You’ve seen him: an older man sitting next to a roaring fire or maybe walking the grounds of his ranch or he might be in a suit facing the camera. The messages are all the same: something about “troubling times” and “safety and security” —maybe they mention the federal reserve or money printing. Times are bad and could get worse, but they can help you. They have the answer. What is this company selling? GOLD.
Why would you want a gold coin or bar? It doesn’t earn interest and it doesn’t grow or produce anything. It is vulnerable to theft. The price can move down with astonishing speed as we saw last April (as of the time of this writing it has retraced over 50% of that selloff). But could it go up in value, could it “skyrocket” as the gold shills say?
Keep in mind that gold has already gone up a lot recently, about fivefold in the past ten years. And to simply say that gold is a hedge against inflation is misleading. If you compare the price today, let’s say $1500 per oz, to the average price in 1974, about $150/oz, it actually exceeded inflation. Using CPI over this period gold’s value increased at about double the rate of inflation. However, if you bought gold in 1980, average price that year about $600/oz, you’d have to wait until 2006 for the price to come back to that level and not inflation adjusted dollars either (inflation destroyed about 65% of the purchasing power in that timeframe – and this is using CPI which notoriously understates real world prices). Gold prices and inflation are not as closely correlated as the gold sellers would have you think.
But what about “these troubling times”? It’s different now, right? It might be. This is basically what they’re talking about: the federal government and the federal reserve have been acting in tandem to recapitalize the U.S. economy after the 2008 crisis. The government has been spending like crazy and running huge deficits (and buying lots of votes, funny how that works out for them). These deficits are financed by the issuing of bonds of which the federal reserve bank has been the main buyer under the guise of Quantitative Easing and the Zero Interest Rate Policy. This what they mean by printing money – the fed can buy whatever it wants and it has been buying these bonds that are loans to the government.
The Fed doesn’t need money, rather, it creates it. It is the central bank and it can just put the bonds on its balance sheet. A lot of people, this author included, think the government and the Fed are nuts to think that this course would enable economic growth and it will probably only lead to inflation which could become severe and maybe uncontrollable. Without turning this into a financial doomer article, let’s just say both sides make their case and we won’t know which one is right until this QE and ZIRP experiment is over.
This is what it comes down to: if the price of gold in dollars goes exponential in a hyperinflationary situation everything else priced in dollars is going to do the same. You can’t expect that your gold coin will buy the same goods that it would buy now if this happens. The actual purchasing power of your gold will surely decline as day-to-day essentials become prioritized. Put another way, if 1500 this week buys you one gold coin or 250 basic meals, in a hyperinflationary situation that gold coin might exchange for the equivalent of 100 meals or maybe not even twenty. Of course, 1500 in a bank account or your mattress would be worth much less – maybe not even one meal. The possible hyperinflation scenario is the most compelling reason to hold gold now. It’s not about getting rich. It’s about retaining some savings in the face of a massive financial collapse.
In reality, nothing keeps up with inflation like you will want. Agriculture futures are seasonal and your position has to be rolled over every so often costing you fees and changing your cost basis. Your inflation hedge could get destroyed by a good harvest or weak global demand. Stocks are typically seen as an inflation hedge but in a real collapse your brokerage company or even your local bank might not even exist anymore. You may eventually be made whole on the companies you own but this will take years.
Outside of a financial crisis the case for gold is weak. If you’re holding gold the best case scenario is unclear. Perhaps the price rises faster than inflation but that’s probably a longshot. Consider that if interest rates start to rise, if the Fed sees the light on the harm ZIRP is doing, and if inflation is mild then those holding gold are going to be screwed as many decide to sell, preferring actual cash. Expect gold to lose at least 30% from today’s prices and it could happen in a day or two. Don’t expect your dealer to give you a good price or even answer your call or email if everyone comes in selling.
The risk of gold losing value in the face of an improving economy is something you need to be aware of and in a crisis it won’t provide the kind of financial safety that the gold bugs allege. If you still need a place to park your savings you might consider silver. It’s incrementally cheaper to get into and has more industrial value than gold though it is historically more volatile. Or what about booze? A case of good whiskey or rum is highly barterable, doesn’t spoil, tracks inflation as well as anything, and if times get better (or worse), you can always drink it.
