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alstry (35.69)

The Dollar Better Than Gold

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December 20, 2008 – Comments (13)

In 1980 one dollar purchased 1/800th of an ounce of gold.

Today one  dollar purchases 1/800th of an ounce of gold.

If you put a dollar in the bank in 1980 in a 6% pepeptual CD, your dollar would have multiplied more than 4x but your ounce of gold would be worth exactly the same(discounting any storage fees).  I know, the dates can be manipulated....but even if you take it back to 1900 at the beginning of the industrial age.....the same point can be made.

Gold is the old relic.....few countries use it as a backing for its currency anymore.  Many women today prefer costume jewelry over "the real stuff."  It is heavy and can't be wired digitally.  Gold people like to live in the past and rehash old patterns that are no longer relevant.

Some people think the dollar may collapse....and it very well may.......but what do you think will happen other nations if it does.....if you try to mess with the American dollar.....it will be like bringing a knife to a noookleah match.....Do you think the Roman's or Greeks or Spaniards or British had the radioactive metal when they thought they ruled the world????

How many ounces of gold is one really BIG nooookleah bomb worth???????

The gold bugs like to live in theory.......Alstry lives in reality.  Can gold prices fluctuate???? ABSOLUTELY!!!!!!  Sometimes it will fluc up and other times it will fluc down.  In the end, one noookleah bomb can destroy the world.......tell that to a man threatening you with his bars of gold.

13 Comments – Post Your Own

#1) On December 20, 2008 at 9:24 PM, FleaBagger (33.44) wrote:

Are you saying that you're buying uranium? Are you just growing a beard and treating CAPS like your street corner? If you want to talk about reality, try this:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=121998&t=01004207525612627963

It was posted not long before your rant, and it explains why gold has remained affordable despite rampant inflation over the last 30 years. I just hope you don't vote for my gold to be seized.

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#2) On December 20, 2008 at 9:52 PM, ThoughtfulFool (< 20) wrote:

In 1980 one dollar purchased 1/800th of an ounce of gold.

1980 seems to me to be a pretty poor year to use for this.  The $800+ price was an isolated day, if I recall, before the bubble burst.

Gold is the old relic.....few countries use it as a backing for its currency anymore.

That's like saying government debt is just fine - just look at how much the US government has.  Gold should be the backing for any proper currency; if it was, it would help stabilize many of the economic problems we face.

Sometimes it will fluc up and other times it will fluc down.

Well, don't fluc up, people - own gold! (sorry, couldn't resist)

:-)

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#3) On December 20, 2008 at 10:50 PM, djemonk (< 20) wrote:

His math holds up if you go far back.  In 1924, the price of gold was, I believe $15 per ounce.  If you took that $15 and invested it at 6%, it would be worth almost $2000 today.

While his choice of that one small spike in gold in 1980 was pretty disingenuous, the math still largely holds.

However, his theory falls apart if you look back to 1971 when Nixon unpegged the dollar from gold.  If you invested money at 6% ROI it would double 3 times for a total value of 8 dollars today for ever dollar invested in 1971.  Therefore, gold would have had to have been $100 per ounce at the time and it was not.

The problem comes because it's not an apples to apples comparison.  If you go far enough back for alstry's thesis to be true, you're going far enough back for the US to have been on a gold standard, so the scenario is different.

I wasn't sure that gold was the best way to go, but alstry's math inadvertantly convinced me that it is. His theory of "if the dollar collapses, it's okay because everyone else is screwed, too" doesn't really give me the warm fuzzy that I was looking for.

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#4) On December 20, 2008 at 11:35 PM, jesusfreakinco (29.60) wrote:

Alstry,

A couple of counter arguments...

1.  Just because you don't see the value in gold doesn't mean the rest of the world won't.  Gold has been a store of value for thousands of years.  Since we have gone off the gold standard, the dollar has dropped dramatically and our debt has gone up substantially.

2.  Social security, medicare and other entitlements have laced our nation with future debt.  Need I say more?

3.  Baby boomers will be retiring in droves over the next years - and the govt will have to start paying back the Social Security trust.

4.  The world has come to distrust the US financial markets and leaders.

etc, etc, etc

Things are MUCH different than they were in 1980.

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#5) On December 21, 2008 at 2:09 AM, alstry (35.69) wrote:

Jes,

A couple is not four but because I consider you one of my favorites I will address each.

1.  I don't see the value in a lot of things that others do.  Once I was in London as a student...instead of seeing Les Miserables I went across the street to a strip bar thinking I would save money and get a better show(I have always been a value guy).  In the bar I was taken for a few hundred dollars(which was my life savings at the time) and learned it was a common scam in Europe.  The ticket to Les Miserables would have been much cheaper and have since learned to passionately love the story.  Just becasue I may see things one way doesn't mean the world follows.

