The gold vs anti-gold debate makes for great reading. As Chris often has said, “Trust yourself.” 1) For the last ten years gold has gone up an average of 18% as measured in dollars. See http://www.goldmoney.com/gold-research/gold-rises-in-2010-to-end-a-stellar-decade.html
2) For years gold has been going up in all currencies.
3) Because of the continually irresponsible (and destructive) policies of the Federal Reserve, and the free spending ways of the Federal Government, it is highly unlikely that the debasing of the U. S. dollar will stop anytime soon. Therefore, I must conclude at some point – which could be sooner or it could be later – there will be a dollar crash or default of some sort, similar to (but not exactly like) what occurred in 1933-34 and 1971.
4) So no matter how the endgame developes, and whether folks like it or not, gold is not an investment, GOLD IS MONEY! That settles the issue for me.
Jeff, one important distinction I would like to make is that there are paper markets such as ETF’s GLD, SLV which supposedly track the price of gold/silver and then there are two critical paper markets which is the futures market and the lending market. The GLD, SLV ETF’s are meant to be trading vehicles for PM’s without physically owning them. Now there is a camp that argues that paper vast exceeds the actual physical and therefore naked shorting leads to suppressed PM prices. I am not saying there is no truth to this argument, but I don’t think this paints the full picture.
I believe the futures market and the metals lending market have a more drastic effect on the physical metal spot prices, than these paper trading vehicles. Decreased participation in the futures market or in other words - people unwilling to part with their metal causes backwardation and thus increased spot prices to get the marginal seller to sell the metal. Lending market also has an important effect on the spot price because metals can be borrowed short to lend long (just the same way banks take our demand deposits and make long-term loans using them), which causes price distortions as well.
There are ways to track the activity in futures/lending market using bases (see www.bullionbasis.com ) and thereby we can make a reasonable prediction on future track of PM’s. I think silver is in a more persistent backwardation than gold at the moment.
Precisely and the very reason I am a member of this community. I don’t know if I can speak for others, but my pro-gold argument is mostly based on facts (as explained in my other posts) and also in my belief that the politicians won’t man up and make the necessary spending cuts, curtail growth (which as we learn time and again through Chris that it is not necessarily a good thing).
[quote=JAG]Sorry, but paper gold is someone else’s liability.
[/quote]
I am in complete agreement with this statement
Public thank you to JAG for being intellectually honest. I couldn’t wish for a better sounding board and checker of my beliefs vs. facts circuit.
U2.
Sundarb,
I don’t have a lot of time or bandwidth, but did you just say that the le4nding market and the futures market are not someone else’s liability? Maybe I have a lack of understanding that you can help me with here, becuase I would have said that they clearly were.
No, I did not mean that. What I meant is that if you own the physical, the asset itself is no one’s liability at the same time. Isn’t that a true statement?
This is not true with stocks or even cash, because they can both flat out go to zero. Sure gold’s economic value measured in fiat dollars is continuously going to vary at any given time frame. and the economic value, again measured in dollars is liable to the activities of futures and the lending market. But what are we most worried about here? Short term trading in and out of the market or looking at the big picture and making an investment? If you’re worried about short term trading in and out, you can get burnt if you look at just the spot market trend. That’s where the basis will help. If you’re concerned about the big picture and making an investment, then buying the dips and relaxing is the best way. Because of the inherent instability in the debt based monetary system, gold will do well.
Hey Jeff,
Pastureland…now there’s something we can agree on.
You have a great weekend as well.
Best wishes
Denny
[quote=Doug]Are you suggesting that somehow life is less fulfilling if you own gold?[/quote]No, not at the moment. If you are one of the select few who own gold during the collapse, it may be less and less satisfying having to expend more and more resources to protect what you have and having fewer and fewer friends who are able to stay in your circle. As others possibly start to fend for themselves, their lives could be much more satisfying than those who continue to try to buy their existence with gold.[quote=Doug]It has been stressed frequently here that people, certainly including myself, own PMs because we don’t see any good alternatives for preserving purchasing power.[/quote]Yup, sounds reasonable if you’re in the part of society that hasn’t been overtaken by collapse. After that, I’m not sure how long it will take for gold to be a common enough means of exchange for the investment to have seemed worthwhile. However, in the short term, it’s probably a reasonable hedge against your particular bank going bankrupt and unable to pay you your savings. If your government decides that gold should not be held by individuals, then it may not be a good investment even in the short term. Investments are always a gamble.