Read More: The Ascent Of Money
It’s still not a bad idea to have a little bit of your savings in precious metals. Of course, if one is concerned about his financial survival, he would do better to improve skills both relevant to his career and for other practical uses (e.g. not having to pay some immigrant handyman $1000 to scam you for house repairs) rather than hoarding silver and gold. Although, I do like to imagine the scenario of fleeing the country with a few gold rings, a hideously expensive watch, and maybe a gold tie-bar and cufflinks to round it out, and living it up in a non-extradition country of choice.
Some stupid advice. There are plenty of hedges against inflation. Bonds???? A decent CD is going to return more than inflation for the most part.
And you don’t need to actually buy metals. There are plenty of ETF’s that track the price of gold 100%.
Stick to telling me how to bang chicks and leave the money columns to somebody who knows what they are talking about.
How are Bonds a hedge against inflation when the yield is lower than the inflation rate
you can buy short term bonds….. nobody is going to loan you money at a lesser rate than inflation. if they are, they are idiots.
There are plenty of bond funds that will beat inflation.
If you’re buying bonds, you’re loaning THEM money. Last i checked a 2 year treasury note yielded about .25%, 1/4 of one percent if you didn’t see the zero, and core cpi was 2.1% year over year.
Agreed. A bond is a promise to pay. This is another argument for gold: it is the only asset that is not simultaneously someone else’s liability.
I.E. there is no counter party risk with gold.
You’re forgetting the fact that the income from Tsy bonds is tax free. That’s how they can pitch the lower ylds. And Tsy bonds are pretty lousy investments.
TIPS. check em out.
Maybe you should be taking his advice. Bonds will NOT protect you against an unexpectedly high increase inflation. Quite the opposite in fact.
Good luck getting value out of those ETFs when there is no electricity to run your computer.
“And you don’t need to actually buy metals. There are plenty of ETF’s that track the price of gold 100%”
If you are hedging against a serious financial crisis, an ETF is not the way to go. There is no guarantee the ETF will be redeemable at the price of gold in a crisis.
And bonds are a complete loser for inflation. Even if you locked in an above market rate, the bond holder will just pay back the bond early and take out another loan at the market rate. People holding bonds today are going to lose their shirts if inflation continues.
“paper” gold demands exceed physical reserves. If there was ever a run on gold, there’s no chance you’ll ever see physical metal. If you’re lucky, you might get cash, but by that stage the banks would probably be insolvent.
Notice the price difference between paper gold (ETF’s) and physical gold lately? First off the ETF may not be holding any actual gold at at all, instead the have a non audited “claim” to some gold in a vault somewhere that none of the individual investors get to see. The problem with this is through gold leasing there is much more paper gold in the world than physical. The drop in the price of gold unleashed an unexpected run on physical gold, not just in a few markets but worldwide. The bullion banks accidentally created a bifurcation of the two markets while trying to suppress the price of gold to help manage their paper currencies and people & institutions are realizing that physical inventories aren’t what the seemed to be. They are paying huge premiums to take delivery of gold that no one can get their hands on at the moment. That’s how the free market eventually overrides the managed market. To quote the quote Buffet, when the tide goes out, you get to see who was swimming naked, & there are a lot of skinny dippers in the bay right now. There’s plenty of room and many reasons for the market for precious metals to run much higher in my opinion and I’m in for the long haul.
Nice video about buying silver from Captain Capitalism; only problem is that most nickels don’t have silver in them.
If I were going to buy a precious medal for a disaster scenario I would advise platinum over gold. I think a lot of the evidence indicates our current economic plight is from a decline in output. The government responded however the only tools the Fed is equipped with are for demand shocks. Kind of like how idiots demand an antibiotic everytime they get sick even when it is a viral infection.
the economic situation is really simply….. from 1980 until 2007 there were leaps and bounds in technology.
since 2007 zero has changed. there are no new products…. laptops haven’t changed much since about 2004.
the last innovative product to truely hit consumers radar was the ipad that is years old now. prior to that iphone, smart phones, digital cameras, flat screens, GPS, and so on and so forth.
there are no MUST HAVE technologies available any more, there are only, same old, already got similar….. no thanks….
If the economic downturn were from a decrease in demand as you are implying, why have we not seen a more robust recovery? Bernanke was decisive (relatively speaking) and thorough in combating a negative demand shock. Based on the abysmal jobs recovery and future outlook, it stands to reason that we have had a decline in output.
Guns and ammunition are the best hedge against inflation and financial collapse. Not trolling.
