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Lordrobot (89.73)

Reasons to not buy gold

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October 10, 2010 – Comments (22)

Yeah, I know, Jim Cramer told you Gold was better than stocks. In my book that is probably a good reason to buy equities and pass on the gold and here's why?

1) Gold is at a historical high so from a value perspective it is out of the money.

2) Gold is now a commodity and not pegged to any currency whatsoever. Back when gold was pegged to the global reserve currency, the dollar, the price of gold was fixed by law at $35 an ounce. This pegged the value of a dollar because gold had no intrinsic mark to market value. It was locked at $35 an Americans were not allowed to own or trade gold.

Today, gold has no currency peg so its value is purely intrinsic other than the commercial users, primarily wirebonding semiconductor companies. Even they can use copper now a less optimal metal but much cheaper.

Who buys gold besides Jim Cramer and why? They will tell you they buy it as a hedge against inflation. Yet that would only be true if one currency was fixed to gold, and I am not talking about intrinsic free market gold. Such a currency would be untradable. The value would be by whim alone; in other words, how many Jim Cramers would buy gold would set the price of the currency. So it is purely intrinsically valued. In other words, gold has no value other than what someone is willing to pay for it. This is a vastly different concept that the traditional gold standard. So when someone hauls out the excuse to own gold based on the dollar going off the gold standard. Then they have the wrong commodity because Gold was fixed at $35 and had no intrinsic value. 

Compare that to oil. Once could live their whole life without owning any gold whatsoever but when it comes to oil, even the Amish need it. In fact, oil has so many uses that it is absolutely essential to the stability of western cultures. Thus, oil prices have a base value caused by demand. Gold could conceivably have no value whatsoever.

3) Gold is now abundant. Once scarce, anyone can now buy and own gold. Thus, gold prices which are intrinsic are completely declamped from supply and demand. This would be akin to selling salt water by the gallon on the premise that it brought you luck. As Dirty Harry might say, "Do you feel lucky punk?" Buy a few gallons since it is a hedge against being unlucky. That expression has as much validity as calling gold a hedge against inflation. Hedges against inflation only apply to commodities that humans can't live without. 

4)  Gold is a pet rock styled fad. If gold is so worthless why are people buying it? Psychology and history. Jim Rogers claims that all paper money is being printed and inflating. But take a close look at what he is saying. Suppose you have five poker players at a table. And one of them is printing money under the table. The others came with fixed dollars. So after a few hands the table is full of dollars that are of lesser value. They have been cheapened by the one player printing money. So who wins? The player that printed the money plays and takes money from the other players simply through the action of printing.

But now let all five players come to the table with the same amount of money and then let them print the same amount of money under the table. Now what happens?  The guy with the most money at the end of the game wins. The buying power of each of the economies, the five players, remains identical. It is true they all have more printed paper but their buying power between each other remains identical and the total value of all economies in real GDP terms remains the same. So the Rogers idea is incorrect if all economies are printing money as he claims. Inflation is always a relative concept between different currencies because there is no pegged currency.

Cramer has a terrible record as a trader. Yet with gold, Cramer figures he can ride the wave of speculation up and get out before a sell off. This form of speculation is Indian Poker because nobody knows their own position and must guess the probability by looking at what the other guy has.  So if the other guy is Jim Rogers and he tells you he is buying gold and you trust him, then you can safely buy gold. But in a zero sum game, what if Rogers is lying. What if he is short gold and telling you he is buying it. Now Jim Cramer has a problem because he has not gotten out in time. This is exactly what happened to Cramer when he polled his hedge fund buddies about Lehman three days before the collapse. His buds were selling short and telling Cramer they were buying the dips. Cramer announced that Lehman was a good investment to his Action Alert squad, and the rest of it is dinner theater history with an air sick bag. 

5) Finally, if gold goes up to $10000 and ounce it will have no effect on the economy. And if gold crashes it will have no effect on the economy whatsoever. The same could not be said for oil or corn or rice or wheat or meat collectively. Sadly while I can't stand Soros as a human being if he is one, he is 100% correct that Gold is a super bubble but nobody should care.

22 Comments – Post Your Own

#1) On October 10, 2010 at 8:19 PM, cbwang888 (25.82) wrote:

You don't have to buy gold if you see no reason to.

People who got lots of USD are dumping and looking for safe havens. Gold is one of the reason but not all. Just look at silver, platinum, palladium, ... all of them outperform gold last month.

