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truthisntstupid (94.09)

Historical Gold Prices And Inflation

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February 09, 2011 – Comments (97)

Interesting. No matter what evidence a person presents, they cannot get though to some people.

I'm talking about the loonnng conversation I had here.

http://caps.fool.com/Blogs/gold-is-not-money/534045#previewPost

To me my point was always the same.  Gold as an inflation hedge is not only overrated, but to ignore these facts when arguing the case is disingenuous and deliberately hearing only what you want to hear.

 I spent quite a bit of time putting this table together.   I wanted to show how gold has performed as a hedge against inflation.  I was tired enough of going back and forth by the time I got to 2005 that I figured surely I had presented enough information to make my point. 

What I did was simple.  I used an inflation calculator, here 

http://www.dollartimes.com/calculators/inflation.htm

and a chart showing the historical price of gold, here

http://www.goldprice.net/historical-gold-prices.php

and constructed a table.

1) The first column shows the year

2) The second column shows the average price per ounce of gold for that year.

3) The third column is the most important.  In it I have used the inflation calculator to present the average price per ounce of gold for that year in today's dollars.

What is the purpose in doing this?  Well, it's simple.  Unless you do, you can't see how gold has held up as an inflation hedge. The price history (second column) measures the value of gold in dollars each of those years and every year the value of that dollar decreases.  

Converting the average price for each year into its equivalent in today's dollars isolates the fluctuations in the value of gold itself over the 37 years in question.  Nobody can look at the third column and argue that inflation isn't being taken into account.   The third column gives the price for each and every year in today's dollars.

What's the big deal?  Well, this:  All you have to do to see how well gold performed as an inflation hedge for is to look at the third column.  Say you decide to look at 10-year periods.  There are 27 10-year periods shown here.  If the price of gold as listed in the third column doesn't exceed that of the price listed in the third column 10 years earlier, any gain that was made during that 10-year period wasn't enough to beat inflation.

You can know that at a glance, because the dollars in the third column are all dollars that are equal in value.

I'm also going to add a 4th column, showing the value of a dollar each year in comparison to the value of a dollar in 1971.

 

................YEAR................AVERAGE PRICE...................AVERAGE PRICE.................1971

.............................................................................IN TODAY'S DOLLARS..........DOLLAR

 

................1971.....................$   41..................................$  222........................$ 1.00

................1972.....................$   58..................................$  305........................$ 0.97

................1973.....................$   97..................................$  493........................$ 0.94

................1974.....................$  154.................................$   720.......................$ 0.86

................1975.....................$  160.................................$   665.......................$ 0.77

................1976.....................$  124.................................$   482.......................$ 0.72

................1977.....................$  147.................................$   545.......................$ 0.68

................1978.....................$  193.................................$   671.......................$ 0.64

................1979.....................$  306.................................$   976.......................$ 0.59

................1980.....................$  615.................................$  1731......................$ 0.52

................1981.....................$  460.................................$  1151......................$ 0.46

................1982.....................$  376.................................$    863......................$ 0.42

................1983.....................$  424.................................$    938......................$ 0.41

................1984.....................$  361.................................$    770......................$ 0.39

................1985.....................$  317.................................$    650......................$ 0.38

................1986.....................$  368.................................$    727......................$ 0.36

................1987.....................$  447.................................$    873......................$ 0.36

................1988.....................$  437.................................$    818......................$ 0.34

................1989.....................$  381.................................$    683......................$ 0.33

................1990.....................$  383.................................$    656......................$ 0.32

................1991.....................$  362.................................$    584......................$ 0.30

................1992.....................$  344.................................$    539......................$ 0.29

................1993.....................$  360.................................$    548......................$ 0.28

................1994.....................$  384.................................$    569......................$ 0.27

................1995.....................$  384.................................$    554......................$ 0.27

................1996.....................$  388.................................$    546......................$ 0.26

................1997.....................$  331.................................$    451......................$ 0.25

................1998.....................$  294.................................$    394......................$ 0.25

................1999.....................$  279.................................$    368......................$ 0.24

................2000.....................$  279.................................$    358......................$ 0.24

................2001.....................$  278.................................$    345......................$ 0.23

................2002.....................$  310.................................$    379......................$ 0.23

................2003.....................$  363.................................$    433......................$ 0.22

................2004.....................$  410.................................$    480......................$ 0.22

................2005.....................$  445.................................$    505......................$ 0.21

................2006.....................$  603.................................$    662......................$ 0.20

................2007.....................$  695.................................$    744......................$ 0.20

................2008.....................$  872.................................$    897......................$ 0.19

 

I completed the table as far as I could using the information on historical gold prices that I linked to.  The last year listed was 2008.

 I see, in a 37 year time frame that includes 27 10-year periods, in 17 of those 10-year periods gold lost to inflation.  There were 11 10-year periods where gold lost not only to inflation, but went down in price period.

Look at the third column in that chart.  The fluctuations there can't be blamed on inflation.  Those are prices for the years listed adjusted to show what people were paying in today's dollars.

So when you look at that third column, and think you're hedging against inflation by paying around $1350 an ounce for gold, I think you're gambling.  

Oh, there's a long way to go before it reaches $1731 in today's dollars again...sure.  Maybe it'll get that high again...maybe it'll go even higher. 

But inflation has less to do with it than speculation and the mass perception of it as a safe place to stash your cash.  Again, look at the table.   It's your money.  If you're trying to keep it safe, you'd better look at this, seriously.  It isn't what you think it is.  

I was careful putting this together.  So go ahead....find my mistakes!

 

 

 

97 Comments – Post Your Own

#1) On February 09, 2011 at 10:45 PM, truthisntstupid (94.09) wrote:

People who have bought gold at these levels historically have never failed to be losing money 10, 15, or even 20 years later.   People buying a lot of gold at $1350 an ounce and  thinking this time is different are thinking the all the same things people were thinking in the early eighties.

 

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#2) On February 09, 2011 at 11:25 PM, Dean47 (< 20) wrote:

Well.

One thing is for sure.  That buck from '71 isn't getting more valuable.

Gold has worked well as a "crisis hedge" aka "gov't stupidity hedge" for the last 10 years.  The next 10 probably won't be as great...hopefully?

 

P.S.  I trust the accuracy of the CPI about as much as I trust Congress to balance the Federal budget.

 

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#3) On February 09, 2011 at 11:34 PM, truthisntstupid (94.09) wrote:

Dean

That buck from '71 is ridiculous, isn't it?   

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#4) On February 09, 2011 at 11:41 PM, truthisntstupid (94.09) wrote:

I don't know how accurate the CPI is.  I can vouch for the fact that it isn't ridiculously exaggerated to make the dollar look worse...they wouldn't want to try to make the picture look worse, anyway...if anything, they'd want to try to make it look better.

I remember gas being around 30 or 33 cents a gallon when I first got my driver's license.  I remember a loaf of bread at a day-old bakery that we paid 15 cents for.   But I was a kid, and kids don't pay much attention to things like that...and that's about all I remember that I can pin down to around ...1973 (the year I got my driver's license).

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#5) On February 10, 2011 at 12:25 AM, truthisntstupid (94.09) wrote:

I miscounted.  There are 33  5-year periods between 1971 and 2008.  Simply subtracting 1971 from 2003 told me there should be 32 but that was wrong.

Anyway...

There were 16  5-year periods in which gold gained enough to beat inflation.

There were 17  5-year periods  in which gold either didn't gain in value or didn't gain enough in value to beat inflation.

11  of those 5-year periods gold went down in price and lost money, period.  

Bear in mind the cost of living rose never failed to rise every year, regardless of what gold was doing.  