Take the MSRP of guns 20, 30 years ago and adjust for inflation. You can see them being sold online for within 10% of of inflation adjusted values.
They are lighter than similar values of gold, infinitely more useful for obtaining food and providing personal protection, and their trading value will be acknowledged for in any circumstance.
If I had to chose between them, it would be guns no question.
Agreed
And a million laws to trip into to have them confiscated by the government.
You can try shooting anyone that takes them.
Dawg, do you even Bitcoin?
The worry about inflation right now is ridiculous. We are in a liquidity trap. Inflation would be WELCOME, but inflation has been terribly low for years.
Certain people have been predicting runaway inflation ever since the stimulus and the drop in interest rates, but we’re nowhere near there yet. Years, and years, of inflation predictions, and nothing yet…
Great point. It’s not like the price of essentials such as food, fuel, insurance, education are going up.
Hi, if (WHEN) the dollar loses reserve status, watch it lose value like a motherfucker.
Hi, if (WHEN) the dollar loses reserve status, watch it lose value like a motherfucker.
Lots of “financial experts” in this post… Lots of people that “claim” to know what they are talking about, yet id put money on it that most of them are broke. If warren would never invest in gold, why would anyone else?
Warren is a Keynesian. He says the rich should pay their fair share, and yet the manner in which his wealth is structured means he will never have to pay. Google “warren buffet reinsurance” without the quotes.
There is really no hypocrite greater than Warren Buffet.
Even Al Gore has more integrity.
Go suck the buffet cock some more. The great man invested in the banks before the housing collapse and said that if it weren’t for the government bailouts, he would have had to have Christmas lunch at mcdonalds. Turns out he’s not infallible after all, not even close.
Go suck the buffet cock some more. The great man invested in the banks before the housing collapse and said that if it weren’t for the government bailouts, he would have had to have Christmas lunch at mcdonalds. Turns out he’s not infallible after all, not even close.
warren bought tons of silver right at the bottom of the market
How do u know Warren isn’t sitting on 10 tons of Gold and Silver in a vault somewhere ? His bread and butter is stocks. You think hes gonna promote Gold or Silver ? That would jeopardize the Ponzi.
If you are preparing for true financial system collapse stock up on ammo, non-perishable food, tools, alternative energy sources and land/bug out location. If and when shit gets real, we are going to be bartering, not exchanging gold.
egg-zachary…booze, bullets, and clean water. When people ask why I’m not saving anything else, I just say I’ve got other people to do that for me.
yes, the time to acquire gold will be post-collapse.
“you’d like a ham sandwich and a bottle of penicillin? that’ll be 1 gold oz please.”
That’s ridiculous. You guys need to move out of the doomsday conspiracy zone, it just gives the haters more fodder.
Inflation is under control. There isn’t going to be a collapse. Don’t tie up all your money in gold. Invest in mutual funds or something.
Dumb fuck.
If gold is worthless, I wonder why these starving Zimbabweans were panning for it when their currency collapsed – http://www.guardian.co.uk/world/video/2009/feb/11/zimbabwe-gold-panning-starvation-food
Because they had no better ideas.
Anyway, gold obviously isn’t worthless. It’s worth whatever someone will give you for it. And 10 years from now that may be more than, less than, or the same as it is today, and all you can do is guess which.
I drank a Snapple while reading this article and the bottle cap read: “Real Fact” #856 The world’s largest silver nugget (1840 lbs) was found in 1894 near Aspen, CO… No joke.
booze is a great idea. it will always be worth something even in bad times. unlike gold which for the most part only acts as a trading medium or “money” booze has value as a commodity also. really anything not pegged to a paper currency will act as good as gold as a hedge against inflation, and anything with value as a commodity (that doesnt spoil of course) would be much easier to trade. of course this means a lot of things can work but other things to consider is the amount of space and weight your “hedge” takes up, so glass bottles are out. consider methamphetamine. useful as a commodity (though not for you hopefully), worth more than gold in weight (though if “bad times” comes hand in hand with lawlessness this may not be the case) and doesnt spoil.
as always my comments come ever so slightly tongue in cheek.
Everyone always tries to simplify finance. Truth is, there was a time pure hedges were aptly available for a value that made sense with market expectations. There was a time when fundamentals worked. We don’t live in this world anymore.
