Monday, January 20, 2014

What's All This Gold Stuff, Anyway? Who Cares?

A commenter dropped by to say a few words that I think could lead to a long, long discussion:
Never understood the fascination with gold. You can't eat. You can't use it. You have to convert it back to fiat to spend it. Not easy or quick to do either, you've got to ship it to a dealer, wait for your check (weeks), then cash it at a bank. Gold is simply useless for the average person, it's not even a good store of value since you must "time" it's purchase and sale quite right or you'll loose money. And then you've got that ridiculous hassle to convert it back into fiat in order to actually use it.

Who cares what the prices of gold is? It's fabricated, manipulated and subject to all sorts of intervention, including confiscation. Gold bugs just don't get it. It's useless for all practical purposes for the average Joe. Sells at junk jewelery prices too in a collapsed economy. It's not "worth" anywhere near what everybody claims. It's a pain in the ass.
You can't eat it?  Check (more or less).  Can't use it?  Check (again, more or less)  You have to convert it back to fiat to spend it?  Not by a long shot.  There are many places around the country where you can spend gold or silver today (example).  Yeah, you'll probably have to bargain and not just plunk down whatever the price tag says, but... so?  Not easy or quick to do either, you've got to ship it to a dealer, wait for your check (weeks), then cash it at a bank?  Again, nope.   Talk about timing your purchases for yield and converting it back to fiat are all based on treating gold as if it were an investment, like stocks.  It sounds like the weekend, cable news, stock market shows. 

And we diverge more from here.

Look, I would never suggest that people buy gold and ignore other aspects of their "preps", but I do think gold has its place.  The biggest drawback I see to gold is how dense in value it is.  You can easily carry around $10,000 in one hand.  The bad side of that is: so could anyone who robs you.  With a one ounce coin being worth $1500 today, you'd have to shave off grams of it to spend it, but to call it "useless for all practical purposes for the average Joe", is just plain wrong and ignores not just lots of history but also current events.  The gold producers have responded to the need for grams of gold by producing "cards" of five or 10 one gram pieces scored for easy separation (here, for example). 

As recently as back in 2009, they said folks in Zimbabwe were buying their food with gold.  The rate in that link was that 1 gram of gold would buy 10 loaves of bread.  When Argentina had their currency collapse, Ferfal reports that even junky gold jewelry was still usable as barter material.  When something has been a dependable fact for 2500 years, it's not crazy to think it will continue, so I think gold will still make good barter material. 
It has been said that an ounce of gold buys today about what it did at any point in the past.  Stephen Harmston, former economist at Bannock Consulting, wrote that “across 2,500 years, gold has retained its purchasing power, relative to bread at least” which is seemingly proved when one considers that “It is said that an ounce of gold bought 350 loaves of bread in the time of Nebuchadnezzar, king of Babylon, who died in 562 BC” which is roughly what it buys today, a stretch of 2,500 years.  Likewise, you'll hear that an ounce of gold would buy a good toga and sandals in pre-Christian Rome, and buys a well-tailored suit and shoes today, or you'll hear that a $20 gold piece bought an 1851 Colt Single Action Army revolver, and today buys a good grade gun.
"Who cares what the prices of gold is? It's fabricated, manipulated and subject to all sorts of intervention, including confiscation."  That's true of any commodity.  You don't think fuel prices are manipulated - as best as the traders can?  You don't think food prices are manipulated and food isn't subject to confiscation?  There are tons of prepper horror stories about the Feds raiding homes to seize food for redistribution. 

It's hard to care less than I do about whether you choose to buy gold or not.  I don't particularly "care" about having gold at all, I just think something with thousands of years of history of being valued is a likely to be valued in various future scenarios.  I think commodities that people recognize are what will be used for barter and trade.  That includes pre-1964, American 90% silver coins, in the easily recognizable dimes and quarters, and other silver pieces that people recognize.  People are likely to hear the price of silver regularly and will know American Silver Eagles are money.  A commemorative silver round from a silver caster that only insiders know is less likely to be recognized.  You will likely have to bargain over every silver dime you spend to determine what they're worth. 


  1. Well now. It is a commentary on how badly our sense of value is skewed, when the (former) representation of value - gold certificates, now FRN's - is believed to determine the value ("price") of the real thing. The bankers have been masters of propoganda.