[quote=Doug]If, like me, you expect greater inflation coming down the road (according to John Williams and my personal experience, it’s already here), where do you put that cash?[/quote]Buy tools. Buy land. Go on courses.
[quote=Doug]I’m not interested in hearing about all the wonderful preparations you can make with that cash, I’m already there. I don’t care how well you’re prepared in terms of sustainable land, things and skills, there is still a financial aspect to our lives that has to be acknowledged.[/quote]Whilst there is some form of government that can impose taxes on you, I agree. I hope they take gold as payment. But, if you’re all set, then it doesn’t really matter where you put your excess cash. After all, it’s excess, isn’t it? Give it to a charity.
[quote=Doug]How many of us are living completely self-contained lives where we have no need of a medium of exchange beyond barter? Not even the Amish are that secure.[/quote]I thought hoarding gold was a long term thing. Sure, barter is not yet a medium of exchange, but you also are not going to be using your gold as such tomorrow. As society breaks apart, I would think barter would become much more prevalent than gold as money, at least for a while.
[quote=Doug]Once you acknowledge that some store of financial value is necessary[/quote]Well, I suppose that’s it, I don’t, at least long term. Long term, the only things that matter are the skills and knowledge that your community has managed to acquire.
[quote=Doug]I’m just trying to see that my family and I don’t become wards of the state, as it is increasingly clear that the ‘state’ can’t afford us.[/quote]Then make sure you’re not dependent on the state.
Tony
[quote=ao]Let me say it one final time … investment in gold does not preclude investment in other “things”.[/quote]I didn’t say it did, at least for those with excess wealth. If one has more than enough wealth to make the short term preparations that are needed (indeed, I seem to remember Chris talking about the urgent need to finish of preparations, and even sell gold, if that is needed to do so), then buy gold if you want. But this article was an out and out sell for gold and silver. That’s why I ask what are the alternatives? Is this just a strategy for those who have completed their preparations or for those who have more than enough savings and income to do so? If it is, then, as far as I can see, it doesn’t matter whether the advice is sound or not.
[quote=Outcast19]After that, with what tertiary wealth remains, my objective is to hedge against a collapsing financial system by converting 60% of it into a store of value…an alternative medium of exchange. That would be gold and silver. I am not aware of any better (or equal) alternative exchange medium.[/quote]That’s fair enough, outcast. I can’t find much fault with that.[quote=Outcast19]I’m a 63 year old small business owner hoping to retire in two years[/quote]What do you mean by “retire”?
[quote=Montana Native]Saving is a wise thing to do.[/quote]Why? Paying off debt and making preparations is a wise thing to do. Perhaps saving enough for property taxes is a wise thing to do but I’m not sure why saving beyond that is wise.
[quote=Montana Native]Things may just sputter along for a lot longer than many well informed folks think possible so a little insurance is a great way to fly.[/quote]Yes, they may. How does that affect how you approach the future? Things may also not sputter along, for much longer, for you personally, or for other members of your family, or for anyone. My insurance would be to acquire the skills needed to rely on others, particularly the state, as little as possible.
I have read all but the last two pages of comments as I am short of time since at 3 pm today I’ll be flying in a small float plane into the wilderness of the central coast of BC to check out the grizzlies and test my self survival skills. But I really like the debate in these comments sections.
The main comment I have is that people tend to describe economic collapses, and especially the final one to come in the next year or so, as being “wealth destruction” events. I take issue with that characterization, because there is no plausible way for such a huge amount of the world’s wealth to simply vaporize over such a short time, save for say a nuclear bomb being dropped or an asteroid hitting the planet somewhere. The amounts of physical productive capital of the world do not change at all over a 2 hour-duration stock market crash or currency devaluation event. Rather, what happens is that the ownership of that wealth shifts, as apparent wealth, or paper promises for wealth, gets destroyed.
