Monday, July 15, 2013

Gold is a Crap Investment—Unless...

About gold as an investment, Barry Ritholz said it best:
This is not to say gold is not affected by Macro issues. But that is very different than saying Gld has a fundamental value, an intrinsic worth. It does not. [. . .] Gold is not, and can never be, an investment. It has no true intrinsic value, no cash flow, no earnings, no coupon[,] no yield. What people call fundamentals are nothing more than broad macro analysis (and how have your macro funds done lately?). Gold is the ultimate greater fool trade, with many of its owners part of a collective belief theory rife with cognitive errors and bias. [bold emphasis in the original]
Ritholz is absolutely right: Gold does not have cash flow, earnings, coupons, or yields. Unlike, say, a factory, or a piece of land, gold cannot produce anything; gold just sits there, inert. Though it has a handful of industrial applications, and of course can be used for decoration, gold has no practical use. You can’t eat gold. You get caught in the middle of the Sahara with a ton of gold and not a drop of water? You’ll be the richest corpse in no time.

So just like Ritholz says, gold is not an investment—unless.

Unless what? Unless the fiat currency itself becomes worthless.

It is this possibility—that the novel, experimental and reckless measures being taken by the central banks of the major reserve currencies might well end up debasing the dollar, the euro and the yen to the point where they are as worthless as Weimar-era Deutsche marks—that makes mincemeat out of Ritholz’s perfectly sensible analysis.

The central banks’ screwing with the fundamentals of fiat currency is why gold is a good investment. At this time, in this era of “heroic central bank measures”, gold is probably an essential investment, considering the general direction the global economy is headed in.

Let me be clear: I do not believe that fiat currency is necessarily a bad thing. To my way of thinking, fiat currency is just a tool—and a very useful tool at that, no different from, say, a hydraulic press, or a hunting rifle, or an automobile: Potentially very dangerous if handled irresponsibly, sure—but extraordinarily useful when properly managed and handled with respect for the potential for damage that it can cause.

As I see it, the regime of stable fiat currencies is likely one of the reasons that the world’s economies in the last 100 years have been able to deliver the material prosperity which has raised the standard of living of most of the world’s people, even as that global population has expanded geometrically.

The thing that makes fiat currency so useful is precisely its ability to generate moderate inflation. An inflation rate of 2% to 5% in “advanced” economies, 5% to 8% in fast-growing “developing” economies, is the very fuel of growth and expansion. That inflation of a fiat currency is the motivating factor behind the growth of productivity and efficiency. To my way of thinking, modest fiat currency inflation is the treadmill goading the economy forward.

Consider the material progress that has existed over the last 100 years. Now compare that material progress to that during the preceding 100 years. Or to the preceding 1,000 years, for that matter. Sure, “correlation is not causation” and all that—but are you honestly telling me that there is no causal relationship between a relatively stable currency regime over several decades, and an upswing in productivity during the same period? If that’s not the case, then please, explain why the Middle Ages were economically stagnant?

Now, if we were living in an economic period where the fiat currency is not being messed with, I wouldn’t even bother discussing gold as an investment. I would be in full agreement with Ritholz’s analysis, and move on to thinking and writing about other things.

But Barry (with whom I’ve exchanged emails, and who seems to be a great guy and a smart man), while paying close attention to investment fundamentals, is ignoring monetary fundamentals. Specifically, he is taking a cavalier attitude towards the machinations of the three reserve currencies’ central banks over the last four years.

It’s not that gold is such a great investment—it’s not. It’s that the central banks of Europe, Japan and the United States are screwing with their respective reserve currencies something awful—so much so that it is inevitable that it will all end in tears.

Therefore, as an investment to protect against a catastrophic currency collapse, gold would be far and away the smartest bet.

If we were having this conversation during, say, the Recession of 1958, I’d be with Barry: “Ignore gold”.