Now copper @ 52W. Corn future price jump 10%+ just last Friday.

There is no reason gold should drop alone while other metals and commodities keep marching up.

My reason not to buy more gold is to buy industrial metals now with more leverages ...

Buzz words: China, currency battles, QE2

 

 

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#2) On October 10, 2010 at 8:58 PM, JakilaTheHun (99.94) wrote:

People who got lots of USD are dumping and looking for safe havens.

"People" - yes. 

Large Asian governments - no. 

The latter has infinitely more market pull than the former. 

The Dollar is overvalued on an intrinsic basis, but if it's not allowed to reach its market equilibrium due to external factors, does it matter? 

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#3) On October 10, 2010 at 9:12 PM, JakilaTheHun (99.94) wrote:

Lordrobot,

I agree with a good chunk of your analysis on gold.  Not sure about all the Cramer stuff --- except that Cramer tends to never realize anything till it's too late.  

All the same, I wouldn't be terribly surprised to see gold go to $2000/oz.  It would almost definitely be overvalued at that price, but given the fact that it's value is largely based on perception, it can go just about anywhere before it falls back towards its intrinsic value. 

Where I definitely agree with you is that I'd rather buy stocks that offer high return potential.  Over the long haul , equities have always beat gold.  No reason to believe they won't again. 

And even though goldbugs continue to brag about their returns over the past year, they have been mostly in line with the S&P 500.  The time to buy gold was back in 1999 or the early '00s, when the market became convinced that the stock market was never going to go down again.  Now that people are convinced that gold will never go down again, it's time to buy less favored investments. 

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#4) On October 10, 2010 at 9:20 PM, cbwang888 (25.82) wrote:

Asian governments, esepcially China, are also printing to help state owned companies to buy durable goods/commodities/energy after exchanging USD.

It is just a currency battle, it is also a commodity battle.

 

 

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#5) On October 10, 2010 at 9:42 PM, BillyTG (32.21) wrote:

Gold is a currency.

Gold shouldn't be valued like a 1999-2000 tech IPO.

Gold is a hedge against political instability and government default, in the words of Martin Armstrong. Have either of those things lessened? 

There are other economic forces in the world at play besides the dollar.

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#6) On October 10, 2010 at 10:24 PM, MoneyWorksforMe (< 20) wrote:

"Now that people are convinced that gold will never go down again, it's time to buy less favored investments."

Yea like U.S. equities! LOL. Heard this recently? "Bad news, stocks rally, good news, stocks rally".

It's early 2007 again, and the day of reckoning is coming, again. Enjoy the punch while it lasts.

And if you want to talk about rationality, nothing, I mean NOTHING has been more irrational than the stock market this past month.

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#7) On October 10, 2010 at 10:31 PM, Lordrobot (89.73) wrote:

CBWANG, not all commodity battles are equal. Gold could have the gold bugs chase it to $10000 an ounce and it would have zero effect on the economy. This is a speculative bubble only.

But if speculators chased oil up to $147, it shuts down economies by forcing emerging markets to use forward credit to buy oil. It acts as a huge tax in which businesses and consumers lose cash flow and don't spend. So the commodity chasing is self expunging except for Gold which is essentially worthless commercially. So everyone can live without gold. You can't live without oil, grains, or agricultural commodities.  

Understand these are not commodity shortages in supply nor are they huge increases in demand. This is not the producer and the end user, this is the speculator only.

Lets suppose you are Bunker Hunt. And you decide to buy all the silver and hold the world hostage. But only problem is that nobody needs silver except for vampire hunters, the long ranger, and those in need of silver spoons at birth.

Bunker went from the richest man on earth to just a fat guy living off his Dad's trust fund. Moral of the story. He picked the wrong commodity and learned the first hand meaning of worthless. 

 

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#8) On October 10, 2010 at 10:38 PM, Lordrobot (89.73) wrote:

Jakila, This may be a rhetorical question but why would anyone be shorting the dollar or selling it at these low levels for expensive commodities. 

Granted you have the endless gov "threat" or "promise", one in the same to print more money. However, lets remember that until Money is actually loaned by banks the M1 money supply does not grow and the dollar therefore does not inflate. Japan is a wonderful example of this. 0% interest rates for years and nobody borrows money. Their currency keeps deflating in spite of the fact they continue year in an year out to prop up the same zombie banks and industries that got them into trouble 25 years ago.