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#6) On February 10, 2011 at 12:49 AM, checklist34 (99.73) wrote:

truth, this is interesting...  

very interesting...

it probably won't make you too many friends, I think alot of the gold guys want to hit me with a broom.  oh well

I am concerned that from here over a 30 year period gold is likely to lose about 2/3 of its value relative to inflation because its so far above its long term trend relative to the dollar.  Buying it now seems like a bet on a massive bubble to me, and ....

it worries me a little.  

 

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#7) On February 10, 2011 at 12:55 AM, truthisntstupid (94.09) wrote:

checklist

The gold thing bothers me.  I'm old enough to have watched this show before.   This is all a rerun.

 

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#8) On February 10, 2011 at 12:59 AM, truthisntstupid (94.09) wrote:

By the way...I miscounted 10-year periods.  There were 28 10-year periods.  And gold lost to inflation in 18 of them.

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#9) On February 10, 2011 at 1:18 AM, whereaminow (42.76) wrote:

so... what's better than gold at keeping up with inflation?

David in Qatar 

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#10) On February 10, 2011 at 1:40 AM, truthisntstupid (94.09) wrote:

Depends on the level you buy it at...just because it's gold doesn't mean it'll beat inflation no matter how much you pay for it.

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#11) On February 10, 2011 at 3:10 AM, Valyooo (99.63) wrote:

The SPY is much better for keeping up with inflation over the long run.

Awesome blog.  I am long gold because I think it will have one last surge this year or next.

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#12) On February 10, 2011 at 3:11 AM, checklist34 (99.73) wrote:

david,

    stocks.  

http://hackingthebank.com/images/jeremy-siegel-gold.jpg

    I is not smart about the interwebs, and don't know how to show the picture.

    Gold regressed back to $1, according to that chart, after its big peak in the early 80s.  Per that chart as of 2006 it was up to $2, which would make it like $4 now.   I calculated and blogged once that it had gotten cheap, maybe 50 cents even, at its bottom 10 years ago or so, but was probably around $2 now.  Adjusted for inflation, you appear to be paying well over $1 for $1 worth of gold, provided gold eventually returns to $1 adjusted for inflation.  That chart does suggest that over long periods of time gold keeps up with inflation, but stocks beat it.  Thats Jeremy Seigels work, who I am sure is hated by all bears.  The S&P remains below that long term trendline, albeit now just below.  

     I shall boldly soon blog a prediction for the markets over the next few years, lol, which will of course probably not be right...

     But basically its that long term "straight line" (quotes because over short times, like a year or a decade, its sure not straight at all) return for stocks adjusted for inflation...  the first crash of this secular bear, bottoming in 2002, crashed from the bubble down to the long term trendline.  The second crash fell far, far below it, rivaling 1974 or even the 30s.  The first peak (2007) of the secular bear was above-trend again...  The next peak will bounce off the trendline, gun to my head.  

     But bouncing off the trendline in say 2013 or something puts us back to the old highs if not above.  We will be in a secular bear for some time to come, is my thought, but just like the last one we will test or exceed the previous highs (1500ish) before its over.  

     And my, probably far less precise than Porte's, calculation of that trend line and assumption that history just repeats itself, or at least rhymes, wound up basically matching Porte's now-famous chart.  I can't remember what it was but something like S&P 2600 in like 202x or something like that.  I blogged it once a long time ago but I don't know when.  

    Know what else?  if we get significant inflation I don't think it kills stocks this time, that was last time, and talk is fairly widespread now about how stocks eventually catch up to inflation, and if everybody knows that, maybe they won't fall so far behind to begin with.  

    But I bet a severe inflationary episode would give my still-heavily-financials portfolio a bit of a beating.  

anyway, stocks is the answer.  And it will be again, in ten years.  no way to know what happens in a week a month or a year, but from here gold isn't going to outperform for the long run.  Its a momo play now (all momo plays have good fundamentals and a good story), not a value play.

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#13) On February 10, 2011 at 3:14 AM, checklist34 (99.73) wrote:

i think the reason to get long gold here is what valy said:  a bet on it going up over some shortish term. 

its outperformed, hugely, for ten years.  Thats about how long it outperformed the last time it had its day in the sun.  may outperform for longer this time, who knows, but you're paying way up, and when, again, has a commodity that has grossly outperformed for a decade grossly outperformed the next decade?

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#14) On February 10, 2011 at 3:14 AM, checklist34 (99.73) wrote:

how can this only have 2 recs?  its friggin interesting, people, even if you don't agree, some love is in order

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#15) On February 10, 2011 at 3:19 AM, truthisntstupid (94.09) wrote:

I've never shorted.  If you wanted to place a long-term bet on a drastic drop within 5 years, how would you do it?

 

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#16) On February 10, 2011 at 3:29 AM, truthisntstupid (94.09) wrote:

Folks, I can't help that the numbers and the history don't say what you want it to.  Either use mine; or, find another inflation calculator, and another source of historical gold prices, put in an hour or two to do the same thing I did, and you'll get the same results.

I've been trying to tell people this for a year or longer now.  Am I wrong if it keeps going up another year or two?  Or even three?

Why?  I never said it wouldn't.  All I'm saying is you're getting closer and closer to the edge of a historically huge drop-off.  The higher it goes, the bigger the risk.

As I said in the blog I linked to...gold is money only to the same degree poker chips are...especially now.  

Place your bets and be ready to fold.

 

 

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#17) On February 10, 2011 at 3:33 AM, truthisntstupid (94.09) wrote:

Valy

Thanks!  What is the best hedge against inflation?  Knowing when to say when.

 

checklist 

 Appreciate it!  Thanks!

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#18) On February 10, 2011 at 5:21 AM, truthisntstupid (94.09) wrote:

Ready for more?  Ready or not....

 

There were 23  15-year periods in this time frame.

There were 7 15-year periods in which gold gained enough to beat inflation.

There were 16  15-year periods in which gold either didn't gain in value or didn't gain enough in value to beat inflation.

9 of those 15-year periods gold declined in price and lost money...period.

 

There were 18  20-year periods inthis time frame.

There were 5  20-year periods in which gold gained enough to beat inflation.

There were 13  20-year periods in which gold either didn't gain in value or didn't gain enough in value to beat inflation.

There were 20-year periods in which gold went down in price and lost money...period.

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#19) On February 10, 2011 at 5:44 AM, truthisntstupid (94.09) wrote:

The problem with gold is that when the market goes overboard with gold it really goes overboard.  When the fall comes, it's a big one, and people are put off of gold after seeing one of these precipitous drops.

Then many in that generation of investors won't care to repeat the experience.  If they were lucky enough to avoid being among those they watched get crushed, even watching from the sidelines makes them unlikely to participate the next time.

So 15, 20, or 25 years goes by.  Now there's a new generation that didn't watch all this hype go on before.  And there is no getting through to them. 

They'll listen to their fellow amateur economists who think they know better than the academics and respected economists that have spent their entire lives studying economics.

They'll all egg each other on and insult anyone who tries to tell them anything different than they want to hear.  They'll act condescending and point to acions of the Fed and expectations of inflation.

"This time is different."

Sure.   Sure it is.   None of this ever happened before.  Must have been a stupid dream I had....

 

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#20) On February 10, 2011 at 6:16 AM, truthisntstupid (94.09) wrote:

Anyone have any tips on how to short this monster long term?  Over, say 3 years or more?  Can that be done, or is shorting only done over shorter time frames?

Options?  How can I play this.  I know how it ends....and I want a piece this time.