But this is not an ordinary recession: This is a balance-sheet depression which is being exacerbated by Federal government debt monetization (otherwise known as Quantitative Easing).

Look, before 2008, the only times I’d ever thought about gold was when I was buying something for my wife or one of my girlfriends—

—but that was before Quantitative Easing I. That was before Quantitative Easing II—that was before Operation Twist—before QE-III, and before QE-∞.

Now? Gold is the absolute best and only bet against currency collapse—which is coming, courtesy of central bank irresponsibility.

The central banks have collectively decided that they have to “fix” the economy, rather than letting the chips fall where they may and allowing capitalism’s creative destruction to do its thing. The Federal Reserve, the European Central Bank and the Bank of Japan are all trying to, a., protect the banking sector at whatever the cost, b., finance (by way of debt monetization) the fiscal deficits, and c., have the economy grow back to where it was before 2008.

In other words, they are reneging on their obligation to protect the fiat currency, and instead are engaging in “heroic measures” for political purposes.

That is why gold is a good investment. It’s the only thing that will remain valuable, once the central banksters “experiments” blow up in their face.
If you’re interested, you can find a much more thorough analysis of possible hyperinflation of the dollar at my site The Strategic Planning Group. At the site, I gameplay possible strategies to protect yourself, if and when the dollar crashes.

45 comments:

  1. Well Gonzo, there is one potential fly in your pro-fiat money ointment. EACH and EVERY fiat money experiment throughout history has eventually FAILED in total and utter collapse. EVERY SINGLE ONE.

    Can you think why? Its the fallacy that humans can be responsible beings when dealing with devices that give them enormous power. It is not for no reason that it has been said, "Power corrupts, and absolute power corrupts absolutely." Fiat currency is not just just another "tool" like you say - it's a tool that gives some selected people enormous power. If you think it's just a "tool", you are ignoring human history.

    And although I think you're a smart guy and know a lot, yet your pro-inflation sentences reveals you still have a lot to learn about monetary system. And what you say about improved life is correct from a western perspective, but I doubt life has improved in the so-called "third-world" nations. The west has benefited by enslaving and robbing resources from the rest of the world using the paper money scam. Yes it's SCAM no matter how it is dressed.

    Enjoy your blog BTW. Please gain some more knowledge about currency systems.

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    1. Well, Gordo, guess what. Every gold currency system in history has also failed, as evidenced by the fact that there are exactly zero such systems in use today.

      Which is not to dispute your point that fiat systems are dangerous. But gold itself, once being officially recognized, is also a fiat currency, albeit one whose quantity in circulation cannot be expanded as easily as a paper currency.

      In my view, gold is presently occupying its proper niche in human affairs. It is a highly valued commodity with money-like qualities, but whose price is subject to market forces. This makes it an ideal hedge against abuse of paper currencies.

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    2. gold is/wasn't a fiat money system. it's use grew naturally out of peoples acceptance of it for commerce, no govt was involved so it wasn't a fiat system. the various governments ended it because they couldn't control it. it didn't fail. a fiat system is one where someone says you WILL take this (whatever) as money.

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    3. Indeed, gold hasn't failed at all. I can pick up a gold coin from the 19th century, and it's still quite valuable even if it's in terrible condition. On the other hand, nearly every single paper currency from the 19th century is utterly worthless, and what few aren't are almost completely worthless (even a US $1000 bill from 100 years ago, in absolutely perfect condition, isn't worth as much as 50, $20 gold coins from the same year, well worn).

      Correlation is not causation, indeed. The fiat 20th and 21st Century have seen the most horrible wars and governmental mass murders of all human history...financed by fiat.

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    4. "Please gain some more knowledge about currency systems."

      You should take a bit of your own advice. The problem is not and has never been a fiat system. One of the most successful money systems ever devised was Colonial Script, a Fiat system. It was so incredibly successful that the most significant war in England's history was fought over it. It was so incredibly successful that the history behind it has been virtually erased from time.