What we have is the mother of all ponzi schemes, where holders of paper wealth believe that they are entitled to have access to a certain amount of real world physical things of value. This ponzi scheme is being propped up by the Fed and the 100 trillion dollar plus (quadrillions?) derivatives market. Based on how I put the pieces together, the Fed is able to buy up new Treasury debt and artificially suppress interest rates, while still printing money, while at the same time keeping inflation relatively in check (to tame the masses and keep everyone believing in some magical economic recovery that will never happen), by hiding all that crap in the derivatives, using JP Morgan (apparenlty just an arm of the Fed), and other Wall Street firms. The problem is, this Keynesian activity violates the laws of nature and the crap must be hidden from everyone in the derivatives ponzi scheme, ie. artifical paper entitlements to real assets that could never be honoured in the real world. The crap can’t just be papered away. And the longer this goes on, the longer the artificially low commodity prices will spur overconsumption, which means the final ponzi collapse will be even worse than it otherwise would be. Rob Kirby explains the Fed’s ponzi scheme well in his Elephant in the Room article,
http://www.financialsensearchive.com/fsu/editorials/kirby/2009/0804.html
He also just wrote another great article on the topic:
http://news.goldseek.com/GoldSeek/1309532700.php
I also like Eric Sprott’s recent analysis of the silver take downs,
http://www.industrymailout.com/Industry/Home/5274/22439/images/0611%20Caveat%20Venditor.pdf
The take home message I am getting at is that economic collapses do not destroy wealth; they redistribute ownership of it. The destruction of actual wealth has occurred over the last few decades due to misallocation of capital and consumption patterns; the final crash is merely the “wake up call” where the market realizes what has happened. So the key to maintaining your prosperity is to correctly predict where that wealth ownership redistribution will go (hyperinflation or deflation? In a world of increasingly scarce resources where real prices have been suppressed low for decades by Fed monetary intervention, I have a hard time believing all those new trillions of dollars being printed are going to deflate, and when that money printing must go up exponentially so if and when interest rates rise, and they must at some point, when the derivatives scheme crashes and the dollar is to continue to be the central unit of the monetary system). I just don’t see long term deflation being possible in this scenario.
True, gold is not a valuable productive asset since it doesn’t do anything. Rather, productive farmland, fisheries, factories, and mineral and energy resources are productive assets. Those are the things people will be scrambling to gain ownership of when the phony paper ponzi scheme crashes, because those are the things the paper wealth is supposedly representing ownership of (but cannot possibly fulfill those obligations; that’s why they are printing money and suppressing interest rates!)
I think a well rounded portfolio in all those things could not go wrong in the medium to long term; after all, what else of true productive value is there in the world to have ownership of? And gold and silver will be another hard physical asset which people will automatially flock to when they lose confidence in paper ponzi schemes, so whether gold will form the basis of a new monetary system or not (I hope not, IMHO) is irrelevant for me right now, the point is that it is well positioned to be on the receiving end of a major wave of investment sentiment.
Chris, I always enjoy reading your stuff because it is interesting, analytical and well reasoned. However, I think that your own analysis proves why gold will never revert back to the basis of a monetary system.
Firstly, you admit that the size of the world economy is vast in comparison to the available gold to back the return to the gold standard and couldn’t possibly sustain the world economy.
"In 2008 the total amount of money stock in the world was roughly $60 trillion.
If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.
Clearly that's a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce."
But let us assume for arguments sake a country, for example, Poland, decided to revert back to the gold standard. Of course, gold bugs everywhere would be delighted and pile into the Polish Zltoy with abandon. Moreover, given the state of the Euro and the American Dollar, even non gold-bugs would pile into the Polish Zltoy. The Zltoy would skyrocket in value vis a vis every other international currency in the world. The problem is that such appreciation would kill the competitiveness of the Polish Economy. Secondly, the Polish Economy would be held hostage to the vagaries of the price of gold. If the price of gold appreciated to $6,000 per oz as you and other suggest might happen it would make it impossible for the Polish Economy to compete, on the other hand if Poland decided to peg its currency to the price of gold at say its current value of $1,500 per oz, and the price of gold collapsed to $400 per oz then the flip side is that inflation would suddenly become a huge problem. Morover, the value of the price of gold has more to do with the percieved inflationary risks of the US Economy than the fundamentals of the Polish Economy. Try managing the Polish economy based on these bizzare influences. It would be chaotic.