I think if you advocate the idea of selling dollars low and buying commodities high you will lose on both ends of the exchange.  

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#9) On October 10, 2010 at 10:53 PM, MoneyWorksforMe (< 20) wrote:

 LordRobot,

There is no reason to suspect Jim Rogers is lying and has ulterior motives. He has never done so in the past and so to allege something like this is ridiculous. There is nothing wrong with Roger's credibility, so it's completely unethical of you to be attacking it. What's to keep you from saying any particular renowned investor namely Schiff,Rosenberg, Sprott et al.are not telling the truth? For that matter, what's to keep you from claiming any economist/investor/analyst, is not telling the truth?

I don't see your poker analogy as accurately reflecting anything that is currently going on in the currency markets.

 It is impossible for each nation to proportionately inflate when each nation is trying to out inflate the other. The EU, I could argue has forfeited this race, realizing it is a race to destruction.

Your analogy is like saying because four men are racing and each man wants to win the race equally as much as the other the race must end in a tie. This is obviously not true. The U.S. is currently winning this race, and there is no better judge than the markets themselves. If your poker analogy was true the Yen, Euro, USD and yuan would be headed towards parity. 

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#10) On October 10, 2010 at 11:26 PM, Lordrobot (89.73) wrote:

Moneyworks you are way off base. Substitute any name in place of Rogers if you want. My purpose was not to defame your uncle Jimmy but to explain how Zero sum logic is deployed in game strategy. 

Secondly, the markets under QE I an QE II tell you nothing. They are substituting borrowed money to reflect GDP. It is very simple. You make 50K a year; you borrow 25K . What is your income. I say your income is 50K minus the cover charges of your debt. The Government under QE I and II says 75K.

I can't even keep up with the fallacies of your arguments: First I gave two closed system currency analogies: One where at least one of the players is printing money and the others are not. Who wins? The guy printing money and who loses the players that are not. The money supply is increasing and the player printing money has not paid a single ante.

Second analogy said what if all currencies print money. I said they will all retain their same economic buying power with each other. And no player advantages the others.

My analogies were to explain that printing money alone is not an economic calamity unless it causes an imbalance. If every currency devalued its currency by 50% in the morning what would be the resulting balance or imbalance of trade? There would be no imbalance of trade, the system would remain in perfect equilibrium.

 

This is the only really interesting statement you made... but it is way over your head...

"If your poker analogy was true the Yen, Euro, USD and yuan would be headed towards parity." Not having done the math, and I am a mathematician, I believe this statement is probably correct over the very long term. Even with Gov intervention, those perturbations are likely to create imbalances that self correct over the long haul. 

Since you seem to want to challenge me, consider this... Suppose there was only one global currency. That would the be identical to my second poker scenario. Lets call this currency the GoldBuck. So lets now say that the GoldBuck is is kept at a constant level and all trade is exchanged through GoldBucks. In this model, the value of all currency is in equilibrium. 

Thus, I think over a very long haul, that all currencies would move to a status of equilibrium. Granted this is limit theory going to infinity but I can think of no reason that this would not happen. This also presupposes that eventually all labor will reach equilibrium,

If you examine the original purpose of the "reserve" currency, this was in fact the goal. Unfortunately the US has not exactly been a wholesome poker player and in fact has been the guy in my first poker example that was printing money under the table while the other players were unaware of the fraud.

 

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#11) On October 11, 2010 at 12:04 AM, tomlongrpv (70.84) wrote:

I wrote a blog entry "Gold is Worthless" and of course got people attacking me but I see your comments here and I think I am vindicated.  The idea that gold has much value other than what we just arbitrarily decide it has is nonsense.

But, as I said before, keep in mind you can eat it.  See  http://www.ediblegold.com/

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#12) On October 11, 2010 at 12:07 AM, whereaminow (77.51) wrote:

This pegged the value of a dollar because gold had no intrinsic mark to market value.

Are you sure you don't want to clarify this statement?

David in Qatar 

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#13) On October 11, 2010 at 12:10 AM, whereaminow (77.51) wrote:

LordRobot,

One more question.

Do you support expanding the monetary base to help America's economy recover?

David in Qatar 

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#14) On October 11, 2010 at 12:33 AM, whereaminow (77.51) wrote:

Second analogy said what if all currencies print money. I said they will all retain their same economic buying power with each other. And no player advantages the others.