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#21) On February 10, 2011 at 6:31 AM, truthisntstupid (94.09) wrote:

How about puts?  Can I buy one "putting"  it to someone for $1300 in 3 years?  How much would that cost?  Do I have to wait three years if it drops sooner? 

I can find the answers either in books I own or online.  Just thought maybe someone might point me in the right direction...

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#22) On February 10, 2011 at 9:50 AM, whereaminow (42.76) wrote:

checklist34,

What does better against inflation? 

david,

    stocks.  

Right. And if you read the thread he's referencing (which I wouldn't wish upon anybody), nobody said otherwise. I even went out of my way to praise stocks.  I still don't understand why people think you have to love gold and hate stocks. That's just bizarre.

But why does a stock investor get compared to someone who holds gold as money (the whole point of that thread was about money not investments). You compare a stock investor to other investors, gold investors included. Gold investors trade metals and mining stocks. Their performance should be measured in the same way that any other trader/investor is measured.

Nor did the discussion on that thread have anything to do with "inflation hedges."

The question I posed was simple, would you rather hold gold or hold dollars?

Yes, gold has lost to inflation in about half the years measured.  The dollar, on the other hand, has lost to inflation every year. That's what (price) inflation means. It means a basket of goods gained value relative to the dollar.

So what's the point of all this other nonsense? He's arguing against non-arguments.

Valyoo,

Shouldn't the S&P500 do better than gold? See my reply above to checklist.

Truth,

This is that whole part about being intellectually dishonest. No one argued that gold was better than stocks, yet that's the position you present here. Go through the thread. Find where Isaid gold was a better inflation hedge than stocks. Post the comment and comment # below.

Thanks.

David in Qatar

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#23) On February 10, 2011 at 12:35 PM, truthisntstupid (94.09) wrote:

Funny.  I forgot to mention stocks anywhere in this blog or in my comments following this blog.  Of course I should have.  

As far as the blog I referenced goes, the name of the blog was "Gold Is Not Money."

Go ahead.  Read it.  The question wasn't whether gold is better than dollars.  The debate was whether gold was or was not money.

Gold is too crappy at holding value over the long term to be viewed as money.  All many people see today is gold going up.  Sometimes drastically up.   But gold also frequently has drastic moves down.  Nobody's seeing that.

There were two ways to have purchasing power of $279 in 2000.

You could

1)  Have held $279 in cash since 1990.

or you could have

2)  Bought $383 worth of gold in 1990.

You want me to find how many situations like this there are in the above table?  I have to do all the work?  Well.  I already have.  They're all listed above. 

There were 11 (out of 33)  5-year periods in which cash was better than gold.

There were  18 (out of 28)  10-year periods in which cas was better than gold.

There were  9 (out of 23)  15-year periods in which cash was better than gold.

There were  5 (out of 18)  20-year periods in which cash was better than gold.

Holding either cash or gold carries an opportunity cost that can't be ignored.  I would hold neither, but at the price of gold today, I would definitely pick cash.

And remember,  as the table in my blog shows, just because gold does better than cash does not mean it kept up with inflation, because it usually doesn't.  The longer time period you look at, the worse it does.

See comments #5, #8, and #18.

I would say $1350 in cash today will probably be worth more 10 years from now than an ounce of gold will.  I'm guessing that someone "holding gold as money"  will experience rapid devaluation of that "money" in the next 10 years.  

If the past is any indication, $1350 spent on gold today will be something far less than $1350 worth of gold 10 years from now.

That's some mighty expensive money.  

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#24) On February 10, 2011 at 12:38 PM, tekennedy (71.14) wrote:

To play devils advocate... I don't think you went back enough.  During this period additional deposits of gold were found which helped reduce the price of gold. 

In general I agree with you though; gold is affected by more than money supply, it is affected by the supply of gold in the system and the demand of investors and central banks, amongst others.  This leads to far greater volitility and an imperfect relationship between inflation and gold pricing.

I'd personally say REITs, companies that mine/produce a commodity or certain ag companies are some of the best hedges against inflation (as well as buying a house).  Simply saying stocks are a good inflation hedge isn't exactly right as there will be some companies that are hurt and some that benefit from inflation, although it total the group tends to benefit.

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#25) On February 10, 2011 at 1:45 PM, whereaminow (42.76) wrote:

I would say $1350 in cash today will probably be worth more 10 years from now than an ounce of gold will.  I'm guessing that someone "holding gold as money"  will experience rapid devaluation of that "money" in the next 10 years.  

That's certainly possible. Like I said, I haven't made any future predictions about gold prices.

I just want to make clear what (price) inflation actually is.

The currency in question is being measured against a basket of goods. If that basket of goods gained in value, that means the currency lost relative value by comparison.

You are not measuing gold vs. the dollar. You are measuring gold vs. a basket of goods. That's useful indeed. But you also have to measue the dollar vs. a basket of goods if wish to make a gold vs. dollar comparison. Particularly if your are attempting to establish one or the other as superior in keeping up with the cost of living.

In the gold vs. basket of goods comparison, gold wins some and loses some. You've admitted as much.

But in the dollar vs. basket of goods comparison, the dollar has lost 40 years in a row.

So which is the better choice?

And I reiterate that I am making no claim about the superiority of holding gold vs. stocks. They are two different financial instruments.

David in Qatar

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#26) On February 10, 2011 at 1:46 PM, dargus (86.23) wrote:

Let us also not forget those of us holding cash generally don't stick it under our mattress. I make interest on my cash, although it generally doesn't keep up with inflation. With gold, if I'm not holding the physical stuff myself, I'm generally paying someone to hold it for me. I'd like to see a chart factoring in interest paid on cash saving and expenses involved in holding gold vs. inflation.

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#27) On February 10, 2011 at 1:52 PM, truthisntstupid (94.09) wrote:

OK.  I'll address David's complaint. 

This just disingenuous.  Yes, the whole thread was about money, not investments.

The entire argument for gold as money is always predicated on inflation, the money supply, and gold "holding its value."

Yet I'm not to address any of those in any debate about whether "gold is money."

Well, I just won't cooperate.  Without mentioning any of those, they're always there unspoken and assumed to be valid.

They aren't valid.  And without them, the "gold is money"  argument isn't valid either.

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#28) On February 10, 2011 at 2:03 PM, whereaminow (42.76) wrote:

dargus,

I'd like to see a chart factoring in interest paid on cash saving and expenses involved in holding gold vs. inflation.

It's not pretty. Savings accounts have averaged just 6-6.5% since 1971, depending on your source. That brings it in at about 1/2 the appreciation of gold over the last 40 years.  Savings accounts have been clobbered by inflation.

Everybody holds cash. Everyone. You are holding cash balances right now, unless you are completely broke.  You have a checking account, savings account, petty cash lying around. Everyone does.

Truth,

The entire argument for gold as money is always predicated on inflation, the money supply, and gold "holding its value."

1.) It has held its value. You are making the claim it hasn't because you think it will drop. Until that happens, it's held its value (certainly better than cash.)

2.) That's not how I predicated my argument anyway. Gold is money because the market, operating free from coercion, always chooses gold. If you want a paper money economy (which is derived from utopian visions of cheap credit and moneyless societies), then you need a gun to force people to use it. If that's ok with you, so be it.

But when it's not ok with others, why is that a problem for you?

David in Qatar

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#29) On February 10, 2011 at 2:07 PM, truthisntstupid (94.09) wrote:

David,

Going through that table, doing a little work, and finding the 5, 10, 15, and 20-year periods in which cash did better than gold is measuring gold vs the dollar.

Results are found in the last part of the blog itself following the table, and in comments #5, #8, #18, and now also comment #23.

