dollars of it in four bags mounted on the back of a horse in "The Good, The Bad and The Ugly." How much gold was on the horse? 7000 ounces or approximately 481 pounds of gold if the ounces were troy ounces and 437.5 pounds if they were standard ounces. He then jumped onto the horse and road off. So the horse had to be carrying around 650 pounds.

Some horse.

Ugly had to carry his without a horse.

Some Ugly.

Sun, 04/29/2012 - 02:28 | Link to Comment jomama
jomama's picture

of course it's manipulated.  that's the worst excuse i've heard to not stack more.

Sun, 04/29/2012 - 03:38 | Link to Comment HungrySeagull
HungrySeagull's picture

You are working too hard.

10 cents a shave, not today's 10 dollars a shave.

And yes there are "Shires" -a Class (Breed) of Horse capable of that much when used by Knights centuries ago.

Sun, 04/29/2012 - 05:57 | Link to Comment spentCartridge
spentCartridge's picture

$.90 for a shave.

An extra $.10 for the lilac water?

Ladies love the lilac water.


Sun, 04/29/2012 - 04:26 | Link to Comment noses
Sun, 04/29/2012 - 01:39 | Link to Comment dust to dust
dust to dust's picture

 I think the going rate here at ZERO HEDGE is to own physical. Do it NOW. Take it off the TABLE. Stack and Lock and Load.

Sun, 04/29/2012 - 03:39 | Link to Comment HungrySeagull
HungrySeagull's picture

And have a safe in a part of your home not visible to windows. It won't take but a few moments to throw chain on it thru glass, hook it to the truck and rip it all through the wall.

Sun, 04/29/2012 - 16:34 | Link to Comment Prometheus418
Prometheus418's picture

Reconsider the safe altogether.  Hidden is often safer than hardened, unless you've got enough gold for a real vault and a security force.

Sun, 04/29/2012 - 02:24 | Link to Comment shuckster
shuckster's picture

Physical gold is bad becuase those who control the monetary system will not appreciate you trying to undercut them and will retaliate with greater force

Sun, 04/29/2012 - 03:12 | Link to Comment TWSceptic
TWSceptic's picture

When the SHTF, a few (rich) people owning gold will be the least of their worries. I'd be more worried about the inflationary force applied to your precious dollar bill, if you care about preserving your wealth.

Sun, 04/29/2012 - 03:41 | Link to Comment HungrySeagull
HungrySeagull's picture

Forget that. Think stripped walmarts and completely barren land and towns as surviving bands kill those who resist them.

Sun, 04/29/2012 - 03:42 | Link to Comment HungrySeagull
HungrySeagull's picture


Sun, 04/29/2012 - 07:45 | Link to Comment _underscore
_underscore's picture

This has to be the biggest of red-herrings out there - why on earth, with 90%+ of the popn. ravaging,looting & genrerally going crazy (the germs of which are now showing up in the distressed southern Euro countries..) would the PTB bother with those (relatively) few individuals who've had the foresight to buy PMs (and who are probably being the few content & law abiding ones left) quietly minding their own business? It's a bit like the only cop in town giving a parking ticket to the single surviving non-zombie whilst in the next lot half a dozen maggot-bloat-heads are chewing on a shin bone & sucking the brains out of the grocery store owner.


Sun, 04/29/2012 - 13:41 | Link to Comment akak
akak's picture


It's a bit like the only cop in town giving a parking ticket to the single surviving non-zombie whilst in the next lot half a dozen maggot-bloat-heads are chewing on a shin bone & sucking the brains out of the grocery store owner.

I hate it when bankers do that!


PS: What is up with this "whilst"?  Is the word "while" not good enough for you?

Sun, 04/29/2012 - 04:10 | Link to Comment dognamedabu
dognamedabu's picture

I'm a little worried about the other side with gold too... who is going to buy it when its SUPER expensive and I need to sell? I guess I just need to never 'need' to sell...



It crossed my mind as well. But then I thought if gold starts really catching fire, the idea would be to wait it out and not trade in gold for any dollars until a new standard is in place, by then I would think you would get a fair price that is stable and widely agreed upon. Otherwise, you could trade in one ounce for say $5000 FRNs and holy crap, next week you could have gotten $10,000. Week after that, $100,000... That is the beauty of gold, as long as you hold on to it, you are preserving your wealth. 

Sun, 04/29/2012 - 07:54 | Link to Comment Winston Churchill
Winston Churchill's picture

That would get you nowhere.

You will need to keep a small portion of you gold "forever",however the

trick will be to sell the bulk at as near peak in fiat, and buy other hard assets,

pay off debts ,(quickly)in fiat before the issuance of a new currency.

As always, timing will be everything.

Sun, 04/29/2012 - 10:12 | Link to Comment FranSix
FranSix's picture

In that case, you would need the mining shares to pay out a dividend.  You need a miner with fixed costs, meeting with guidance and paying dividends, with room for growth.