Sorry for the multiple comments, but it took a while to get through all of this.

(Btw, I gave you a rec for attempting to work through all scenarios.  That's something few people do. I appreciate it.)

Anyway, back to the quote above. First point: that was what the Monetarists thought when they came into fashion in the 1980's. It didn't work out that way. They failed to understand that in democratic systems, the way to get elected is to buy votes through promises from the public trough.  This why several Keynesian economists came to prominence in reaction stating that either all countries should spend at the same rate (since inflating at the same rate without controlling spending at the same rate is pointless.)  Second point, game theory has limits. It can't account for every external factor in a non-controlled environment (see first point.)  It works best in settings where the person "running the game" can control all the information and limit the choices of the participants.  Thankfully, governments do not have that level of control.

David in Qatar 

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#15) On October 11, 2010 at 12:42 AM, MoneyWorksforMe (< 20) wrote:

"Even with Gov intervention, those perturbations are likely to create imbalances that self correct over the long haul."

Precisely but after what consequences and at what cost!? This statement carries no substance. I don't know of any person who doesn't believe this to be true to some degree. The earth self corrects through violent storms and earthquakes. The economy self-corrects through recessions. Does a self-correction justify investment complacency? And self-correction cannot occur unless the "perturbations" are no longer being added. The fed is preventing this. 

I would also argue that government action is amplifying the perturbations and therefore the effort/time/pain to restore equilibrium will be greater.

My biggest rebuttal with your poker analogy is the fact that it terribly over simplifies the actual situation. That is what I was trying to get at. It is not at all a good representation of what is happening in the currency markets.

 To be more specific:

The printing of the money would have to be simultaneous and of the same magnitude in order for it not to be advantageous to any one player. How if player "A" decides to print $200 beneath the table and sift it into his stack will all other players know when and by how much they should inflate their own holdings? 

You are also saying that all 4 economies are the same size. In reality the U.S. needs to print considerably more than Europe, China and Japan, for the same effect. 

"Thus, I think over a very long haul, that all currencies would move to a status of equilibrium. Granted this is limit theory going to infinity but I can think of no reason that this would not happen. This also presupposes that eventually all labor will reach equilibrium,"

Well I think I agree with you here. But once again, it's what does it take for us to get to this point? The devil is in the details. And if the U.S. is currently at the top relative to the world, wouldn't equilibrium mean a substantial decline for the U.S. economy in general in order for the world to achieve a steady-state equilibrium?

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#16) On October 11, 2010 at 11:42 AM, Lordrobot (89.73) wrote:

David in Qatar, I am opposed to gov monetization. Let me explain why this has happened.

The best way to fix debt is to turn it into equity. For example a bank has bond holder debt, and share holder equity. But the debt is very large due to mortgage failures. What should be done is take say half of the bondholder debt and convert it to stock or equity. Thus the bond holders own the bank and bear the risk.

This would immediately fix the balance sheets and banks could be well capitalized. Plus, a healthy well capitalized bank would be a lender and would seek profits through loan expansion.

What has happened however is that the bondholders who have a lot of political influence, did not want to convert to equity. They wanted the gov to buy the bad assets and hang the taxpayers with the burden. The result was poorly capitalized banks that hoarded the gov money and stopped loaning basically assuming the Zombie position.

There can be no expansion of earnings without lending but there is no lending when tier capital requirements rest on government buying debt.

The rhetoric is astonishing now. Everyone knows this monetization is not working. Look at Obama... he makes a speech that no bank is too big to fail. Then the policies are exactly the opposite to create these zombie banks which are no more solvent than the day they got in trouble. There is absolutely no reason for this other than those who set gov policy favor bondholders and have no scruples about unloading debt on the taxpayers. 

Look at the operation of the companies behind this idiocy. Goldman. What'st the goldman model? They sell bonds but if you look at the company a huge amount of its income goes to compensation, not shareholders. So it is more of a political institution than stock company. It has virtually unlimited gov influence.

Reorganization as I have discussed is the way it should be done. All this mess would have been cleared up long ago but instead, amazingly, we follow the failures of Japan, directly along the same line.... and somehow expecting different results. Zombie businesses are Zombies.

My big concern is that public debt is like welfare and people on welfare get accustomed to being lazy and doing nothing. These Zombie banks are the same. The gov will keep on buying debt and removing all risk from these Zombie banks. So the lip service that no bank is too big to fail is absurd. They are saying the opposite with monetization.