The currency will always lose.  Most likely.  I would choose a low steady inflation over a chance of beating inflation much less than half the time (comment #18)  with the accompanying risk of losing big when gold as measured against a basket of goods is at a historical high.

Also, as I alluded to at the beginning of comment #23, prior to comment #23 I made no mention of stocks in this blog or in the comments preceding comment #23.

I mentioned stocks in the blog I linked to as preferable to gold, but I didn't dwell on it. 

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#30) On February 10, 2011 at 2:12 PM, truthisntstupid (94.09) wrote:

I do not think gold hasn't held its value simply because I think it will drop.

I have shown dozens of examples in which it didn't hold its value simply because it didn't hold its value.

Other people are reading this, David.  They can see with their own eyes the rock-solid facts I have presented.

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#31) On February 10, 2011 at 2:12 PM, whereaminow (42.76) wrote:

The currency will always lose. 

Unbacked paper currency, yes. Why is that?

David in Qatar

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#32) On February 10, 2011 at 2:13 PM, whereaminow (42.76) wrote:

I have shown dozens of examples in which it didn't hold its value simply because it didn't hold its value.

Over certain time frames, yes. I have not argued this. I have merely pointed out that dollars have lost in every time frame.

As you say, other people can read this.

David in Qatar

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#33) On February 10, 2011 at 2:14 PM, Rebkong1 (< 20) wrote:

The problem with this logic..is that using the past to try to figure out the future is FLAWD LOGIC.. America and the world HAS NEVER been in the debt riddled position that it is in... Fiat currencies are being figured out for what they are..and that's worthless...gone are the days when paper can hold value, when the underlying value (governements health and wealth being) of that paper is broken, and unsustainable.

 

Great arguments IF HISTORY WAS INDICATIVE OF WHAT WE ARE EXPERIENCING TODAY...but fact is boys..its not.. we are headed for something YOU HAVE NEVER SEEEN before and gold and silver will be about the only thing, money wise that has ANY value tied to  it..when its all said and done

 

 

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#34) On February 10, 2011 at 2:15 PM, dargus (86.23) wrote:

This debate seems pointless to me. What person with any understanding of finance is holding large amounts of dollars? We hold small amounts of dollars to get us through the short-run, maybe a few years at most. Given the volatility of gold vs. the dollar, truth has highlighted, I tend to agree I much prefer dollars in the short-run. If I were forced to hold dollars for long periods, I'd probably prefer gold unless gold is sitting at historic highs vs. the dollar, as it appears to be now. However, I am not forced to hold dollars or gold for long periods, so I'd choose something else for the long-run.

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#35) On February 10, 2011 at 2:19 PM, truthisntstupid (94.09) wrote:

Comment #33

You are an echo of the early 80's.  See comment #19

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#36) On February 10, 2011 at 2:25 PM, whereaminow (42.76) wrote:

If you're going to use econometrics, you should at least understand what you are measuring.

Your 4th column is the 1971 dollar vs. the dollar of that year. In each year, the value of the 1971 dollar increases relative to the value of the dollar year in question.  It takes fewer 1971 dollars to purchase a 1972,1973,1974, etc. dollar.

That means that each year the dollar loses value.

But loses value to what? It loses value against a basket of goods. It loses purchasing power.

Now, if you take 35 1971 dollars, shiny and crisp, and hold them to today, can you exchange them with 2008 dollars at a rate of $1/$0.19 (4th column), giving you $184.21 in 2008 dollars?

Of course not, that's why such a measurement is misleading. You still have $35. No more, no less.

So you are not really measuring present day dollars versus historical dollars. You are measuring the loss of purchasing power someone experiences by holding dollars.  A person holding dollars from 1971-2008 lost 81% of their purchasing power.

I think gold has done better. Call me crazy.

David in Qatar

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#37) On February 10, 2011 at 2:27 PM, Starfirenv (< 20) wrote:

Troot, et al,- if inflation is a consideration, see this.
http://www.bullionmark.com.au/gold-research/blog/2010/03/31/62-weimar-gold-a-silver-prices-1919-1923.html
It's easy to say this isn't my first rodeo (hey, a Nv thing) but thru all your cycles, how many were looking at the same factors as we today- "historicaly" really doesn't apply, IMHO. Regards

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#38) On February 10, 2011 at 2:31 PM, truthisntstupid (94.09) wrote:

Let me be clear.  If the internet had been around in 1980 or 1981, comments exactly like #33 down to every detail would have been very common.

Fiat currencies, we have never been here before, gone are the days when paper can hold value...

Sorry.  We've been exactly here before.

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#39) On February 10, 2011 at 2:33 PM, whereaminow (42.76) wrote:

truth,

These are simple questions:

1.) Did the dollar lose 81% of its purchasing power from 1971-2008 according to the 4th column of your chart?

2.) How much purchasing power has gold lost from 1971-2008?

David in Qatar

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#40) On February 10, 2011 at 2:39 PM, truthisntstupid (94.09) wrote:

David

OK.  I labeled it wrong at the top of the table.  But just above the table I made clear what it was supposed to be.

I'm also going to add a 4th column, showing the value of a dollar each year in comparison to the value of a dollar in 1971.

Simple mistake.  Everybody can see it for what it is...the dollar losing value over time.

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#41) On February 10, 2011 at 2:46 PM, SkepticalOx (99.45) wrote:

Mentioning stocks and gold... check this out:

 

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#42) On February 10, 2011 at 2:46 PM, whereaminow (42.76) wrote:

There were two ways to have purchasing power of $279 in 2000.

You could

1)  Have held $279 in cash since 1990.

or you could have

2)  Bought $383 worth of gold in 1990.

You said "find my mistakes" right? Ok here we go.

If you had $279 in 1990, you would still have $279 in 2000, but it's purchasing power would have fallen. It could purchase fewer goods.

According to your own chart (again, 4th column), the purchasing power of the dollar fell 25% from 1990 to 2000. You would have $279 alright, but it would buy 25% fewer goods.

So it should read to have the purchasing power of $279 in 2000, you need to hold $348.57 from 1990. 

Do you see how you are going wrong yet?

David in Qatar

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#43) On February 10, 2011 at 2:52 PM, whereaminow (42.76) wrote:

OK.  I labeled it wrong at the top of the table.  But just above the table I made clear what it was supposed to be.

I'm also going to add a 4th column, showing the value of a dollar each year in comparison to the value of a dollar in 1971.

Simple mistake.  Everybody can see it for what it is...the dollar losing value over time.

I got what you meant. I'm showing you your analytical mistake. You said "find my mistake." That's what I'm doing.

I'm showing you what it is really measuring, the loss of purchasing power. The dollar lost 81% of its purchasing power from 1971-2008.

I hope the example in comment #42 makes it clearer.

Just to show how time frames can skew the comparison"

In order to have $872 in purchasing power in 2008, you could have:

1. Held $4,589.47 in 1971 ($872/$0.19) to 2008

or

2. Bought one ounce of gold for $41 in 1971 and held it to 2008

David in Qatar

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#44) On February 10, 2011 at 2:55 PM, dargus (86.23) wrote:

What is the point of this debate? You both seem to understand the value of a dollar decreases over time and the value of gold vs. the dollar fluctuates wildly. If you are going to hold one or the other for a long period of time, you pick gold, but what sensible person holds their savings as any currency?

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#45) On February 10, 2011 at 2:58 PM, truthisntstupid (94.09) wrote:

David

If you confine me to those two simple questions the dollar is demolished.  So what?

The dollar was held artificially low until just before 1971.  I know you know that.  But rather than argue about it, I went ahead and went back to 1971 anyway.  Like you wanted me to in the blog this started out in.