      Whether it's Gold, Paper or Tally sticks does'nt seem to matter much. What matters is the Character and Morals of the men behind the money.

      A fiat system or a reserve system or 100% backed Gold system. It makes zero difference as long as the same group or "tribe" stays in control.

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    5. In reply to Helix's claim that "every gold system also failed since none are in existence today", what total nonsense!

      In fact every gold (or silver) system that failed, did so BECAUSE they eventually stopped mixing gold/silver into the coinage / backing currency with gold / silver.

      In fact, its precisely BECAUSE they stopped gold/silver backing (either by alloying or storing gold against currency floated) that these eventual fiats collapsed.

      Therefore, you might be more correct if you'd stated that all gold systems stopped being one and therefore ou don't see one today!

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    6. there are exactly zero such systems in use today (gold/silver) because of legal tender laws, the goverment use its force to make people use paper as money, gold don´t need legal enforcement to be money, neither silver, because they are money freely chosen by the people, paper need legal tender laws to be money because they are a promise (backed by the words of politicians)

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    7. Helix--Gold didn't fail. It was driven into the cold by monetary usurper, think Kings, governments, etc. It's very success was envied by them. Limiting their power. It had to go as it gave too much freedom to the folks.
      Anonymous is right.

      GL says--"If that’s not the case, then please, explain why the Middle Ages were economically stagnant?" Easy, It was the people's belief system that was impeding progress. Their reliance on the Church and Government authority was a dumbing down factor. The age of Enlightenment followed. Belief systems, the accepted paradigm, changed. You are a prisoner to your beliefs. Everyone and I mean everyone acts consistent with their beliefs. Idiots listen to what people say, wise men watch what they do!

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    8. Anonymous, says---"Please gain some more knowledge about currency systems."

      "You should take a bit of your own advice. "

      YES, YES, YES!!! Your wisdom is with out equal in the whole of the realm.

      Boy, this Anonymous guy is really smart.

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    9. "Hyperinflation takes place ONLY in a peripheral economy and cannot take place within the core economy. Everything would collapse long before hyperinflation would unfold.

      Gold has not risen sharply yet simply because the world is not ready to grasp the idea that government debts are not stable. Once they realize that fact, gold will rise dramatically just as it did from 1976 at $100 into 1980 reaching $875. Such an advance today from $1500 gold would be $13,125 gold"

      -Martin Armstrong

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    10. Helix, the gold system did not fail. It was undermined, and eventually replaced by central banks because it was working too well. Under a gold standard, countries that consume more than they produce will eventually see their gold supplies dwindle down to zero. Had Nixon not closed the gold window in 1971, the US would have eventually defaulted on its gold obligations. In effect it would have become bankrupt, the result being that its currency would have become worthless (because it would have no gold to provide holders of its currency seeking to redeem it), and it would lose its coveted position of being in control of the world's reserve currency. This was not a failing of the gold standard, but a failing of the government, which was spending far more money that it had (on VietNam, the space program, and Johnson's Great Society). The gold standard keeps governments honest, and dishonest governments flee it. Gold has a 5000 year history of being money, across almost the entire globe. Even societies that never came into contact with each other all gravitated towards and equated owning gold as owning wealth. Trader from around the globe that did partake in trade generally accepted, and depended on, gold being used as their medium of exchange. You can claim that gold has no intrinsic value and is the ultimate "greater fool" commodity, but 5000 years of history supports that it the one thing that all "fools" are willing to accept in exchange transactions. I'll end with this... if you found a buried treasure chest, would you be hoping that it was full of something like Spanish or French paper currency from the year 1650, or that it was full of gold? If you didn't say gold, I'll call you a liar. Gold not only transcends societies, it transcends time.

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  2. One needs to ask this question in order to actually understand gold v. fiat currency:

    Has an country or other organized group raided, invaded or otherwise gone to war in order to collect said country's fiat currency? When the Japanese raided much of Asia during WW2, did they do so to collect their various fiat currencies or their gold?