Ultimately in my mind, the printing of money will leach into the money supply and at some point, there is likely to be a massive inflator. The game Bernanke is playing here is that "public debt" which was once private debt, has value but will not mingle with the money supply M1. In other words, Bernanke is implying that the money the Fed is using to buy debt will never actually touch the Money Supply. It will reside in sort of a vacuum jar of debt.

But this leads to all kinds of perception problems. So back to my model of the poker players where the gov this time is printing money under the table but only using that money to reduce the debt of the bad players. They are not actually giving them the money to squander. They are buying the debt and saying to them, when your car game improves you should be able to pay off your debts. So we will just keep your creditors happy with our guarantees and you keep playing.

What has happened here is that no money has been put into the game. So the gov says it has not increased the money supply on the table so this will not add to inflation.

The big problem with this approach is you create Zombie poker players instead of throwing the bum out of the game and playing without him or letting somebody new come in to play. So the fundamental business structure is lost and we have this oddball gov. monetization inflicting itself on interest rates. This is because the risk has been removed from the game. The Zombie players can play indefinitely. RISK of capital has been removed.

In Sum: The right way to fix debt is to convert it to equity. The wrong way is through the political machine of monetization which removes RISK. Once Risk is removed, you have Zombies that have no business survival instinct. The net result is zero growth.

But there are unforeseen consequences already arising. These include the perception that printing money will lead to inflation. So commodities are spiking and bond yields are flat. And why the money managers are so euphoric over more QE II is simply beyond my comprehension. Stock Markets are houses of equity and Risk. To promote zombie business is like saying our goal in America should be to get 60% of the population on welfare. It makes no sense.

Bernanke in case you have not noticed is something of and egoist. Well so's Obama. So once these guys take a path, they take it to the Hitler conclusion or in this case maybe the Goldman conclusion.

Think about it... who has really thrived during this economic crisis? Small business? Nope. Billionaires, Bankers, Bondholder, and wall street shysters. Everybody else is virtually underwater, and unemployed. So the answer is more QE II, and as you can see from the mechanics of monetization, it will not do anything more than reduce RISK and increase Zombieization. The debt will further sink the taxpayer, push housing down, and do nothing for job creation.

 

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#17) On October 11, 2010 at 11:51 AM, Lordrobot (89.73) wrote:

TomLong, thanks for your post. I actually expected more gold bugs to complain but I suppose my low number of recs speaks to the lack of enthusiasm by the gold bugs. If I convert one GoldBug back to sanity it will have been worth it. How about "Gold Flakes" sprinkled on your steak? Might help if you have arthritis. 

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#18) On October 11, 2010 at 7:53 PM, ultrapaz (31.54) wrote:

"Think about it... who has really thrived during this economic crisis? Small business? Nope. Billionaires, Bankers, Bondholder, and wall street shysters. Everybody else is virtually underwater, and unemployed. So the answer is more QE II, and as you can see from the mechanics of monetization, it will not do anything more than reduce RISK and increase Zombieization. The debt will further sink the taxpayer, push housing down, and do nothing for job creation."

 

That's right...the average american will suffer for decades. The Fate of our great nation is at severe RISK

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#19) On October 11, 2010 at 9:20 PM, BillyTG (32.21) wrote:

Lordrobot,

I took my standard shot earlier, but I'll amplify based on your numbered points. I guess I'm a goldbug

1. Gold is not to be valued like a 1999 Tech IPO in the bubble. Gold is not to be valued like a cupcake factory. Gold is a currency, like the dollar, or euro, or yen. The difference is that gold can't be printed. All the gold in the world amounts to something like $5TRILLION dollars. How much have we spent in TARP and stimulus money? How much is our annual trade deficit? How much is our debt? Gold isn't even close to a dollar figure yet where it could back our problems, to say nothing of the rest of the world. So, I disagree that it's out of the money. Until a fiat currency like the dollar stabilizes and people and countries regain trust in it, gold will keep rising as a hedge against default. I don't see the dollar or our economy stabilizing any time soon. Which leads me to your next point...