John Paulson has been piling into gold for a few years now. Hedge fund managers and other deep pocket funds like that are largely responsible for the run up in gold. Combined with the fact cash investments and safe havens such as gov’t bonds are terrible options. The cash has to go somewhere and we live in a world now where major market participants are bigger than ever. If you pile into gold you are playing a dangerous games. Those guys can move the markets before you even finish your morning coffee.
Take oil as another example. Another traditional inflation hedge. Made sense in the 70s. Then Gulf War 1 and 2 happened and derivatives happened and hedge funds happened and you can’t make sense of it now. If oil stocks and gold stocks aren’t even remotely correlating with the move in the commodities anymore than fundamentals are out the window.
Meant to clarify last point. Yes oil and gold stocks directionally correlate but not remotely on the same scale. Gold and oil stocks don’t share in the glory of their commodities, just their pain.
QE gives us a false sense of security with all time highs on the indices, yet companies aren’t investing and the global economy is still spinning its wheels.
Fundamentals. They no longer work.
QE has distorted the fundamentals. Nothing is more intrinsic to the system than the time value of money.
Any article that claims there is no hedge against inflation and fails to even mention real estate is useless. The quality of post on this site continues to go down. Its as if amateurs are writing to amateurs. Why tackle expert topics when you’re not an expert??
The article is about gold not real estate. It is not intended to be a comprehensive treatise on every possible form of investment. I didn’t mention real estate because it is and always has been a local market. There isn’t “real estate” – there are condos in manhattan, beach houses in mexico, grazing land in wyoming. Not the same thing; not the same markets. Did real estate in detroit track inflation over the past few decades? What about southern california or florida? Can you honestly say investments there were an effective inflation hedge?
I’m curious to know what your idea of an expert is on these matters when you didn’t actually refute any of the points made in the article.
First, your title is “There is no hedge against inflation,” not “Gold is not an inflation hedge,” and therefore it is permissible for others to mention real estate.
No one claims real estate isn’t local (i.e. varies from place to place), but the point I made above in my comment still stands (point 3). A fixed rate loan on a positive-cash-flow asset is definitely a hedge against inflation.
Not if the price of the asset goes down during a time that you have to liquidate to cash. Not if your positive cash flow asset becomes negative cash flow. There is no certainty in any financial product or asset and i’m not saying don’t buy gold. i’m saying
be realistic. Gold will probably – note that i said probably – get crushed in an improving economy. If the doomer prophecy comes true, it’s not going to get anyone as far as some allege though it would obviously be preferable to cash. I’m not arrogant enough to think that i know where any market is going but i stand by everything i said here and above.
no there is nothing perfect in this world.
but if you look at real estate prices over 100’s of years as they can do in places like amsterdam, you will see that real estate tracks inflation almost perfectly over the long term.
real estate is not a short term investment. thats the problem we had before. people viewed it as such. when bought and held for the long term, it is indeed, the best hedge against inflation. especially if purchased all cash or with a fixed rate loan.
As usual, someone simplifying finance. You realise in the early 80s during hyper inflation in Canada people were turning their keys in? Everyone in certain countries, namely Canada, have gone nuts with real estate during this low interest-rate, deflation-fighting economy.
Even if you fix your rate, you’ll have to renew at some point. If the same occurs as in the late 70s and early 80s, real estate will be sub-optimal in certain regions. It isn’t that simple. It also isn’t liquid when you have to sell. Commodities are at least liquid assets.
Much to learn you still have grashopper.
Gold is not a hedge against inflation – it is a hedge against big goverment. It fuels the underground economy.
Gold is hated by politicians because they can not control it. It is difficult to confiscate and it is difficult to tax.
If you want protection against goverments greed – gold/silver are your best friends. Store them outside your home country in case you have to leave in a hurry.
Real estate is a very different investment. It can not be moved outside the country. One of the first things insolvent goverments have in their books is real estates.
Now if you have faith in big goverment and want to bet goverment will honor its obligations to both bond holders and entitlement programs a pure inflation hedge makes sense.
If on the other hand you do study history and look what other insolvent goverments did in the past, then maybe inflation should be the smallest of your problems. In case of the U$ this is 200% true since we are talking about the world reserve currency, a core economy and thus we will see a RISE in the value of the dollar in the next years to come. The dollar my look ugly, but the alternatives are worse.
Quote:”Real estate is a very different investment. It can not be moved outside the country. One of the first things insolvent goverments have in their books is real estates.”