    Rewrite the article by using at least one example of a war where gold was not taken, but left in order for the fiat currency to be taken.

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  3. I believe the thing that made fiat currency work so well for the past 100 years was the discovery of oil. Pre-oil, with merely coal for energy, populations and economies were already expanding faster than a gold-backed money supply could keep up with. The expanding economies lead to an exaggerated boom-bust business cycle. The discovery of oil, an even more transportable, more concentrated fuel source, moved the rate of economic expansion into hyper-drive. This made fiat currency both feasible and essential.

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    1. "Work so well..." my ass. a 97% decrease in the purchasing power of the dollar isn't my idea of success. But to be fair, it is a matter of perspective. A guy robbing you of the money in your wallet would be very successful for the robber, but how 'bout you. What made fiat money seem to work at all was that all the governments adopted it, eliminating any competing money. The verdict is still out and it doesn't look good for the accused. Oil, Smoil. However oil did open up a whole new line of productivity. Fiat money (a money substitute) is merely a coupon which can be redeemed for goods. If you have an abundance of goods to balance out the issuance of fiat money, fiat money works. Oil increased productivity, thereby increasing goods. It seemed to work. However, Socialism, government regulations, and a host of other involvements in the free market upset the coupon to goods balance. The bottom line, you still have the theft and that is your eventual undoing.

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  4. Barry Ritholz is another paper pushing jew making his living from keeping people in the paper ponzi scam.

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  5. Gold nor silver was never intended to be an 'investment'. It's a store of wealth or a store of value; take your pick. Fiat currencies are not worth the paper they're not printed on.

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  6. Truly, you are a stupid little man. Please refrain from commenting on both the gold and the monetary system because in just this one post you have made it abundantly clear that you have very little understanding of how the monetary system works and your ignorance re: gold is simply astounding. And congratulations on the most ignorant statement I've read this year:

    "Well, Gordo, guess what. Every gold currency system in history has also failed, as evidenced by the fact that there are exactly zero such systems in use today."

    Are you serious? Or just f-ing stupid? Yeah, every system has failed - AND HAVE YOU NOTICED THAT NONETHELESS GOLD HAS ALWAYS RETAINED VALUE?

    Truly, you are a jackass. Please shut-up. IF you knew anything about how money works you wouldn't be begging for $5 to support this ridiculous blog.

    And thanks for the laugh, btw. That would be AT you, not with you... clown.

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    1. Yeah sure, but could you tell me what you REALLY think?

      GL

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    2. Anonymous (July 16 at 6:59 am),

      Gonzalo Lira didn't write that paragraph, HELIX did.

      GL is not always right (see Hyperinflation prediction), but he is worth listening to.

      Delete
  7. Great Post...Thank you very much ...

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  8. Gonzalo, you have made a fundamental error in your article. you have posited that humans became wealthier during an era of fiat currency, ergo fiat currency made them wealthier. Wrong. oil utilisation going from 1 million barrels per day to 85 million barrels per day is what made us richer, fiat currency has been used to skim the bulk of that increase in wealth into the pockets of the bankers via exponential increases in outstanding debt, the total debt outstanding went parabolic in 1971 once the link to gold was broken, debt has since that time devoured the world's economy,without a debt monster eating us alive we would have been far wealthier, materially, from the exploitation of all that cheap energy.

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    1. Correct. And if fiat money would really make "us" rich, then countries with the weakest currencies would be the richest. Zimbabwe on top. Indeed, that's not the case. Even in the Eurozone the difference between countries with former weak and strong currencies is still visible. I suppose I don't have to explain any further.

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  9. inflation is great...if you happen to be in the inner sactum and standing beside the printing press...but if you happen to be one of the many masses...

    it robs you of your life savings...

    I'm with Gordon all the way...this blog, although getting it right in the most basic way (it is advocating holding gold at this time), leaves a lot to be desired regarding what money really is.