And you need a steady, higher average gold price.  The lights aught to come on for a lot of producers above $1800/oz.

Personally I believe that you would also need to see a period of negative nominal rates at the short end of the yield curve, and long term bonds trading chronically at historically low yields and bond prices more or less steady.  Eventually the gold price will steady out into a long term average.

But you have to be ready that the share price might not perform as desired.

Sun, 04/29/2012 - 04:26 | Link to Comment CryingBear
CryingBear's picture

i dont get this articile. the GLD alone was worth more than $50 billion in 2011 so how did the number of transaction become lower? GLD trades close to 10,000,000 shares a day. Thats 365,000,000,000 in transactions a year. Gold prices rose when ETFs were introduced, without ETFs, gold would be half of what it is. 

If you dont think gold is overpriced, look at how much platinum is. if gold was money, it would cost more gold to buy platinum because platinum is worth more. its like silver costing more than gold and people not caring that gold is rarer.

Sun, 04/29/2012 - 04:36 | Link to Comment Zgangsta
Zgangsta's picture

I don't know what quotes you're looking at, but gold has been priced higher than platinum for months now.

Sun, 04/29/2012 - 22:12 | Link to Comment CryingBear
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Sun, 04/29/2012 - 05:19 | Link to Comment Pelosis Usless Brain
Pelosis Usless Brain's picture

Whether you buy 1 share or 1,000 shares it's still 1 transaction. Or 2 if you count the buyer and seller as their own transactions. If I recall correctly that's why the NYSE only counts 1 side of the transaction while the NASDQ counts both, esentially double counting shares traded. I could be wrong about that.

Sun, 04/29/2012 - 22:11 | Link to Comment CryingBear
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Sun, 04/29/2012 - 20:46 | Link to Comment DosZap
DosZap's picture

i dont get this articile. the GLD alone was worth more than $50 billion in 2011 so how did the number of transaction become lower? GLD trades close to 10,000,000 shares a day. Thats 365,000,000,000 in transactions a year. Gold prices rose when ETFs were introduced, without ETFs, gold would be half of what it is.


And you actually BELIEVE GLD has this physical?.Buy some shares, a lot, and TRY to redeem them for PHYSICAL.

You will be seeing your contract, and what you agreed to when you bought PAPER shares.

Comex has been paying $$$$$$$$$$$$ prems for folks NOT to take delivery of Silver, why?, because the dickheads haven't got it.

Sun, 04/29/2012 - 04:27 | Link to Comment CryingBear
CryingBear's picture

did these guys just make numbers up?

Sun, 04/29/2012 - 05:03 | Link to Comment ebworthen
ebworthen's picture

Since China is the likely next world power as the U.S.S.A. runs itself into a ditch, I say buy GOLD (physical, in your physical posession).

Sun, 04/29/2012 - 04:45 | Link to Comment goldenboy
goldenboy's picture

Part 1 of an article, telling GLD scam like it is:

Sun, 04/29/2012 - 05:02 | Link to Comment Blind
Blind's picture

Ok, who is Zhang Jianhua? How high is his rank and therefore his credibility? Can't find his Chinese name in the PBOC website and can't google him that relates him to PBOC...

His name is mentioned in the USA China Daily, that's all. He is no Zhou Xiaochuan. He doesn't represent PBOC...Afterall, there are so many directors in China...

btw, Forbes linked the People's Bank of China to Bank of China website, which makes me doubt even more the credibility of the article...

Sun, 04/29/2012 - 05:07 | Link to Comment ebworthen
ebworthen's picture

I would say look to the rest of the world; China (all of Asia), India, South America - on a cultural and political level they are all buying gold.

Someone in Zimbawbwe or Argentina who put their money into gold before the SHTF are much better off today than not.

Sun, 04/29/2012 - 05:28 | Link to Comment tradewithdave
tradewithdave's picture

It appears there is a consistent theme to the comments in this thread that gold is indeed a wise place to put your money.  Does it strike anyone as curious that there is a coordinated effort by the Rothschilds to expand the same meme through the promotion of two books and furthermore endorsements of gold by both Bank of America and by Goldman Sachs within the past month?

Dave Harrison

Sun, 04/29/2012 - 11:55 | Link to Comment Diet Coke and F...
Diet Coke and Floozies's picture

Hmmm, interesting theory... </Not Sarc>

Sun, 04/29/2012 - 06:17 | Link to Comment Henry Chinaski
Henry Chinaski's picture

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

In the real world, paper never beats rock.

Sun, 04/29/2012 - 06:45 | Link to Comment sessinpo
sessinpo's picture

Paper is just a form of contract. Contracts seem to go to the wasteside these days. No rule of law.