If anthing, that gave gold a starting point that makes it look a lot better than it is.  I accepted that and still found the results I found for the 5, 10,15, and 20 year periods I presented.

For each of those time periods, gold demonstrates no clear superiority in spite of having been held artificially low just before the year in which the table began. 

Even if that weren't true, I'm not and most people aren't going to hold either cash or gold for 40 years.

 They will hold cash to meet short-term needs.  And if I were interested in holding gold, I would be more interested in how it did over time periods that would more realistically represent the time I myself might expect to hold it, along with exactly what its current value is compared to its valuation in the past.

 

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#46) On February 10, 2011 at 3:02 PM, truthisntstupid (94.09) wrote:

skepicalox

The words in blue say it for me

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#47) On February 10, 2011 at 3:02 PM, Valyooo (99.63) wrote:

Rebkong,

What the hell are you talking about?  On average throughout history close to 50% of countries are in default on their debt. Fiat has been around in different forms for a very long time....this is not new stuff.

Gold does not hold its value, it just fluctuates in value, whereas the dollar goes down.  David ,stocks have gone up a lot over long periods of time.  A dollar invested in small caps in 1920 would be worth $7,260 in 2001 (thats where my chart ends). Inflation could not match that.

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#48) On February 10, 2011 at 3:02 PM, Valyooo (99.63) wrote:

Rebkong,

What the hell are you talking about?  On average throughout history close to 50% of countries are in default on their debt. Fiat has been around in different forms for a very long time....this is not new stuff.

Gold does not hold its value, it just fluctuates in value, whereas the dollar goes down.  David ,stocks have gone up a lot over long periods of time.  A dollar invested in small caps in 1920 would be worth $7,260 in 2001 (thats where my chart ends). Inflation could not match that.

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#49) On February 10, 2011 at 3:09 PM, truthisntstupid (94.09) wrote:

re #42

No.  I almost made that mistake when I made that comment, thought about it, and had to change it.

We aren't talking about the purchasing power of $279 in 1990.  We're talking about the purchasing power of $279 in 2000.

If you stashed $348.57 away in 1990, 10 years later it would still be $348.57.  It would only have the same purchasing power as $279 in 1990, but we are talking about the purchasing power of $279 in 2000 - not 1990.

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#50) On February 10, 2011 at 3:21 PM, truthisntstupid (94.09) wrote:

If I put two hundred-dollar bills, three twenty-dollar bills, one ten-dollar bill, a five, and four ones away in 1990, and get them out ten years later....they'll still be there.  They will still be $279 although of course they would be worth less than they were ten years earlier.

That doesn't change the fact that there were two ways to have purchasing power of $279 in 2000.

1) Hold $279 in cash for ten years, which would be more than a little stupid, since you'd be better off spending it than holding it

or

 buy $383 worth of gold in 1990.

 

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#51) On February 10, 2011 at 3:26 PM, whereaminow (42.76) wrote:

David ,stocks have gone up a lot over long periods of time. 

I know. That's what makes this argument so bizarre. Why do I have to hate stocks? I love the stock market. 

The point of all this is that your currency should not have its value eroded away. That's the result of monetary policy.  Monetary policy is the art of stealing value from people's pockets and transferring it to the politically well connected.

That 81% reduction in currency value from 1971-2008 didn't just disappear down a hole. It went to enrich some at the expense of anyone who held dollars for any period of time. (Think of taking a penny from a tray. Then do it 6 trillion times.)

In other words, the average American is 81% poorer today than he or she would be without monetary policy. Conversely, the average American would be 5 times wealthier today on free market money versus paper fiat currency.

David in Qatar

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#52) On February 10, 2011 at 3:28 PM, whereaminow (42.76) wrote:

If you stashed $348.57 away in 1990, 10 years later it would still be $348.57.  It would only have the same purchasing power as $279 in 1990, but we are talking about the purchasing power of $279 in 2000 - not 1990.

Yes, I have that backwards. I get confused too.

But the point is that you lost 25% of purchasing power holding cash from 1990-2000.  Your statement in comment #18 implies that you lost no purchasing power, which is incorrect.

David in Qatar

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#53) On February 10, 2011 at 3:36 PM, truthisntstupid (94.09) wrote:

David,

where have I said you hated stocks?  Also, my statement #18 is correct as is.  If you were fool enough to put $279 away in 1990 and hold it till 2000, it would still be $279, and have the purchasing power to buy whatever $279 would buy in 2000.

Sometimes, it's hard to read something as is and keep our minds from reading things into them that aren't there.

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#54) On February 10, 2011 at 3:37 PM, SkepticalOx (99.45) wrote:

What is the point of this debate? You both seem to understand the value of a dollar decreases over time and the value of gold vs. the dollar fluctuates wildly. If you are going to hold one or the other for a long period of time, you pick gold, but what sensible person holds their savings as any currency?

That gold is an imperfect inflation hedge, if one at all. There have been significantly long periods of times when holding gold would have made you worst off than holding cash underneath your mattress (and this is forgetting the fact that you could've put that money in a savings account earning interest). 

So the question is, if central banks around the world keep printing money like there's no tomorrow, what would be your best bet to protect your savings?

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#55) On February 10, 2011 at 3:45 PM, truthisntstupid (94.09) wrote:

#54

Best bet?  To not fall in love with any one thing, to keep an open mind and change your mind when the facts change, to adapt when you need to.  Hardest of all:  to view facts that you don't like and evaluate them.

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#56) On February 10, 2011 at 3:50 PM, truthisntstupid (94.09) wrote:

I would really appreciate any comments or ideas from anyone regarding comments #20 and #21.

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#57) On February 10, 2011 at 3:51 PM, dargus (86.23) wrote:

Ox,

The answer is neither paper currency nor gold.

David, 

No one says you can't own as much gold as you desire, at least anymore. If you don't like dollars, hold gold and let the government do as it wishes. Why does it matter to you?

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#58) On February 10, 2011 at 4:00 PM, PeteysTired (< 20) wrote:

Good blog Truth -

I think what is interesting is that as a society we are always in search of ways to fight inflation. Buy gold, commodities do this or that.  Why do we have inflation?  Why is it ok for our TV sets, iPhones and stuff...to be cheaper, but our house has to rise in price?  Why are we conflicted when the price of milk falls, but farmers are screaming "we aren't making any money!"

Seems to me if we had a stable dollar prices would fluctuate more naturally with the wants and needs of the consumer pitted against the supply of materials, wages and capital. Of course if we had stable money, then my stock portfolio would probably take it in the shorts :)

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#59) On February 10, 2011 at 4:03 PM, SkepticalOx (99.45) wrote:

#56? You want to short gold? As a retail investor, you could buy long-term puts (LEAPS). 

You could buy puts expiring in 2013 on the gold ETF (GLD) with a strike of $130 (equiv gold price of $1300 around). They're trading at $14 right now so the trade would cost you $1400.

If gold drops to $1000, lets say, and GLD is at $100, you'd have a paper profit of $130 - $100 = $30 x 100 = $3000 - $1600 = $1400 + whatever premium is left on the option. 

You could also structure it in any number of ways at different prices and different strikes.

 

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#60) On February 10, 2011 at 4:03 PM, whereaminow (42.76) wrote:

dargus,

Why does it matter to you?  

I find it both interesting and stimulating on a philosophical level. Which is why I have blogged about it extensively and researched the history of money extensively.

Let me ask you a question:

The government can tax and borrow to raise funds. Why does it need to create currency out of thin air?