    Gold (and silver to a lesser extent) is the ONE true money. the great free market of history has chosen it as the standard...people need to understand that.

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  10. Gonzalo wrote: "You get caught in the middle of the Sahara with a ton of gold and not a drop of water?"

    The same goes for stocks, housing, investments: you cannot eat them. They're not supposed to be eaten, BTW. Neither is gold. No problem: In a desert, gold could buy you fresh water should you run into a settlement. That's what gold ultimately is: money.

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  11. Everyone correctly protests against the premise that a "modest inflation" is a good thing. What IS a modest inflation? Is 2% good, and 3% bad? Why? Should the numbers be 3 and 4? The reality is, is that ANY amount of currency is sufficient to transact business - that is, there are two prices to every transaction, the currency price and the goods or service price, and that both can fluctuate as needed. Currency, as Rothbard says, is merely another good - albeit, one that, when inflation is caused, the state creates the right to seize the inflation-caused 'gain' from a transaction, i.e. the inflation tax. This is why people hate inflation.

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  12. Wrong. Fiat money is the greater fool's game. Gold prevents debasement, confiscation, AND taxation. Silver, the little sister is actually going to be even more beautiful than it's sister. And as governments deficit spend themselves into oblivion and never can repay the debts... well, you will see. Just wait and see how hard it is for govts to finance with rates rising a couple more %!!!!! Little pieces of paper backed by NOTHING and issued by criminal and BANKRUPT entities (collectivist thieves) is NOT the answer for wealth storage or preservation.

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  13. Minor detail: the European Middle Ages were in fact a period of economic expansion. Only in the late Middle Ages, the economic roof caved in -- in England among other things because of future delivery speculation by Venetian bankers on the production of wool, which went South in a major way when the sheep died because of some infection...

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  14. "A little inflation is a good thing"

    No, not really. If anything, it hinders growth by pushing people to spend instead of save.

    Savings are what provide the capital to invest, and that provides growth. Any inflation distorts the process of capital allocation.

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  15. So, in my experience, attacking someone is the best way to convince them of an error they've made.

    I'll agree with at least a few points of your article Gonzalo. Certainly now is a good time to hold gold, not as an investment, but as a "true bank account". I'll agree that the standard of living has gone up greatly in the past century, but not due to the use of fiat currencies. I'll even agree that there is a "more" responsible way to handle a fiat currency like say under Eisenhower.

    My agreements stop there even though I've appreciated your writings on this blog since it started, particularly your article on the stagflation being close to hyperinflation. As some have pointed out, the rise in the living standard can be far more explained by cheap energy. Not just oil, although it is a huge part of that equation. I also would say coal and nuclear has been a large part of this rise.

    For those that said gold caused the "booms and busts", I'd refer you to the Austrian school of the Business Cycle. You should read "Human Action" by Mises, "A History of Money and Banking in the United States" by Rothbard and "Man, Economy, and State" by Rothbard. You should probably start with the latter.

    To those that pointed out that fiat currency is a tool to steal from the masses, you're absolutely correct. That goes for any government intervention in the market up to and including the government declaring gold the "official" money. Market action should be left to market participants, period.

    I'd add just a couple more things for people to ponder on:
    It's not a coincidence that the century of total warfare was also the century of central banking.

    It's not a coincidence that the income tax was established the same year as the Federal Reserve was created.

    On that note, please continue your postings as ALL of them have provoked reflection and thought.

    Thank you,
    Brent S.

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  16. Gonzalo, you say that gold is protection against the risk of hyperinflation and currency collapse, which is a strong possibility when central banks worldwide finance fiscal deficits and protect the banking sector with an orgy of money printing, and you're clearly right.

    However, that is not the only way gold protects wealth in our current global predicament: being devoid of any counterparty risk, it also protects against debtor bankruptcy, most crucially bank collapses.

