[quote=Damnthematrix]Once you’re “comfortable [and] materially prepared for a tumultuous future”, what do you need wealth for? Are you gonna buy some slaves?
Mike
[/quote]
Hi Mike…as I am not totally self sufficient and don’t ever expect to be, I see wealth as something to possibly exchange for goods and services. Perhaps for my own benefit, perhaps for the benefit of others…mmmmmm, perhaps I could buy some slaves… and set them free.
Let me guess…you are still young and indestructible, unaware of the reality and limitations of aging.
I feel very fortunate to have some stored, but liquid, wealth; for example, it allows me to subscribe to this site, and that’s almost priceless. It meant I could take my 89 year old mum out to dinner tonight. It meant I had something to exchange w the guy who fixed my flat car tire yesterday.
Yes! Actually, energy slaves (gasoline, electricity, natural gas) if you want to be specific
I’m preparing for a future of using much less, but I expect I will still be using them to some small degree…
- Nickbert
[quote=Denny Johnson][quote=Damnthematrix]
Once you’re “comfortable [and] materially prepared for a tumultuous future”, what do you need wealth for? Are you gonna buy some slaves?
Mike
[/quote]
Let me guess…you are still young and indestructible, unaware of the reality and limitations of aging[/quote]
I wish…
At 59 I’m not exactly old yet, but I sure as hell am aware of “the reality and limitations of aging”, especially after doing my back in the other day for just picking my socks up off the floor!
I expect we’ll be swapping some food, water, and solar energy for some labour…
Mike
While I understand that the fiat money system requires a world with unlimited resources, I would not care to see the clock wound back to the 19th century with a return to the Gold standard. Yes, some people would become very wealthy over-night, but many others would remain very poor. And hoarding is one the reasons we lost the gold standard in the first place.
Gold, especially at $6000+ an ounce is not easy to sell. I don’t mean there won’t be buyers, that’s absurd, but in a dangerous world, and it is predicted here that we are heading toward an even more dangerous world, storing and transporting gold will be difficult. And it may be confiscated.
Mining gold is not “clean” in more ways than one. We need to find some other way of stabilizing currency.
The Toxic Shimmer of Gold
“Today most mining operations use a process called heap-leaching, where gold is chemically sifted from huge piles of low-grade ore using a water-based sodium cyanide solution. To get a sense of the scale of the process, at the Yanacocha mine in Peru for example, Newmont Mining must extract and leach approximately 30 tons of dirt and rock to recover just one ounce of gold.”
http://www.pbs.org/frontlineworld/stories/peru404/environmental.html
Congo’s Gold
“Five million people have died in the Democratic Republic of Congo in a war fueled primarily from gold mined in the country by warlords and smuggled out to be sold on the open market.”
http://www.cbsnews.com/video/watch/?id=5825990n#ixzz1QjC6ZaLo http://www.cbsnews.com/video/watch/?id=5825990n
Alaska’s choice: Salmon or Gold
“If built, a huge mine would transform Alaska’s Bristol Bay region, possibly jeopardizing the world’s richest sockeye salmon fishery.”
http://ngm.nationalgeographic.com/2010/12/bristol-bay/dobb-text
Yeah! Another Johnny!
Great first post
Great post, as usual, Chris; thank you!
While I have acquired a fair amount of physical gold and silver (nowhere near 50%, but still what I consider a fair amount), I understand JAG’s concerns. Gold, and to a lesser extent, silver, have been time-honored stores of wealth. It is hard to ignore the vast swath of human history during which this has been true. Still, much of this history occurred before the advent of carbon-based fuels, which empowered and extended the industrial revolution, and I continue to have nagging doubts as to whether or not the time-tested value of gold and silver may be past.
If we finally realize that our fiat systems of money are inherently flawed, and seek out a commodity upon which to base a new system of currency, would not energy be a more useful base? I don’t know how this would be constructed, perhaps based upon something akin to carbon credits, as another respondent suggested, but the idea seems to have merit.
Still, for now, I believe that the arguments that Chris has presented regarding the wisdom of converting fiat wealth to gold and silver are valid, possibly excepting the remonetization argument. I will continue to buy precious metals during periods of price depreciation, and will sell when JAG decides to buy!