Truth,

 If you were fool enough to put $279 away in 1990 and hold it till 2000, it would still be $279, and have the purchasing power to buy whatever $279 would buy in 2000.

Yeas, but it would bought 25% more in 1990. And it buys 25% less goods in 2000.  You lost 25% of real wealth. 25% of purchasing power.

Dollar amounts are not wealth. They are a nominal representaion of wealth. If you held that money over that time period you lost 25% of real wealth.

Does that make sense?

David in Qatar

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#61) On February 10, 2011 at 4:05 PM, SkepticalOx (99.45) wrote:

Whoops...

That should have been $3000 - $1400 = $1600 + the premium still on the option.

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#62) On February 10, 2011 at 4:12 PM, SkepticalOx (99.45) wrote:

You can also short GLD directly. Way risky though (unlimited losses).

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#63) On February 10, 2011 at 4:16 PM, truthisntstupid (94.09) wrote:

David

Of course that makes sense.  In comments #49 and #50 I already acknowledged that.

ox

Thanks!  So, a strike price generally regarded as ridiculous such as gold equivalent of $1000 or $900 - that should be really cheap, right? 

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#64) On February 10, 2011 at 4:22 PM, SkepticalOx (99.45) wrote:

You should read up a little bit on options first before you do anything. Here's a suggestion: http://www.investopedia.com/university/options/.

Honestly, I would not short gold now. At most, just don't buy any if you don't agree with the buy gold thesis, and you're fighting a lot of things trying to short gold. Best option IMO would be to buy out of the money puts (with strikes at $100 or less on GLD - which is like the equivalent of gold at $1000). It's cheap and if gold really crashes, then you'll make a profit. However, I'd buy both OTM calls and puts to play any wild swings if I were to play gold at all.

And disclosure for disclosure sake - I do have a small portion of my retirement fund in gold and metals.

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#65) On February 10, 2011 at 4:31 PM, SkepticalOx (99.45) wrote:

I'm unsure of what you're question is regarding the strike price. Could you clarify?

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#66) On February 10, 2011 at 4:33 PM, truthisntstupid (94.09) wrote:

ox

Thanks for the link!  I doubt if I actually do anything, but then again...in three years I bet I'll wish I had.

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#67) On February 10, 2011 at 4:40 PM, truthisntstupid (94.09) wrote:

#65

I've read very little on options, because I've never been interested in them.   I never found something that stirred such deep conviction in me.  However, what little I have read was years ago, and I'm probably remembering it wrong, but...

Isn't buying puts generally regarded as ridiculously lower than anyone thinks it will go, if I worded that right, usually much cheaper?

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#68) On February 10, 2011 at 4:54 PM, SkepticalOx (99.45) wrote:

Yes. What you are referring to is buying far out-of-the-money put options, or puts with prices that are lower, or far lower, than what the price of the stock is trading at.

GLD is trading at $133 right now. Buying a put option with a strike price at $100 would be buying an out-of-the-money (otm) put. Right now, it's trading at $4 (and since you buy options in lots of 100, $400). It's only "cheap" in the sense of the money you have to put up.

When you buy an equity put option, essentially, you are buying a right to sell a stock at the strike price. So of course a put with a lower strike price is cheaper - you have the right to sell something at a cheaper price (in the above case, the right to sell GLD at $100 instead of $130). Not only that, but the likelihood of GLD trading under $100 is far less than it trading under $130.

Anyway, you should read more on it. From what I read from you in the past, you don't have a lot of investing capital right now. Options have the advantage of limiting risk or increasing leverage an insane amount (e.g., you could be short a notional amount of $13,300 worth of GLD with just $400 - and if say, GLD dropped to $50, you'd have a profit of around $5000 while only risking $400). Check it out!

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#69) On February 10, 2011 at 5:02 PM, truthisntstupid (94.09) wrote:

ox

Thanks.  I will check it out.  I doubt I could afford to do it.  But if I could throw away $400 and limit my losses to that much, giving it three years' time, I might not consider it half the gamble of buying it at $1350.

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#70) On February 10, 2011 at 5:04 PM, truthisntstupid (94.09) wrote:

This may be a $400 lottery ticket well worth buying.  I could afford to lose $400.

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#71) On February 10, 2011 at 5:06 PM, Earendil (< 20) wrote:

Let’s look at the math a different way. 

Before the US left the gold standard (finally in 1971).  The dollar was pegged to gold at $35 to 1oz. So, you could (if legal, which it was not) have held money as 1oz of gold, or $35. 

If you kept $35 in your desk drawer, you would (in 2008) have enough purchasing power to buy $6.85 worth of the same goods you could have bought in 1971. 

If you had kept the 1 oz. of gold in your desk drawer, you could have sold it in 2008 for $897, which would have bought $170.43 worth of the same goods you could have bought with the $35 in 1971. 

In fact, using the numbers in the table, there is not a year in which the 1 oz of gold would not have bought more than $35 worth of 1971 goods.  After the first few years, the purchasing power of the 1 oz of gold ranged from a high of $174 in 1983, to a low of $64 in 2001 (in 1971 money). The 1 oz of gold was always worth more than it originally cost (true, as several commentators said, gold price was artificially depressed in 1971, so it might be a better study to go back to when the dollar floated domestically against gold, rather than internationally). 

In fact, after the first few years, the 1 oz of gold’s purchasing power ranged between 2 times and 5 times its original cost. The $ 35 in US currency, however, lost purchasing power every year. 

There is no doubt, that it would have been better to have held gold than dollars as a store of wealth over this period. 

A quick look at the graph in comment number 41 will also show that it would have been better to have held the 1 oz of gold than to have held a 1971 investment of $35 in a Dow index for most of this period.  Only between 1996 and 2004 would the stock investment have been better than the ounce of gold.   

Of course, the valuation of the holding of the ounce of gold in this example assumes that you could have held it in a tax free environment.  Otherwise, when you came to sell your ounce of gold in 2008, the Internal Revenue would have said, “Aha!  I see you have sold 1 oz. of gold for $897, which you bought in 1971 for $35.  You have made a profit of $862.  You owe us taxes, and not capital gains taxes either (because gold is a ‘collectable’) so pony up 30%  or $259.”  This would have reduced the value of your 2008 sale of your 1 oz. of gold to $638, which would have bought $121 worth of 1971 purchasing power.   

Still, you would be a lot better off than the $6.85 worth of 1971 purchasing power which those 1971 Federal reserve notes would buy you when you finally got them out of the desk drawer in 2008 and went to buy some groceries.

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#72) On February 10, 2011 at 5:07 PM, checklist34 (99.73) wrote:

David,

    I think the answer to your question is pretty simple, and fairly obvious if you think about it.  Mayabe it has a few components:

1.  it is extremely rare to see any stock pick or positive comment about hte stock market accompany a pro-gold commentary, except gold miners silver miners etc.

2.  it is extremely common to see those who like gold predict the end of days for stocks

3.  it is practically never discussed on pro-gold commentaries that stocks have historically handled inflation quite wonderfully

4.  pro-gold sentiment must accompany 80-90% of doom-and-gloom end of days discussions and predictions, all of which seem to not like holding stocks

5.   stock and inflation discussions, gun to my head, 51% of the time or more talk about how stocks fall when inflation rises and 49% of the time or less, maybe much less, discuss the long term ability of stocks to handle inflation better than anything

6.  gold right now is by far and away the #1 thing being peddled by sites and commentators that seem shady or scammy, taking over from real estate 3-4-5 years ago.  I can't remember them ever saying they liked stocks

7.  zerohedge.com

You have to be a little bit out of touch and in denial to really think that people associating pro-gold with anti-stocks is irrational.  Its simply the vast preponderance of the evidence.

all observations are mine and not statistically tabulated at all

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#73) On February 10, 2011 at 5:10 PM, checklist34 (99.73) wrote:

truth, it is not necessarily safe to bet against a huge monster wave of momentum like gold and silver have over a shortish period of time like 3 years...

but the best, and lowest risk, bet would be to buy puts on the GLD or on gold related stocks, long dated.  if you buy the puts in the money and GLD rises, and you sell them when they are at the money, your losses will be minimized.  

if you buy out of the money puts its more "lottery ticket" betting on a collapse in gold prices, but also paying off bigger if a really big collapse comes.  