My view is that as a store of value and a medium of exchange, gold was great while it lasted. It served its purpose, but it does not have a place in the modern international economy. As you yourself have pointed out there is not enough of it to serve the world economy’s needs. For another it’s not flexible enough to manage the dynamics of the modern economy. Whatever your criticisms of Bernanke and the Feds monetary policy. So far it has kept the world out of the second great depression. If the world had been tied to the gold standard as it had been after the First World War it would have guaranteed that the world would now be grinding through a depression even greater than the 1930s.
Moreover, it is my belief that what is holding back the United States from a full recovery is the intransigence of the Republican Right. There are solutions to the mess we find ourselves in. You don’t have to be Milton Friedman or John Maynard Keynes to figure that out. Simply raise taxes and cut spending. The problem in the United States is not economic but political. Ask yourself what would happen if somehow, mysteriously and magically, Congress behaved like adults and sat down and worked out a credible plan to reduce the debt and tackle entitlements and spending. Within a year or two the crisis would be over and the United States would have regained the crediblity that everyone - even the Chinese want the United States to have.
The problem is not the debt, its not the Chinese, or Iran, or Al Quada or anybody else. The problem are those bozos in congress who will do anything to seize power. Even kill America to get re-elected.
As for your thesis regarding the eventual collapse of the world economy because we are squandering our resources, I fully subscribe to that. In my opinion you are dead right.
One final thought, you may be right that in the end that the world returns to the gold standard, but this would presuppose a total collapse of the international economy. However, I don’t think owning gold would be much help. Chaos would reign supreme and it’s quite possible we all would have reverted back to barter anyway. I don’t think there is anything one could plan to survive a situation like that. It seems to me skills, in such an economy would be worth more than anything that gold could buy.
There is a conspicuous absence of comment on the liklihood that no nation will allow its paper currrency to be supplanted by gold and silver coins or bullion and that those of us who have bought into this seemingly no brainer investment will find out NOT that our bullion is confiscated, but its profitability is much diminished by taxation, dealer’s spreads, capital controls, and other oppressive legislation by the state. There is already ample evidence of this liklihood. Try to buy or sell a silver bullion coin in the UK. At the minimum you will be subjected to the dealer’s premium, a VAT currently at 20%, and capital gains tax. My question is why dont the pundits (Chris, you are one) address the extreme liklihood that the governments will legislate in draconian fashion to minimize and take for themselves any gains the average person holding bullion is expecting for themselves. We see this starting with the collectibles tax on undocumented “taxable” events with its implied penalties of not reporting. We see it in the 1099 legislation starting in 2012 (and probably retroactive investigations) on sale of bullion products. If you are investing in the BullionVault type systems, you still have to return your sales proceeds to the US bank that you you originally funded your “segregated” purchase from . Now this is not paranoia. The kleptocracy which masquerades as free market economies will not let you benenfit from your farsighted bullion purchases. They will legislate it away from you. You will need to buy their paper at the price they determine. So maybe its just an oversight on the part of the gold and silver advocates, but the lack of foresight about what governments will do is a glaring lack in the discussions. I bought gold and silver. I am really wondering what the government will take from me when I try to convert it. I prefer this be discussed and all possibilities aired, not just the confiscation scare.
‘The only truly long term store of value is productive capacity.’ -rhare
I copied that and posted it on my desktop.
Excellent post ao. I would add that geothermal energy diversifies your energy self sufficiency, is largely protected ( unlike solar and wind ) and can not be easily stolen because it is underground or inside your house. Also, keeping a sizable portion of your assets in cash allows you to pay the surprizing increase in real eastate taxes and other levies municipalities will charge those who have adequately prepared. It’s all in the balance.
This is a central failing of your reasoning. My PMs are not “excess”, they are finanacial assets that give my family and me a measure of security. I’ve reached an age where I need to seriously be thinking about how I’m going to survive when my physical and possibly mental abilities wane. All the tools and land in the world aren’t going to help me if I can’t use them. Having financial assets allows me to hire or work out some kind of exchange with those who still can do the work. Your dismissal of the value of financial assets in general and PMs specifically is frivolous and lends no credibility to your argument.
I might add more generally that people here are not addressing the reality that when governments become more predatory in acquiring our wealth, as they are reasonably sure to do, the existing and thriving black markets in this land will grow, perhaps exponentially. Remember, practices like barter are technically black markets. They are taxable events, though rarely taxed because of the difficulties in doing so. As gov’t practices become more confiscatory, people will find alternatives and substances of traditional value will come to be useful in those markets.