[quote=JAG]
Bottom Line: Just like we did with the internet bubble in the late 90s, we are fooling ourselves with all our rationalizations about the value of gold. Gold is in a bull market for one reason, so Wall Street can profit from our rationalizations and expectations. The game is always the same, and the “gold game” is getting big enough these days, that a crash in gold will likely be the hallmark of the next economic crisis.
[/quote]
Mornin’ Jeff,
I do appreciate your views, and often seek them out to balance my incoming data so as to form a more objective and well informed position. After reading your post several times, I have to say you missed the mark on this one a bit. Not because anything you say is directly wrong (although I might pick apart a few sentences, like “gold is priced by the financial markets [TODAY]”. I’d add the word today because no one is certain of what is to come next, and when someone tells me they are, I call BS.
You seem so certain of your position, that it makes me concerned that you are as emotionally con-gold as the pro-gold gold bugs you tend to mock.
Anyhow, I enjoyed reading your post. I always learn something from you. What I learned this post was to stay neutral mentally and make necessary changes as the landscape shifts. Right now, I am neither buying nor selling, just watching intently.
Cheers,
R
12Bones, welcome to the site. Always happy to meet a fellow smale scale farmer.
I’d like to take up this conversation either via PM or on the Biofuels thread so as not to hijack this PM thread.
Shoot me a PM or email and I’ll get you going best I can.
My money is not where my mouth is. I am into silver.
At present I am as least unsure as I can be that silver will swoon before bubbling. The reason is the promise to end QE which will expose just how fast money is evaporating with none performing debts. (When promises-to-pay evaporate, so does money). ie deflation.
Money will become scarce and the paper dollar becomes king. So I shall follow Chris’s advice and keep my powder dry. However there may not be an industry to desire my silver when it all goes belly up.
I have posted before that I cannot think of an historical precident where money became less abstract, so I am not totaly comfortable with the idea that precious metals are the only alternative to fiat money. If we go peer-to-peer digits (Bitcoin) that will satisfy the always more abstract arrow of money. (Always goes from less absract to more abstract.)
Another factor I feel favours Bitcoin is that large centralised organisations are fast losing any credibility, and so an unregulated peer to peer system will seem a better bet to the punter.
Money might become so vaporus as to disappear altogether. We can get along quite nicely with no money when all our needs are met by slaves. Mechanical slaves. (Isaac Asimov).
This tendancy towards grass roots deregulation will be countered with Fascism.
I trust you are now all as confused as me.
Chris,
What a good view point on Gold and its potential future. There is another viewpoint in Part V from The Automatic Earth website. There are interesting and subtle differences in thinking and in the future projection of potential gold outcomes as it plays into the demise of fiat currencies and debt destruction.
Tom
[quote=JAG]
Supply & Demand: In our distorted market environment, supply and demand analysis has a diminished role in the price action of commodities. The biggest component of commodity prices is wall street speculation. The spike in oil in 2008 is a good example. Prices didn’t rise because there was a shift in the supply-vs-demand equation, they rose because wall street was exploiting the market for profit.
Bottom Line: Just like we did with the internet bubble in the late 90s, we are fooling ourselves with all our rationalizations about the value of gold. Gold is in a bull market for one reason, so Wall Street can profit from our rationalizations and expectations. The game is always the same, and the “gold game” is getting big enough these days, that a crash in gold will likely be the hallmark of the next economic crisis.
It was an enjoyable read and great writing, as usual. You almost had Captain Sheeple convinced.
[/quote]
Hi Jeff,
Have you read Jim Rogers book Hot Commodities? Rogers analyzes bull markets in commodities and how they have run historically in 20-year cycles. This cycle started around 2000 or so, give or take, so we have another 10 years or so to go. This Time is Different however, because of population growth and hitting limits on important resources. I highly recommend you read the book.
I also disagree with your statement that gold is in a bull market so Wall Street can profit. In 2008 during the financial meltdown, my company brought in our financial advisor from Merrill Lynch to go over our 401K’s and to re-assure us everything would be fine. Anyways, the advisor discussed various investments and returns and when she got to gold and silver, she broke out some chart on gold and said it was not a good investment. I had to bite my tongue. Gold was the best investment of the last decade. So 3 years ago, Wall Street was not into gold and even now, they are just tip toeing in and around gold. How do you explain that gold is in a bubble? Eventually, I could see gold being in a bubble, but not right now. Not even close. Especially not when I told my co-worker about a year ago who was looking to sell gold jewelry that gold was 1150 an ounce, and she understood me say saying it was 11 dollars and 50 cents an ounce. She really thought it was that price!