So are you saying that government’s seize and confiscate people’s s homes and then sell them for money, only to have the same shit happen to the new owner? When the fuck did the US government take houses in a meltdown?
One of the worst run countries in the world, ARGENTINA. They are both retarded and corrupt, but never did Argentina government decide to seize privately owned real estate to get out of a crisis.
yeah but i bet they cranked taxes on them…. real estate is so easy to tax, stamp duty when you buy and sell, land taxes, council taxes, wealth taxes against a % of the value, they can nationalise water and power companies and hold property owners to ransom for power and services and so on and so forth.
At least with an attempted tax hike people can choose to go to revolution and kill the politicians — but real estate just doesnt get taken away to be resold so the gov. can pocket the money.
Kelo?
Wrong.
Kirchner “appropriated for the people” a majority stake in the YPF, the Spanish oil company.
I would urge you guys reading this article to check out 2 men with a strong track record regarding investments and gold.
Martin Armstrong of Princeton Economics has computer modelled ( and for once, accurately ) the factors that effect economies and investments . Has been sought out worldwide by governments and large investors. His take is that after 12 years of unbroken up record , gold is due for a pullback. Also, he states that the US dollar will go very high as the Euro and other large currencies decline.. simply there is no other choice. However, this is the seed of it’s own collapse as the high dollar will eviscerate the US dollar. Sometime after 2015. He also has a very interesting cyclical theory that appears to have been quite accurate .
Jim Sinclair is more well known. Made a fortune in the last gold bull market. Then went into bonds and returned in 2000. Was very close in timing the rise to $1650 ounce years out and warning about derivatives. Now he is warning that the latest gold smack down basically created so much latent demand that it will not shoot the manipulators in the foot, but the head, as stocks are wiped out. He also talks about cost-push inflation.
My own take : any one that believes government statistics is very naive.
should have said ” high dollar will eviserate the US economy , then the dollar will fall”
Holding physical gold is a hedge against your bank deposits getting Cyprused or your financial assets getting Corzined.
More proof that this website has:http://www.youtube.com/watch?v=MpraJYnbVtE
I think that expression did a long time ago.
In other words, don’t take financial advice from Austrian economists. They don’t understand the history of the gold standard they advocate:
http://socialdemocracy21stcentury.blogspot.com/2013/03/the-classical-gold-standard-era-was-myth.html
gay.
haha you’re a fucking idiot
Mises, Hayek, and Friedman were certainly aware of the history of the gold standard.
Then again every other Neo-Keynesian thinks everyone else are just ignorant buffoons.
A few things:
1. Silver is historically MUCH more volatile than gold, although they do tend to move together.
Plus gold has a price floor under it: central banks buy gold. Gold is an historic crisis hedge.
2. Gold, however, is not a recession hedge. The recent fall is more likely an indication of coming recession. I would therefore not consider that the economy is improving.
3. Another good inflation hedge is positive-cash-flow real estate with a fixed rate mortgage. You borrow, lock in the low rate, and have renters pay it off. If inflation gets out of control, you hike the price, but your loan payment remains the same.
I want to re-empasize J said…silver is VOLATILE!!!
Buying at the high end means serious pain when silver drops, better to hold more gold than silver.
Now I certainly agree holding cases of whiskey is a good idea, rich people drink that stuff and in a serious crisis you can make a good trade.
On the real low end, nickels are worth 11 cents a piece in metal right now.
I did mention that silver is more volatile. I would say hold both if you’re going to hold one of them but be realistic. be prepared to take at least a 30% loss.
I was watching a video about the hyperinflation in Zimbabwe and you needed 0.3g of gold to buy a days worth of bread – 3 loaves. That would put bread at about $6US a loaf when I calculated it a few months ago.
I recommend “Surviving the Economic Collapse” by Fernando “Ferfal” Aquirre as a no bullshit look at a collapsing economy.
What is also important is having a stack of physical cash. You don’t need much, but enough to wait out the bank runs and savages.
Gold is a hedge against inflation simply because its supply cannot be
increased at the whim of bureaucrats, unlike fiat money. Gold is also a
hedge against hyperinflation, in that you wont wake up one morning and
find your life savings worthless. And lastly, gold is a hedge against
deflation, as commodities collapse in price versus gold, but not versus
paper currencies.
Also, anyone talking about gold ETF’s and futures contracts still hasnt
learned the lesson of MF Global – if you cant touch it, you dont own it.