    Take a $1 FRN out of your pocket. What is the essential difference between that and a $100 FRN?
    Nothing. Absolutely nothing but a different ink arrangement. Now look at your bank statement - all those 1's & 0's - they don't even exist as PAPER - just a representation of a representation.

    The printed FRN can be produced with ease, the digital variety even easier - just an entry somewhere.

    Gold, and silver? Not so much. They are both hard to find, difficult to extract. Which is precisely two of the many reasons gold and silver hold value. Perhaps it is the FRN that is fluctuating against gold, rather than the other way around?

    Which then points out that gold is not too compact - it is that the FRNs represented are too many, due to inflation. I think I'd rather have a compact form of wealth than say 10,000 rolls of toilet paper to carry.

    As Wemmick said - portable property Pip - get portable property.


  2. You have to understand that the world, not just the U.S. is in deep economic trouble. At some point economies will collapse and monetary systems will lose value dramatically. When that happens the value of gold will shoot up well past it's mathematical value based on the actual drop in the value of the money. That is if $1500 will buy an ounce of gold and after the crash the value of the dollar drops to 1/10th it's value today, you might think the value of gold would be $15,000 and ounce BUT it will probably go to $20,000 an ounce. This because once this house of cards crashes most people will be so shocked they will be scrambling for something, anything to protect what they have left. So it isn't what you think about gold or what you can trade it for, it's value is in it's ability to protect your assets when the worst happens. Silver will be "dragged" along with the value of gold.
    China is simultaneously buying massive amounts of gold and running up massive amounts of debt. Why? They are betting they can manipulate their currency so that they do not crash before the rest of the world. Then once it all crashes and the price of gold goes up by a factor of 10 or so they will be sitting pretty on a huge pile of gold. Whoever has the most gold wins.

  3. “Whee! This investing stuff is easy!”

    JMR Terry

    1. I'm not sure everyone gets this, but I do. :-)

  4. While I think gold is a reasonable item to have as a part of a diversified portfolio, I think it's very dangerous to assume that it will be a useful hedge against inflation and pile too much into it. The reason for that is that the gold price is and has historically been a good indicator of general sentiment on the dollar, and as such the US and many foreign governments have always taken a huge interest in it. There's strong evidence that central banks are intentionally suppressing the gold price right now, albeit clandestinely. When those efforts eventually fail, as I expect them to, the government isn't likely to just throw up its hands and allow the free market to move the price where it will. That's not what it has done in the past, and that's not what it appears to be doing now. I fully expect that if the gold price explodes, we will see strong, overt actions against gold similar to those the government has taken before. We may not see gold ownership outlawed and confiscation as was done in the US under FDR in the 30's (although that was ruled legal and could easily happen again), but it would be easy for the government to demonize gold owners as economic saboteurs similar to how they portrayed short sellers in 2008, and do something like levy a confiscatory capital gains tax to take 90% of all profits. I suspect the media could even make something like that popular under the class warfare regime they are promoting. In short, I expect gold to respond to the weakening economic conditions, but I think it's very dangerous to assume that the government won't take severe steps against gold and gold commerce when it does. As such, I wouldn't put too much money into it.

    1. You are absolutely correct to fear that the government will make ownership of gold illegal or heavily taxed. The gold issue is global not just within the U.S. so the reasons for buying gold remain in spite of what the U.S. government might do. However the fear you identified is what makes silver (especially silver coinage) a better investment for the common man. It will work as well as gold for the purpose of protecting your assets/wealth but it has some advantages for those of us who are not rich. Hacving said that it is indeed still possible that the government could impose restrictions on silver bullion just as they may on gold. However junk U.S. silver or probably even foreign silver coins should escape the governments temper tantrum. There is the risk of selling it at a "profit" and not paying taxes which would open you up to punishment, however this is the same IRS that knowingly sends out $billions in EITC payments to unqualified illegal aliens and can't seem to even "fix" that little glitch. So you can probably sell small amounts of silver at a time without attracting attention.

  5. Looks like once again the conservative sandwich-heavy portfolio pays of for the hungry investor!

  6. When something has been a dependable fact for 2500 years, it's not crazy to think it will continue, so I think gold will still make good barter material.

    And that is the reason why I recommend people consider precious metals are part of their preps. Not all of their preps but definitely on the list.
    Assuming that gold can't be spend, can't be bartered, or won't be valued; at least to me, assumes there will be no civilization coming back after a collapse.

    I prefer to be more positive in my plans

    1. I think that's exceptionally well said.