    That also is very important for nobody can guarantee that the ultra-easy monetary policies will never be reversed, generating bankruptcies galore among financial institutions, and even if they are not reversed, some bankruptcies will indeed happen nonetheless, just less of them. Restructuring of Greek public debt, confiscation of part of bank accounts in Cyprus are examples, they will probably not remain alone.

    Of course gold is not the only protection against both inflation & deflation. Agricultural lands and forests e.g. also can serve in that role. But gold along with his junior brother silver are by far the most liquid, most portable and easily divided stores of wealth.

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  17. First man says, "I will give you an ounce of gold for that pair of sox that you're wearing." The second man replies, "What? That makes no sense. I can't wear an ounce of gold on my feet."

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    1. That scene is unreal.

      The meme "Gold is money" has been with us for the last three thousands years minimum, after having been invented or rediscovered several times independently in different civilizations (e.g. in ancient Greece and in ancient China). Since then, it has been reactivated each time a fiat currency system collapsed - and that happened quite numerous times...

      Probability that this meme would disappear is exceedingly small.

      As for what happened in the distant past... ancient Sumerians five millenia ago may not have valued gold... but they were also not wearing socks! So that scene cannot even be from a distant past :-)

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  18. Gold pays no dividend. It won't fill your gas tank. You can't wear it as a shirt. So what good is it? The only use I've ever found for it is I bought it at 314 and sold it at 1380. What good is that? It didn't clean my teeth or wash my clothes. I just don't understand why anyone would be for it. Blah blah blah.

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    1. Anonymous says---"Gold pays no dividend. It won't fill your gas tank. You can't wear it as a shirt." GASP!!! I can't believe what I just read. I think you are one of those agents that denigrate gold on websites just to mislead the folks. "Gold pays no dividend." RUBBISH, HOGWASH--gold pays a big big big big dividend. It prevents governments from waging WAR, which has killed millions and millions of good folks. It has promoted stability, civilization, and morality and justice. How dare you say that it pays no dividends. In your propagandized little brain, you only look at dividends in a monetary sense. AIR pays no dividends, but I can definitely say it does, big time. AS for the man with socks, he may not sell you his for that reason, but if he has two pair you can buy the extra pair with gold. But in today's world you don't need gold, just steal it, in fact, just steal both pair.

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  19. Gold is valuable because the market says it is. Not because some government says it is or is not.

    History uniformly confirms all fiat currencies eventually fail. It also confirms gold never has failed as a medium of exchange and store of value.

    Central banks hold gold in their vaults because it is highly liquid and always acceptable to other central banks for settling accounts. It also settles accounts even when government fiat off the printing press is not accepted by others when debased.

    Argue as you like against history and actual behavior of central banks -- gold is always accepted in payment. Paper is not. The gold standard never ended. It only ended for ordinary people, and then only because governments made their own cheap paper the only acceptable means of payment for debts pubic and private. Remove that legal fiat and paper will be rejected in favor of coin. Always.

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  20. Gold when held by a broker/ETF or the like has a big potential to be a crap investment. Gold when held personally by the individual has the potential to be an insurance policy against fiat.

    The reason for this statement is that the gov can always change the rules to make holding gold illegal (like FDR did), or highly taxed (like windfall profits for oil a few decades ago).

    The financial institutions are chartered by the state, and have to obey the new rules. When individuals hold gold, they have the choice of folding or going underground.

    Basically, I agree with GL's thesis, but I couldn't help adding this qualification.

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  21. It is amazing that a person so truly incompetent about economics as Mr. Lira bothers to write on economic

    subjects... Most of the idiocies in this article have already been debunked by those who have commented on

    it but I just cannot resist doing it myself too.

    1) Gold is NOT an investment. Anybody who presumes that it is one and compares it with various different

    investments is an ignorant idiot utterly incapable of thinking. Gold is money and nothing else. It is not

    a commodity - don't get me started on this one. It is not water (so your can't drink it in the middle of

    the desert) and it is not food (so you cannot eat it). It is not even currency. It is just money. It is

    useless in situations where money is useless (like needing water in the middle of the desert with noone

    around to buy it from) and it is the best form of money where money is necessary.