Sun, 04/29/2012 - 08:15 | Link to Comment Ted Baker
Ted Baker's picture



Sun, 04/29/2012 - 12:31 | Link to Comment jomama
jomama's picture

do you really have to insist on yelling?

Sun, 04/29/2012 - 14:25 | Link to Comment ebworthen
ebworthen's picture

Yes, please Ted, proper capitalization and punctuation.

All capital letters in a post is like taking a dump in your neighbor's living room.

Sun, 04/29/2012 - 09:12 | Link to Comment supermaxedout
supermaxedout's picture

Everybody with a bit of brain prefers gold over hollow promises spoken out by banksters which are criminals by nature of their profession. (I'm not including banks which are serving as a pool to collect capital to lend out for real investemts and businesses. ) 

TheTurks are gold lovers, all Arabs including the Saudis and be assured also the Israelis love gold since ever. So thinks the rest of the world: In a crisis nothing beats gold except guns. And since the Americans own the guns all the others are concentrating on gold. Its that simple. 

Its in principle only a big bet. But one thing is sure regardless the outcome of this crisis. There will never be a time when gold is worthless as long its not possible to produce it synthetically on a big scale. Gold buys everything in this world since its rare and it is the perfect metall for jewelry. Women love it and men fight for the gold since it is beloved by  women.

Sun, 04/29/2012 - 13:07 | Link to Comment Silversem
Silversem's picture

I agree with the author of the article that you need to have fysical gold. Nevertheless i like to trade the yellow stuff on paper using the contract for difference  as an instrument. I also own junior mining shares.

Sun, 04/29/2012 - 14:11 | Link to Comment resurger
resurger's picture

Some paper bugs just got owned

Sun, 04/29/2012 - 14:56 | Link to Comment Simplifiedfrisbee
Simplifiedfrisbee's picture

Can one store wealth in gold and gain in moral? Might as well stick your hand in a cows ass believing you'll find something valuable. The truth will come out eventually.

Sun, 04/29/2012 - 15:13 | Link to Comment WilliamShatner
WilliamShatner's picture

Zhang Jianhua of the People’s Bank of China:

"Gord, beaches!"

Sun, 04/29/2012 - 15:30 | Link to Comment suckerfishzilla
suckerfishzilla's picture

After the most cursory of investigations one might collude that Gold is better to hold over the long term than the paper currency it is priced in.  Aren't the fundamentals for Platinum Palladium and Rhodium investments better than Gold the way the market is priced right now?  Why would you buy Gold over Platinum anyway?  In 2000 a.d. Platinum was priced higher than Gold.  Or did we forget about that tidbit? 

Sun, 04/29/2012 - 16:46 | Link to Comment Rynak
Rynak's picture

There's something which i do not understand about the charts: So often, i hear that the amount of volume "traded" in those rapid PM pumping and dumping sessions, is way more than could in terms of physical backing make sense..... yet the posted chart shows that transactions measured in dollars actually put the physical market way ahead of the paper market?

What is it, and why?

Mon, 04/30/2012 - 01:15 | Link to Comment AndTheRest
AndTheRest's picture

Yea, I'm sure the brutal American police state, with its thousands of SWAT teams, and infinitely powerful military, is going to let you, Joe Dumbfuck, in rural Missouri, cash in his 200 ounces of gold and become Lord of Dumbfuck Missouri.


It's fucking pathetic to watch you gold bugs, most of whom are over 50 years old, live out these ridiculous fantasies where gold shoots to $50,000 an ounce and you become King of some little fiefdom in some shitty part of America.


There is zero chance of that happening.  The only reason to own gold is to take that gold OUT of America.  You have to transfer your wealth into gold and then get it out of the brutal fascist American police state.  Anything else is a ridiculous fantasy.


They WILL murder you.  They WILL not let you exchange your gold at the rate you think you'll get.  Not ever.

Mon, 04/30/2012 - 08:30 | Link to Comment prole
prole's picture

Hey Jackass, "They" will murder you for your stupid post before they bother to worry about a small minority of eccentric goldbugs. Point2 Uncle Sam has never murdered anyone for gold, and hasn't nationalized any (INCONUS) gold since 1933.

Your post is such a ridiculous tarbaby/Strawman argument it seems stupid to even answer, but here goes: The up in years gold bugs you attempt and fail to deride are sitting on gold they have purchased at 300 to maybe 500 dollars an ounce. They are WAAAAY up on their investment. You are way up on envy sitting on bankrupt shares of GM stock I suppose?

You are such an imbecile that I do not wish to address your post any further the post being old and your points being stupid line by line, but actually I share your envy of anyone with 200 ounces of gold that is a serious position, worthy of admiration in the just, and stirring the hatred in your black soul, as evidenced by your miserable comment. PS the goldbugs all on good terms with Uncle Sam BTW and they do not share your underground bunker mentality. Perhaps you should seek psychological help before we read about you in the news.

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