I would not bet on a big collapse soon, I just wouldn't.  The magnitude of pro-gold sentiment is so huge that it will take some time to wind down, no matter what reality is and no matter what the economy does etc.  

Einhorn is storing physical gold, paulson has a dedicated gold fund, scads and scads of hedgies are all about gold and it msut be the #1 holding of retail investors.  They aren't all going to rush for hte door at the same time... we haven't had the kind of epic parabolic surge that we had in the early 80s yet, and so I don't think the stage is set for a huge drop in gold prices. 

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#74) On February 10, 2011 at 5:20 PM, truthisntstupid (94.09) wrote:

checklist

I know what you're saying, and while I'm unlikely to do it,  if I did do it, I'd want the longest-dated options I could find.  I also wouldn't want to only be able to make money if there was a bad collapse, but my idea of a bad collapse is gold going back to around $400 an ounce.

Looking at its track record, I don't find it so unreasonable to anticipate a fall to at least $800 or less that it would scare me to risk $300 or $400 dollars if I could get a 5 year expiration, if there is such a thing.

 

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#75) On February 10, 2011 at 5:24 PM, whereaminow (42.76) wrote:

checklist34,

Fair enough. I've never felt that way and never will. The stock market is the primary capital allocation mechanism in a market economy.  It's the ultimate distinction between complete government control of economic resources and private control.  When the day comes that this is no longer the case, it will be a dark day for everyone.

Count me on the pro-stock market side.

I think people wrongly believe that fiat money is necessary for a global stock market.  We had global exchanges on gold standards and we've had them on fiat standards. There is no evidence that the market requires one or the other.  

David in Qatar

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#76) On February 10, 2011 at 6:46 PM, truthisntstupid (94.09) wrote:

Comment #45 states:

The dollar was held artificially low until just before 1971.

If anyone noticed it, they didn't mention it.  But I hate when I discover I made a typo like that.

 Of course I meant:

Gold was held artificially low until just before 1971.

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#77) On February 10, 2011 at 6:59 PM, truthisntstupid (94.09) wrote:

Peteystired

Why is it ok for our tv sets, iPhones and stuff...to be cheaper, but our house has to rise in price?

People thought their house had to always rise in price, didn't they?

As for the other stuff, it's made overseas with cheaper labor.  Just my guess. 

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#78) On February 10, 2011 at 7:29 PM, truthisntstupid (94.09) wrote:

In comment #23 I stated:

There were 18 (out of 28) 10-year periods in which cash was better than gold. 

When I find my own mistakes, I'll correct them.

There were 11 (out of 28) 10-year periods in which cash was better than gold.

There were the same number of 10-year periods as there were 5-year periods that cash was better than gold.

If I find any more mistakes I made, I will post them as well.  

Gold needs all the help it can get.

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#79) On February 10, 2011 at 7:51 PM, truthisntstupid (94.09) wrote:

That's it.  I found my only mistakes. The typo in #45 and the mistake in #23.   I was just looking at the wrong number in # 23.  There were, after all, 18 (out of 28) 10-year periods in which gold lost to inflation, either not gaining or not gaining enough to beat inflation.  But there were only 11 10-year periods in which cash did better than gold.

This exploration into gold vs inflation and cash covered the time from 1971-2008.  2008 was the last year listed in the historical gold price list I used (the link is in the blog).

There were 33 5-year periods, 28 10-year periods, 23 15-year periods, and 18 20-year periods.

 

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#80) On February 10, 2011 at 8:58 PM, silverminer (31.38) wrote:

Wow. I read this whole entire post, and there was only one thing I fould interesting. It was comment #55 ... that indeed is truth. :) I mean that ... that's very well said.

I do not love gold, and nor do I love stocks. I have opted to favor gold (although I do own several non-pm stocks) until the forestalled process of deleveraging of toxic derivatives takes place. Because the Fed is dedicated to hyper-accommodative monetary policy to intentionally stoke inflation, and since -- unlike Vocker -- Bernanke faces an economic frailty that will presumably hamper the practicality of any Volcker-esque campaign of double digit intertes rates, this remains a decidedly favorable environment for gold and silver. Also, because the degree of our indebtedness leaves exporting nations less desireous of our long-term debt, there is a strong likelihood that the dollar's pre-eminence as the world's primarty reserve currency is fast coming to a close. To position for that transition, central banks are keen to increase gold reserves, and that alone is sufficient to support a $2,000 price target before this bull market is likely to lose steam.

It's important to study the past and learn from it wherever possible, but this Fool's gaze is clearly focused upon the path before us. I strongly advocate buying gold at $1350, because the predicament we face as a nation and as a planet renders $2,000 gold a conservative target indeed. I have no problem with anyone who disagrees with that position, and I wish only the best for every single investor no matter the course they navigate. I don't advocate any particular allocation model, and believe that each investor must decide for themselves whether or what portion of their portfolio will be dedicated to precious metals. I will reiterate, however, my oft-repeated caution against any notion of shorting gold given the macroeconomic landscape. I have watched countless Fools get badly burned by such activity in recent years, and I hope that the community may learn from their misfortune.

Anyway, because I am invested primarily in gold and silver mining equities rather than phsycal bullion proxies, the analysis regarding gold's price performance is not relevant to my situation. My 74% gain for 2010 sufficed in one year to counteract all the CPI inflation I've witnessed in my adult lifetime. One more year like that, which I certainly don't think is out of the question, and I will have effectively ensured a lifetime of retained purchasing power. And then perhaps I'll begin transitioning away from pms and back into the broader equity markets to enjoy what has truly been their superior track record over the very long haul.

It's worth noting, also, that I encountered many of these very same arguments against gold back when it traded for <$600. But I wasn't so much buying gold at $600, I was buying Rubicon Minerals at $0.80, or Copper Fox at $0.15, or Terrane Metals at $0.30, or Taseko at $1, or Silver Wheaton at $10, or Great Panther at $1, or Eldorado at $5, etc. I hope this point is crystal clear ... I'm not here to boast about my favorable trades ... but rather to point out that an investor who correctly read the gold and silver bull market over recent years has been afforded ample opportunitities to not just keep apace with inflatio, but to lap multiple times like a Ducati racing a scooter.

I apologize that I have no time for a lengthy debate on these points ... I just dropped in to share my perspective on the matter. I care about this community, pm investors and detractors alike. I wish every Fool the very best of luck navigating these markets over the coming years, and hope that we can all find each other here 10 years from now to discuss the various means by which we evaded the ongoing financial crisis of the 21st century.

Sincere best wishes to you all,

Sinchi

 

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#81) On February 10, 2011 at 10:19 PM, HarryCarysGhost (99.76) wrote:

Hi truth, would'nt finding a solid dividend payer and reinvesting the divedends over that time frame crush both gold and inflation.

Sorry if I'm oversimplifying things everybody. But I reflected on 2010 recently and found that my results were much better when I just kept it simple.

As far as gold, always seemed to me that since it has no industrial uses that sort of makes it a fiat currency, which is ironic since that seems to be the argument to buy.