    2) Gold, by itself, will not make you rich - ever. If you own 100 ounces of gold and the paper currency

    collapses around your ears, you won't be any richer. Your gold will buy roughly exactly as much as before.

    It's just the holders of the paper currency that will be poorer than before, since the (hyper)inflation

    has destroyed the purchasing power of their meaningless colorful piece of paper that they mistakenly

    though was money. Gold is not a means for the poor to become rich. Gold is a means for the rich to remain

    rich. OK, this is generally speaking, of course. In a real collapse, things are much more complicated.

    Food disappears because people are hoarding it and wouldn't sell it for any kind of money - not even for

    gold. The market gets illiquid and huge distortions occur. The buying power of gold might have a downspike

    - or it might spike up unreallistically. People buying gold might insist on paying the same price for

    investment-grade gold (99.99%) as they are paying for jewelry-grade gold (14-18 karat) simply because the

    only gold most people have around is jewelry and there isn't enough of the investment-grade stuff to make

    a separate market. In a collapse, it is better if you and your gold manage to be elsewhere, instead of

    being caught up and hoping to survive from your gold savings. But, in general, in the long run, gold is

    the best form of money that will preserve purchasing power through a currency collapse.

    3) Inflation is "necessary"?! That's so ridiculous that I am at loss of words... How is the disappearance

    of purchasing power "necessary"?! Imagine how much more you as a person or your business would be able to

    afford to do if your purchasing power stayed what it was (or increased as your labor created more wealth)

    instead of slowly whitering away! Inflation doesn't "fuel" growth. Real growth can, in some cases,

    overcome inflation - if it creates so much wealth, that the existing inflation does not manage to eat it

    all. Consider the computer industry, which has been in constant deflation (the price of the unit of

    computing power has been falling precipitously) for decades. So, according to you, it should have

    regressed out of existence by now? You must be truly blind!

    4) The Middle Ages were not stagnant because countries were on a gold standard. They were stagnant because

    countries were ruled by monarchies and dogmatic religions who were not interested in any kind of change.

    As soon as the religion's grasp weakened (because of the many religious wars) and the monarchies weakened

    (because the exploited and impoverished masses simply had enough and decided to start removing the

    opressors), we got a Renaissance and an Industrial Revolution. While, note, still being on a gold

    standard.

    ...to be continued, because there is a stupid limit of 4k characters per reply...

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  22. ...continued from the previous comment...

    5) Gold is not "another fiat currency". Gold is money chosen by the free market millenia ago. Yeah, it happens to have some physical characteristics, which make it a convenient money instrument - which is probably why it was chosen. But that's not the point. The point is that, in order to have prosperity, you have to have a truly free market. Even what is money has to be freely chosen by the market. A system in which the government dictates that gold must be money while the market prefers, say, grains of salt is just as wrong as the current one.

    6) There is a very good reason why the central banks have decided to "fix" the economy (or at least to postpone the collapse for as long as possible) instead of "letting the chips fall where they may". Without the central banks intervention, we'd have had a collapse a decade or two ago. The collapse would have been/will be caused by the excesses of the PREVIOUS many decades. It is inevitable. It can only be postponed. So, the central banks and the politicians have only one choice - do nothing can let a huge collapse happen now, or do whatever they can, and let an even bigger collapse happen on somebody else's watch. If you were them, wouldn't you do exactly the same?

    7) GOLD IS NOT AN INVESTMENT!!! GOLD IS MONEY AND NOTHING ELSE. Get it in your dumb head, already!

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  23. Most gold is owned by the "elites" - so, with the majority of us "non-elites" buying and trading in ONLY SILVER - we effectively cut-off the "elites".