You do raise a good point about the bear market in gold in the 80’s and 90’s. I would explain that by saying money printing thenwas not as prolific then as it is now. Also, Paul Volkker took a lot of money out of the system with his sky high interest rates early on in that time period. Volkker is not in chare of anything now right? Party on gold bulls, Party on!
Otherwise, as Ready said, I enjoy reading your contrarian viewpoints too. Keeps my mind balanced as well.
[quote=ccpetersmd]I will continue to buy precious metals during periods of price depreciation, and will sell when JAG decides to buy!
[/quote]
LOL, I wouldn’t recommend this approach, because your gold coins would be nearly worthless at that point. Captain Sheeple is a market sentiment trader, and therefore the only time he buys is when the market finds no value in a particular asset (notice the snobby 3rd person narrative here, lol).
If you bought gold in the early oughts, then kudos to you for buying into a “hated” asset. But if you are chasing gold at this point, then your investment risk is rising exponentially. Gold wasn’t on my radar a decade ago, so I was too late to enter the gold game as a long-term investment.
I figure my next big trade will be to short gold, if only to hedge against my investment manager’s overweighting of gold in my portfolio. Look for my short just before all the whining about gold manipulation starts up again.
Hi Denny,
See Puke: The Best Investment for my observations on proven wealth protection strategies.
As already answered by one of the members, it is the interest rate that did the trick to kill the gold bull market. Paul Volcker rised it to as ridiculously high as 21% to tame inflation and cash became dear. gold came back down. Also prior to the 70’s when US was on a gold standard, deficit spending = inflation. This equation cannot be violated as this is basic economics. But after US went off the gold standard, deficit spending != inflation. Voila! how did that come about? The secret lies in the fact that US dollar was the de facto world reserve currency, so everyone doing trade had to accumulate dollar reserves. US dollar in a perverse way, had become gold of fiat currencies. Money supply kept increasing, but the money never stayed in the US. It went all over the world. But as they say, world is a finite place and you can print only so much dollars until it becomes worthless.
Gold is priced by financial markets only as long as the dollar survives. If dollar collapses, who cares about financial markets any more? Price of gold is determined by what the human owning gold values to be exchanged for. Value determination becomes subjective and will vary from person to person, which is how it should be in the real world. Gold will continue to have value as long as humans think there is value. There is an axiom in Austrian Economics: value does not exist outside of mankind’s consciousness. This statement is self-evidently true and in the event of a currency crisis, gold/silver will automatically come to the forefront. gold/silver are the currencies of choice by the free-market.
The below video describes the Menger Axiom and calls BS on Keynesian economic models in practice today.
This is a risk, but think about this: Can the US really confiscate gold again? I mean the markets are so widespread, there are so many options these days for storing gold/silver - I am sure people would diversity their holdings geographically. It would be an extremely arduous task to do this in today’s world. The world is not 1933. Also, if it means that our survival in a collapse depended on owning some physical, then why would you not take the risk?
What you say is true, This is the reason why going forward we will see a large divergence between the paper market (derivatives based on metals) and the actual physical market. Silver Eagles are already selling at a high premium and the supply crunch is quite visible, if you want the physical right away. So I think rife speculation can go on, until the paper exchanges can run. Comex silver is running all-time low inventories and it will take one or two hedge fund billionaires to empty their shelves. If there is a default on the Comex, that will spell the death-knell for paper derivatives. Also, a fiat monetary system is a confidence game. It runs as long as people believe in the faith and credit of the US Govt. Once the faith dies, all bets are off.
Gold does well regardless of whether we have inflation or deflation. As long as there is uncertainty in the markets surrounding its stability, gold will continue to do well. Jim Grant observed <i>“Gold is a very difficult investment because its value is indeterminate. It is the reciprocal of the world’s confidence in the likes of Ben Bernanke. I think the price will go higher.” </i>
The world is running on the fuel of debt. Look at the staggering debt numbers and see if these countries can actually pay up. There are going to be more, larger defaults like Greece coming. The largest one, elephant in the room is the United States. We are in a time of history, where world wide central planning is trying its best to prop up a system that is inherently unstable to begin with. No historical references can help us understand this time we are in. This is unique.