However, just because gold has been a store of value for thousands of years doesn't mean it will be a store of value tomorrow. 

2.  What if our government told its citizens that it was repudiating its social security obligations....or it attached everyone's IRA and 401Ks to meet those obligations to protect the doller?  Hmmmmmm...then would what happen???

3.  See 2.

4.  Yes the US leaders are lying, pimping, pricks.....now that puts them on par with the rest  of the world's politicians.

My friend things are always different....it is our job to help each other to figure out how those differences will play out.  In my opinion Gold and Oil will crash in dollar terms so long as the worlds' economies continue to contract.  Yes we will print, but others will print faster.

Jes, this is just my opinion.  It is not that I am always right, it is just that I am ususally right. 

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#6) On December 21, 2008 at 7:43 AM, kaskoosek (98.26) wrote:

I am not a gold bug or anything, but using the 1980s price levels to make deductions is severely flawed.

 

Your starting point should be the Nixon era when the peg was ended.

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#7) On December 21, 2008 at 8:25 AM, DaretothREdux (45.97) wrote:

Your arguement is flawed for many reasons. I will point out one reason: compare the price of 1oz. of gold to the price of 1 Barrel of Crude Oil and your investment just a half a year back would have gained nearly 8 times it value. When you are talking about commodities like gold it is unfair to talk about it in terms of the U.S. which can easily be manipulated unlike "real" commodities.

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#8) On December 21, 2008 at 8:26 AM, DaretothREdux (45.97) wrote:

in terms of USD (is what that should say)

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#9) On December 21, 2008 at 9:47 AM, alstry (35.69) wrote:

1st...  We talk in US dollars  because the argument is invest in Gold because  the dollar is going to collapse.  The argument  is not invest in gold becuase you want to trade it for wheat.  Right now if you have enough dollars, you can pretty much buy anything you want that can be  purchased.  The ONLY issue for this blog is whether you will  be  able  to buy more or  less  gold with a dollar in the future.....remember, we are tying to figure  out whether an ounce of gold will gain or lose value against the dollar.

2nd...1980 is arbitrary.  It was the periord  when debt  in America  really started to skyrocket.  You can apply 1900 if it  makes you feel  better.  If you chose 1776, you would really put a big smile on your face.  The fact that a few of you are now cherrypicking  dates only proves my point further.

If you were going to draw a graph of the dollar's out performance vs. Gold since the founding of our nation....you would find that for the vast majority of the time.....the dollar out performed. 

Now just because it was  that way in the past, doesn't mean it will be the same in the future.  But most of you guys fail to make that distinction!!!!!

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#10) On December 21, 2008 at 10:17 AM, djemonk (< 20) wrote:

Alstry,

I think everyone's point is that the only date it's meaningful to pick would be sometime in the early 70s when the dollar floated vs gold.  If you pick any time before then you run into an apples-to-oranges comparison because the dollar was pegged to gold.

The only other date it's virtually meaningless to use as a baseline is 1980 because of the irrational spike in gold prices.

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#11) On December 21, 2008 at 10:26 AM, alstry (35.69) wrote:

OK for fun let's use your date...........from 1972 to 1980 you win....from 1980 to 2005......Alstry wins....2005 to 2008.....Gold wins

 

Alstry 26

Gold Bugs  11

Looks like I have quite a lead.

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#12) On December 21, 2008 at 12:18 PM, babypoop (20.03) wrote:

I agree that we are in a deflationary period.  However, I don't believe (and that is all I have is belief on  this subject, no analysis) that we'll see multi-year deflation.  Here are some reasons I believe what I believe:

China has 300 million 'middle-class' with large savings and no debt.  Many will lose employment to be sure.  However, their goverment has huge cash reserves and is already in the process of infrastructure building.  Unless China's fragile political balance gives way to revolution and anarchy (which is entirely possible) their economy will come back sooner rather than later. 

Brazil had very little exposure to US markets or its financial dirty party over the last 9 years.  They, like China, have a huge domestic consumer base with discretionary spending.  Surely they are feeling the pain as all economies around the world are but they certainly aren't Iceland.  Of course, if China falls apart all bets are off.

 While most of Europe is screwed I think Germany and France are in a position to weather this storm better than the USA.

Now if your like me and bought into the inflation story, I see no harm in holding on to your currently 50% negative assets.  To recover a little cash I'm playing currency options and shorting homebuilders, financials and the markets in general.  However, when this deflationary period ends, maybe as early as 2010, inflation HAS to kick in big time.

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#13) On December 21, 2008 at 12:48 PM, DaretothREdux (45.97) wrote:

Alstry,

Did you adjust for inflation?

What cost $800 in 1980 would cost $1988.67 in 2007.

Also, if you were to buy exactly the same products in 2007 and 1980,
they would cost you $800 and $291.48 respectively.

 

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