Now I do like some silver miners, since silver has applications in industrial use, and the commodity itself seems undervalued right now, but I may change my mind at any time ; ) Also I have a bunch of silver coins in a safety deposit box. My Fathers a coin collector so I've been getting silver coins every Christmas and birthday for the last decade.

Again I apologize for dumbing down the conversation, I've just found that for me at least it can be harmful to my portfolio if I make things complicated.

Cheers.  

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#82) On February 10, 2011 at 10:34 PM, truthisntstupid (94.09) wrote:

silverminer

Thanks for stopping by.  I can't agree about the gold because everything everyone tells me makes me feel like I'm in 1980 again.  Of course, if I was I'd be enjoying being 23 years old again, and gold would be the last thing on my mind.  I doubt if I short it, but it depends on what I find out, the cost, and for how long into the future before my option expired.

Harry

Hi!   Actually I'm wondering if I could find another angle besides shorting.   I'm curious if there's something that usually moves inversely to gold, i.e., something that will go up when gold goes down.  If I could figure out something like that that also paid a dividend, that would be even better.   There's always more than one way to skin a cat.

But I will investigate options just the same.  

 

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#83) On February 10, 2011 at 10:53 PM, truthisntstupid (94.09) wrote:

Silverminer

Also, I have a real issue with the reasoning that goes hand in hand with this statement.  

Because the Fed is dedicated to hyper-accommadative monetary policy to dliberately stoke inflation -

I remain unconvinced that inflation has anything to do with how gold behaves.  I believe this blog has debunked that.

That said, I appreciate someone that believes differently than I do without becoming insulting and condescending about it.  You have class, sir.  Thank you.

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#84) On February 11, 2011 at 12:01 AM, ozzfan1317 (81.83) wrote:

I think if you invested in Gold and Silver miners when everyone was down on them that would have been a better bet on the commodity. Also I like to stick to Stocks as my Asset class itworked for Warren Buffet and over a couple of years I have taught myself quite alot.

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#85) On February 11, 2011 at 12:13 AM, truthisntstupid (94.09) wrote:

ozzfan

You got that right; me too.  As much as I'm tempted to make gold my first short, I probably won't.

I did a search, with regard to comment #82, just typed the question "what goes up when gold goes down,"  or, "what behaves opposite to gold?"  or something like that.  Only spent a couple minutes messing with it.

Didn't click on any of the search results; they were all giving one or both of the same two answers:

1)  The dollar

2)  Stocks

I'll probably just stick with stocks.  They'll beat the hell out of gold, anyway.

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#86) On February 11, 2011 at 12:37 AM, HarryCarysGhost (99.76) wrote:

Actually I'm wondering if I could find another angle besides shorting.   I'm curious if there's something that usually moves inversely to gold, i.e., something that will go up when gold goes down. 

My first thought was a leap put on GLD or one of the others, but with your paramaters the best I have is-

Stick with what you know, DIVI'S.

What is the inverse of gold? I don't know, best guess is Agriculture, 

 

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#87) On February 11, 2011 at 5:32 PM, SockMarket (63.07) wrote:

truth,

good argument and a good point overall. It would be interesting to see gold measured in CPI, M1, M2, and M3. It would, I think, prove interesting. 

It seems to me like the gold bugs claim that it can hedge just about everything from bad politicians to inflation, to deflation, to the end of civilization. Im really a bit skeptical about all that. 

 

Mr. Ghost,

I doubt ag would work...Ag responds inversly to production and positively to inflation. Gold (supposedly) responds positively to inflation and inversely to govt crises, etc.

My personal guess would be the intl basket of currencies (I am guessing this has been discussed already I haven't read all the comments) they use to value the $

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#88) On February 11, 2011 at 6:00 PM, truthisntstupid (94.09) wrote:

Hi again, sock

Yeah...I don't buy it.  And its adherants have no desire to know what it has done in the past, and of course, the ages-old broken record....."this time is different..."  

I just don't think so.  Many of them weren't even born yet the last time everybody was saying that, along with all the other same things they're saying now.  

They make me feel like I've climbed into a time machine...

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#89) On February 11, 2011 at 6:11 PM, truthisntstupid (94.09) wrote:

starfire

I'm sorry I just saw your comment

I looked at the link.  If that was ever to happen I would sure wish I'd thought differently....but it still doesn't change the way I think now.

But you know what....I'm glad I looked at that (to anyone that wants to know, I'm referring to comment #37).   I may give a little consideration to at least hoarding a couple gold coins  because of that. 

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#90) On February 11, 2011 at 11:58 PM, Starfirenv (< 20) wrote:

Troot- interesting eh? Consider the causes that led to that. Runaway printing presses and a bursting of the confidence bubble. There is a concerted effort right now to create a new "basket" of currencies that will become the new reserve currency, led by China and Russia (and I believe Brazil, peru, Indonesia and others are on board). I would not be surprised if there was a parabolic move up still to come. I'm not one to give advice but I will say shorting PM's is not part of my gameplan. Best

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#91) On July 17, 2011 at 9:02 PM, truthisntstupid (94.09) wrote:

I'd still rather stick with dividend-paying stocks as the best place to put cash.

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#92) On July 17, 2011 at 9:07 PM, truthisntstupid (94.09) wrote:

Is gold money?  I don't care.

I'd also pick dividend-paying stocks over US$$.

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#93) On July 18, 2011 at 11:54 PM, HarryCarysGhost (99.76) wrote:

Ha! I figured that was the point you were getting at.

Absolutley, Divs crush the competition.

Check out my pitch for KO should be a really interesting ride ; ) 

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#94) On July 19, 2011 at 11:10 AM, wrenchbender57 (< 20) wrote:

When I first went to work the minimum wage in our state was $1.25 per hour. I got a job at a gas station for that wage. I could buy a gallon of gas for about 30 cents or a loaf of bread for about 30 cents.An hours work at min wage would by about 4 loaves of bread or 4 gallons of gas. 

Today the minimum wage here is $8.67. A loaf of cheap bread is about $1.50. Gas is not $3.80 per gallon. An hours work at minimum wage today will buy 5.78 loaves of cheap bread or 2.28 gallons of gas. 

 So, I can buy more bread for an hours work today but far less gas. Shows that the minimum wage has more than kept up with inflation in regards to basic foods but not with gasoline. Also seems to show that gasoline inflation has far exceeded food inflation. 

 I know this is an oversimplification and that politics are involved in the minimum wage. Still gives me an easy yardstick to see how inflation compares to the lowest wages.  A basket of good would be a better indication but more complicated. 

 

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#95) On July 19, 2011 at 11:11 AM, wrenchbender57 (< 20) wrote:

By the way, history seems to show that gold was not immune to politics even when it was used as a currency or to back another form of money.

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#96) On July 19, 2011 at 3:29 PM, truthisntstupid (94.09) wrote:

wrenchbender

People will argue about history even with those who were there.  It just floors me.  Here's something for you.  I think you'll like this.  Be sure to read all the comments in the comment section, too.  You're saying much the same thing that I was saying starting with comment #29 in this blog.

http://caps.fool.com/Blogs/the-world-wont-end-for-real/546567

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#97) On July 19, 2011 at 3:29 PM, truthisntstupid (94.09) wrote:

wrenchbender

People will argue about history even with those who were there.  It just floors me.  Here's something for you.  I think you'll like this.  Be sure to read all the comments in the comment section, too.  You're saying much the same thing that I was saying starting with comment #29 in this blog.

http://caps.fool.com/Blogs/the-world-wont-end-for-real/546567

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