Overall, you make excellent points, although I hope I have clarified a few 
[quote=Ready]I’d add the word today because no one is certain of what is to come next, and when someone tells me they are, I call BS.
You seem so certain of your position, that it makes me concerned that you are as emotionally con-gold as the pro-gold gold bugs you tend to mock.
[/quote]
Hey Rog,
I think you know me better than to think I am ‘certain of what comes next’ . The very fact that I am part of this community shows that I am uncertain about our future. And my impression is that many people here are much more confident in their own beliefs about the future than I am. Everyone must assign the own probability spectrum to our future, and I guess mine is a little different than most here.
I don’t understand the perception of emotion in my posts. My point of view on this subject is as objective and unemotional as I can make it; you buy an asset when it is out-of-favor and you sell it when it becomes the asset-de-jour. It’s a simple approach that removes emotion from the investing equation.
Perhaps I should follow your lead and use the term pro-gold instead of gold-bugs. My apologies if I offended anyone with this term.
I finally just plated myself in gold.
Good points Joe and Sundarb,
You gotta love this community. Where else on the net would you find a “dinner party” conversation of this quality?
I would like to clarify one common point in your rebuttals. It wasn’t my contention that money supply was correlated with the price of gold, it was Dr. M’s (and many others) observation. I agree with you and Dr. M on the interest rate correlation.
All the best…Jeff
I support the idea of alternative currencies and I wish Bitcoin all the best, but it is not a currency I would use. I think Doug Casey did a fairly good review of why not to use Bitcoin. The basic reason I won’t use it is it offers no advantage over other currencies. The only thing Bitcoin brings to the table is limited availability (maybe), but requires a well connected network to operate, has no physical representation that can be used without a computer and whose trust mechanism is based on encryption and hashing techniques which can and will be broken in the future.
Bitcoin is at best just another currency that might offer transactional convenience. I believe it is highly questionable as a long term store of wealth. Of course the same can be said of all currencies including gold and silver. Gold and silver are only valuable because they have functioned well as currencies over the long term, primarily because they cannot easily be obtained, are of limited in supply, and not centrally controlled. However, like all currencies, they only act as a store of value because people will accept them in exchange for other goods. The only truly long term store of value is productive capacity.
Hi Jeff…I had a look over there …wasn’t very convincing, felt like you could be selectively citing examples from the past that supported your strategy.
It would be interesting to test your proven wealth protection strategies going forward…perhaps you could let us know about current or future PUKE ideas that you are actually invested in, we could compare the future performance w Doctor M’s readily trackable suggestions.
Could be the start of something big, seems a guy w proven ‘proven wealth protection strategies’ could make a fortune.
I am just learning about Gold and think I understand the Goldsmiths Tale, but permit me to make an observation that begs an answer. I noticed that the most knowledgeable persons about currency, monetary policy as well as macro and micro economics seems to be people who own Gold. I ask this rhetorical question:
Given my assumptions above, why would ANYONE who has any quantity of Gold metal EVER want to trade it for fiat currency? You may have converted me into being a “believer”? I respect the knowledge that parallels MOST ownership of Gold. Why would any sane person sell Gold? And why would they trade buttery, yellow, shiny gold metal for paper play money–the US Dollar? Is there some secret that the owner of Gold knows that makes “them” want my paper play money?
If I bought Gold at any price —even if it were at $2,000 an ounce, given the terrible state of our monetary system, why would ANY one ever sell it? Gold looks like a buy, hoard and wait commodity. No problem…but what would motivate one to actually sell Gold for any reason? If there are any Gold harders out there, why would you trade REAL Gold metal for Helicopter Ben dollars? Try to convince me! Please don’t tell me that the only people who sell Gold are broke, insane or crazy or all three. Are only “crazy people” selling Gold ?
Welcome Reggieoo,
Doctor M discusses “The six signs I watch to know when it’s time to get out” in Part 2 of this report.
If you have the $30 for a one month subscription, may be the best $30 you could spend. Allows you full access to all past reports.
Jeff…in case you are wondering, you were not one of the six signs.
Peace
Denny