2. Much of the US public is still very US-centric, and has no idea how much gold Asian countries have been buying. There is a whole world beyond our borders. The BRIC countries have talked of starting a currency. Asian countries have talked of starting a currency to compete against the Euro and dollar. Countries like China and Russia have talked about making the world reserve currency a basket of currencies, not just the dollar. I don't think it's a stretch to say that the dollar will eventually be unseated as the world reserve currency and that oil will eventually be traded in a basket of currencies as well...probably sooner than later. When some of these Asian countries form a currency, I will not be the least bit surprised if it is backed by gold. China has been encouraging its citizens to buy gold and it has been buying gold. China is smart and watching the US economy unraveling and its own dollar holdings decrease in value. I doubt they will want to repeat our mistakes with another fiat currencywhen all is said and done.

3. You say anyone can now buy and own gold. But then we go right back to supply and demand. As demand increases, the price goes up, and it becomes harder to get. Your point seems to be that the whole gold phenomenon is ludicrous. I don't really have an answer for you. Charlie Munger says gold is irrational. Warren Buffett says gold is something we spend so much energy to dig out of the ground and then more energy to secure it in the ground. I don't disagree with either of them. But what history has shown is that gold is universally valued by all. It's pretty and shiny and makes nice jewelry and people want it. End of story. I wish it had more practical uses like oil or corn, which by the way, could also be the backing for currencies. In some regard, oil is the backing for the dollar, the petrodollar. In any case, gold has always been valued.

4. Sure, call it a fad. It's a place where people feel safe. Once again, as Martin Armstrong says, gold is a hedge against political instability and government default...which leads me to 

5. Gold might get to $10,000 or some other crazy figure. But here's the thing you don't seem to recognize: the dollar will not always exist and will not always be the world's reserve currency. When/if the dollar ceases to exist, then how many dollars is an ounce of gold worth? Exactly. Gold will quite possibly back the world's next super currency.

It's just a hedge against government crazines. And we have a lot of government craziness right now. It isn't supposed to make sense the way investing in Wal-Mart makes sense.

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#20) On October 11, 2010 at 9:21 PM, BillyTG (32.21) wrote:

Soros is a bit of a snake. Right as he's saying gold is in a bubble, he is loading up. Don't believe what he says about anything until a year or two after he says it.

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#21) On October 12, 2010 at 12:35 AM, Lordrobot (89.73) wrote:

Billy, I do appreciate your attempt to explain your position. I disagree on a number of points. And I will label them for you.

1) Gold is not currency. Even in your wildest imagination you can't buy groceries with it or fill up your tank. It is not representative of goods and services, it is a commodity. If you can find somebody to barter with you then that's great but that is not currency that is barter. Not everyone will take gold. I won't. I have no interest in gold as a commodity. It is useless. I will take oil but neither is currency. And please.... money is not a commodity, even if it is traded in futures markets.

2) Gold is abundant, more produced every year. I could care less if the Asians stockpile gold, they also stockpile rhino horn. I am just glad I am not a rhino. People collect all kinds of Krap Billy. It is merely intrinsic. I wouldn't give a penny for a Rhino horn yet in Asia, they think it is viagra. Asians can hoard all the gold with my blessings but please leave the Rhinos alone.

3) Ok let's say gold is pretty. So is a supermodel but I am not paying for it. But that reaches to your intrinsic aesthetic appreciation of stuff. But gold needs to be stored you can't really touch it without oxidation and it needs to be graded. The fact that pawn shops like it means nothing to me. Again, if I never see or touch a piece of gold in my life, I will survive just fine. Munger is right although he's a bit of an axxhole especially on his views that the taxpayers should bail out the billionaires. 

4) Know the difference between metaphor and reality. There is no such thing as a "hedge against political instability" or gov default. This is your ultimate presumption that if the world breaks down to fighting in the streets, gold will save you. That is if somebody in a lawless society doesn't rob you at gunpoint.

Societies were traditionally organized about safety and security in an insecure world. Commerce and other things evolved. Gold has had ample opportunity to become the "super currency" as you have alluded. But it never quite got there. About the only time you hear about gold is when there is a recession. Then the gold speculators round up the list of horribles and parade them out. Just remember Billy that whatever you are buying... somebody else is selling. And with something as useless as gold, the seller is practically peeing in his pants with laughter.

You know how you can tell a fool? Look and see if they become obsessed with owning something. They become impulsive and they gotta have it. That is how houses got sold in the bubble.