Doug
I came back from the long weekend ready to start this conversation back up, only to find that you are gone, and we are now debating whether or not savings (of any kind) is a good thing (seriously??? ) and religious dogma’s place at CM. On a PM Special report from CM no less.
sigh
See ya around buddy, I’m out.
@Captain Sheeple (JAG)Nice try, but as most of the people as you said our whole live (the last generation) have been in paper market. And is clear from your post that you still live in this paper market. And yes the speculations you mentioned will continue to work in this paper fiat market. And this is the biggest weakness of your argument.
As I said when you change your perspective i.e. starting to measure your well being by the real material world not by the paper-pipe dreams then you wll find that all your arguments vaporise and become thin air as all the fiat becomes sooner and later.
And yes USA $ is just the next in line… it can happen here, it happened almost everywhere in those last 30-40 years that you prize as perpetual motion machine… do I have to name it … South America, Asia, Eastern Europe, USSR…all of them experienced hyper or high inflation periods… many currencies disappered.
I’m not saying dollar will disappear just I’m sure it will devalue enought to kill the bulk of the profits of speculators who didn’t exited in time…
Again the main mistake most people have is using the wrong measuring rod.
PS> the reason of the long term downtrend in gld was not some miracle of new fiat-paper, but the invention of the microprocessor and technological advances that allowed cheap oil and the followed increase in world wide productivity. This is now tipping off combined with continuous griding steadily increase of the cost of the energy.
The only way this can continue now is something on the scale of “personal cold fusion reactors” if that is ever possible 
We may be able to find some sort of cheap energy along those lines, but it will be long after current looming crisis is history, something like 30+ years in the future.
I wonder why Christianity is so offensive to people here? I mean, one line in a lengthy post, and everyone jumps him?!?Some people here need to wake up to the fact that ALL discussions are both political AND religious, especially discussions involving economics and wealth.
This is because one’s axioms, that which is taken for granted in the subtext of every argument, are rooted in one’s religion, whether that be Christianity, Islam, Statism, or one of the other smaller players. I’m actually surprised this isn’t obvious to such an astute group.
We do not interpret data or form opinions in a void.
On the gold issue, I’m of the opinion that 10,000 years of history won’t turn on a dime, i.e. gold will not somehow be worthless this time around. Of course, how do we know the current price is not the product of manipulation to some end we do not currently know about?
Personally, I’m not worried about being able to sell it later, even with all the imaginable tariffs, taxes, etc. The government’s ability to enforce laws is limited to its ability to use violence, and I think if the “situation” gets bad enough I’m selling gold to make ends meet, the government will have it’s hands full just trying to exist. There already exists a vast blackmarket, in many goods, the government is unable to even slow down. Most of a government’s ability to rule comes from fear, and when people realize just how impotent their governments are, that fear starts to dissolve.
[quote=Ready]
I came back from the long weekend ready to start this conversation back up, only to find that you are gone, and we are now debating whether or not savings (of any kind) is a good thing (seriously??? ) and religious dogma’s place at CM. On a PM Special report from CM no less.
[/quote]
Apparently, this thread got cleansed just a bit, in case ‘yall thought I was smokin’ the cleaning rags again. I’d edit the previous post, but I guess it’s been too long.
On grey/black market value of gold, it’s been said that the illegality of trade would lower the price. While this makes some sense, I cannot think of any other item that gets CHEAPER on the black market.
Value is not what the spot price says, however, it is exactly how much the person you are trying to sell to will pay for it.
On eBay, gold fluctuates, but recently has been quite reasonable-
http://goldkrugerrandferret.com/gold-krugerrand-price/
In the recent past, ebay was very pricey for Krugs, even though the supply was high.
Has anyone attempted to use silver ounce coins to pay for goods/services? I’m of the opinion that much would depend on the clerk. When I was a cashier, I would have paid for the customer’s goods out of pocket, and kept the silver, but I’m not sure anyone would recognize real silver today.
So if silver right now is at $35/oz, but you can only trade it for $20 worth of goods, that tells you the “street price”, so to speak. Or maybe you can get $40 worth of goods? Anyone tried this recently?