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    1. That could be the dumbest statement I've read on here, truly... You need to be walking in the footsteps of giants... not poor shrimps with a handful of silver. Silver will not track gold in the coming inflation shit storm. If you think you will overpower the "elites" and central banks with some junk silver, you're going to be sitting in a gutter holding your pecker wondering what just kicked you in the balls...

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  24. The problem with people who discuss Gold do so without understanding what it really means to the countries in Asia like India, Pak,China,SriLanka,Burma etc. For all these heavily populated countries Gold holds much more relavance than just being a valuable metal. Firstly Gold is seen as Godess of wealth. Gold as well as Silver is key to all the weddings that take place there.Huge quantities of gold in the form of ornaments are given away as Dowry, which acts as an insurance for the Bride in case of financially difficult times. She can then sell it or pledge it for Cash which acts like a short-term bank overdraft. in these countries no bill need be shown for purchase or sales. they act as parallel economy. Since most wives are merely house-wives and do not go for work, Gold acts as the best form of insurance against bad husbands who may not provide for household running expenses, also against drunkard husbands who have lost their jobs. This has been proved right for over 5000 years in Large countries like India and China. No wonder India alone has as per recent estimates more than 20,000 Tons of Gold saved over all these years.You must all please understand that there is always a parallel economy in these countries where they trade as well as park their Black money/ill-gotten money in Gold and Silver. So what ever you say, its relevance will not be lost. As years go by and the middle-class in these economies grow they will only consume more Gold and Silver,notless. please under stand, the middle-class population here is greater than the entire US population,also every year the Non-Resident Indian or Chinese is sending back home humongous amounts of Dollars he has saved working abroad which goes into more savings like buying Gold. Collectively India and China alone receive over $120 Billions each year as remittances from their citizens who work abroad. In India the wealthy eat in Silver Plates use Silver cups and spoons as well as utensils.
    So when discussing gold try to under stand its relevance in its key markets before commenting. Also these countries have high domestic savings rate. Some day in a few years time all the paper shorts on the Comex are going to be doomed.
    Sagar from India

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  25. The "money vs. investment" is the basically flawed dichotomy over which too many lances were broken to no avail.
    As money has more roles beyond just a mean of exchange, so investment often takes on the roles of equity, capital and wealth preservation. Everybody knows this but often forgets.
    Oversimplification doesn't make good for any analysis and only ushers those unfortunate analysts into a trap. Without realizing this the above article and most of the comments are missing the point.
    What a waste...

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  26. Oh, the lively debate provoked by Gonzalo's articles. lol It is as thought provoking as the article itself!

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  27. Ok, I know I'm late Gonzalo , but I have to simply make this comment, because your logic simply seems a little off base. You claim that the fiat currencies' merit is that these enabled the enormous material prosperity we have known over the last one hundred years or so. I would argue that this increase in prosperity has nothing to do with fiat currencies one way or another but with the incredible TECHNOLOGICAL progress that has been made since the start of the industrial revolution. In addition and parallel to that, thanks to the energy revolution in carbon based fuels, we have been able to free up human resources for other productive purposes. Anyway, the US dollar has only been a real fiat currency since 1971, the year Nixon closed down the gold window. During the great depression America was on a gold standard, although US citizens gold was confiscated by Roosevelt in 1933. The real reason for this depression was the contraction of the money supply by the Fed cs by about a third, which really kills an economy. And I agree with others that have posted here before that there is nothing benign about inflation; a 7% annual inflation will leave your purchasing power halved in 10 years, not a great deal really!

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  28. Gold and other precious metals, are a store of wealth, that carry a percentage of speculation with them. Similar to Travellers Cheque's, currency, Bearer bonds and other instruments, you are converting a quantity of wealth in one denomination into a quantity of wealth in another. That relationship may vary with time (hence the speculative nature). If you speculate that the local currency your wealth has accumulated in may decrease in value relative to the value stored in gold, it is a wise investment.

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