I like the company that is going to put in Gold ATM machines. This is as comical as it gets. "Honey I am a little low on cash, would you mind driving down to the Gold ATM and picking me up a couple of Troy ounces... I think we might have an insurrection in a day or two. Meanwhile the guy who has gold teeth is laying in wait by the machine anxious to enhance his gold dental grill with your insurrection ATM gold.

5) Yes we can dream can't we... If gold was the answer to backing currency, it would have succeeded in two million years but it didn't. Money is an abstract idea. Some people don't like abstraction. I am not talking about Andy Warhol. I am talking about the concept the money represents goods and services.

I tried to explain this earlier that gold backed currencies did not allow gold to be traded or even owned. Gold was fixed in value. The gov said... Gold will be worth 35 dollars an ounce. Thus, for each ounce of gold we will have 35 paper dollars. We will store it in Fort Knox and and that's it. What do I call that? As waste of space. The entires purpose of this storage was farcical. In order to sell the rest of the world on a reserve currency, they wanted some guarantees that the dollars would not be printed beyond an exchange value and all other currencies would keep within 5% of the reserve currency.

Originally gold was set to be $20.67 per ounce. Then without notice to any trading partners, Roosevelt [The worst president in history for many reasons] raised the price of gold to 35 Dollars an ounce. Did you see what just happened? It now took 35 dollars to buy the same amount of gold that previously cost 20.67. So did Roosevelt increase the price of gold by 30% overnight or did he just devalues the dollar by 30% overnight?

The answer is not both. There is a correct answer.

 

Finely the topper. This is your liberal gov in action. Remember Obamacare? This little tax bill was written into the code. Pay close attention because the liberals are about to make everyone a law breaker...

 Due to section 9006 of the Patient Protection and Affordable Care Act, starting on January 1, 2012, IRS tax form 1099 will be required for all purchases of goods and services that exceed $600 per calendar year. This new reporting requirement will cover precious metals. With gold at $1200 per ounce, this would make it impossible to sell a typical one-ounce bullion coin without IRS paperwork. The tax also applies to gold coins. 

.... Obama.... Pelosi.... Reid....  This was a colossal mistake which America must fix with extreme prejudice.  

 

 

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#22) On October 12, 2010 at 1:38 AM, BillyTG (32.21) wrote:

Gold ATMs? This is the first I heard about that! Amazing.

The IRS gold regulation...ugh.

Well, there are hedges against government instability. I have to agree with you that if everything is in chaos, and people are starving for food, gold might not be so helpful.Corn and ammunition and guns and fuel and rice would be more helpful to ensure survival. Even in that situation, though, I would think gold would have some utility in trade, morseo than paper dollars (which could also be used for fire fuel I suppose). I try to envision how a social breakdown will play out, and it's impossible to know for sure. It's a breakdown, so there is no uniformity. Maybe some towns will be self sufficient happy spots and other towns will have thugs going door to door.

I can only speak for myself here, but I have no intention of holding gold forever. I will hold it as long as I see a currency instability and a growing fear driving gold higher. I see nothing that resembles greed. My overall belief is that the US is at the beginning of a massive economic disaster, and I believe that the typical American thinks everything will be A-Okay! So that's my own sentiments behind my belief that gold will continue to be wildly and increasingly in demand.

You can be as dismissive as you want about gold as a currency or investment, but your opinion doesn't matter. Mine doesn't matter. Rationality doesn't even matter. It is this investment in an "irrational" thing that I think separates us so-called "goldbugs" from the anti-goldbugs, and creates so much confusion, and even anger. I believe it is possible to rationally invest in an irrational thing. One might find absurd the notion of taking a nearly-useless metal out of the ground only to store it in a vault, but there are clear trends driving demand for that metal. Call it history, call it psychology, call it default hedge, call it whatever you meant. It might not fit into the same realm as evaluating Nike or Wal-mart, but there is a way to gauge demand. 

That's the best I can do to explain my position. You will never find anyone who has the golden answer to your questions. You've already made a strong case why gold is a crazy thing to own. But that's not going to stop China from buying gold. It's not going to stop other currencies from being gold-backed in the future.It comes down to history, to psychology, to demand.

I've learned only one firm rule in investing: Buy lower, sell higher. Gold is not at its high. Again, I speak for myself only, but I see gold as a pure momentum play that I intend to trade as such.

There is no question that gold is a most unusual item to trade. It can't be valued like Nike. In trying to find ways to describe it, the best I can come up with is that People Want Gold.

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