The fact that John Corzine got away with grand larceny is the perfect
example of why you cannot trust the legal system to police the financial
sector. They are above the law altogether. Physically holding gold is
the only way to eliminate counterparty risk, though that invites the new
risk of government confiscation.
Finally, if you want goods to stock up to barter, then condoms and
viagra will do better than alcohol and tobacco. Though in a survival
situation, nothing will be more valuable than blood-brothers. You do not
want to be the Paul Rudd character in I Love You, Man with zero male
friends. What preppers dont understand is that you cannot survive on
your own. It is not only physically, but psychologically impossible
for most human beings.
Firstly, if you’re concerned with the economics of the western world, please read Zerohedge dot com, not this site, for your economic news and education. There are people actually educated in finance and economics writing there.
Secondly, YES gold is a ‘hedge’ against inflation. No one that reads this site is probably going to need it because they will be close to the 18-25 demographic and making 25-100K/year. If you have less than 100K in savings and you’re under 30, then no, gold probably won’t be the answer for you. If you’re young and have no money, don’t fret, you have something invaluable called ‘youth’. That will likely see you through anything that happens. If you’re over 30, and have a lot of savings, then converting a portion to gold (hopefully you did this before the bailout in 09), is a great idea because as long as Uncle Ben Bernanke buys 85 Billion worth of US Treasuries per month, your holdings in dollars is being devaluated.
I’ve been saying gold is a fools gambit for a long time. It may be prudent to hold some reserves just-in-case, but if you think about even the concept of gold’s “value”, it’s pure silliness.
People buy gold to escape the sham of fiat currencies. Then, those same people “value” their gold against the worthless fiat currencies they escaped by purchasing gold. How does that make sense?
Let’s say hyperinflation strikes and your ounce of gold is now valued at, say, $5000 an oz. So, does the gold bug jump for joy that he can now trade in gold for $5000 in cash? Does he celebrate the fact that he was right about the monetary system and applaud his own wisdom in owning gold? Now he has an even greater dilemma–what do I do with my gold now that it’s so “valuable?”
If the price of gold breaks out and soars to record levels, it’s most likely in response to an economic crisis where hyperinflation leads to price controls and economic production grinds to a halt. We have recent case studies on how this unfolds. Will the gold bug trade his now “valuable” gold for worthless fiat currency to buy groceries and gas, or will he continue to cling to his precious metal so he won’t “lose” value by cashing out at today’s low valuations, since tomorrow’s value is likely to be much higher. In such a situation, I think gold bugs will be caught in their own thinking about value. The gold fever will condemn them to hold onto metal when what they need is food, water, utilities, and fuel. Of course, some may say that they’ve stored up all that in sufficient quantities to last an extended period of time.Then you’d have to ask, if someone has all those things and doesn’t need to trade gold for those things, then why is there even a need for the gold in the first place.
Value is a concept–a word– that means the measure of a thing’s necessity or usefulness to THE INDIVIDUAL. Gold in and of itself has no value if the only thing I ever do with it is hold it and hope that it goes up in value compared to dollars, yen, etc. In fact, there is a real cost to holding gold — we can only talk physical gold because paper gold investments are just another form of fiat currency. So, until I can pay my bar tab in .1 oz gold eagles at that day’s spot value, I find good ‘ol paper cash to have more actual value than gold. Paper gets me scotch. Gold gets me weird looks.
Now, if the SHTF, you’re better off having all your necessities covered–water, food, utilities, fuel so you don’t have to buy any commodities or services and hyper-inflated prices. You’d also want to provide something of value in those circumstances that people would buy from you at whatever the prevailing rate is, in the currency of choice at the time. Then you could always trade your goods and services for fresh currency — whether paper fiat currency, gold, silver, etc. at that time, rather than storing up a bunch of heavy metal that you must store and protect for who know’s how long and who knows how much cost.
Plus never forget that your gubement will at some point have to start paying it’s bills back in gold if the currency is truly worthless. And we have precedent that the guberment will forcibly take that gold that you so wisely stored up for yourself to it can pay it’s bills.
So, what’s the allure of gold?
it’s a precise definition of a certain amount of human labor to extract it from the ground. it’s difficult to fake, it’s easy to split, (the quarter used to be a quarter of dollar, which used to be made of gold, people would chop them in 4 pieces), and gold doesn’t decay with time.
in Rome a senator paid 1oz of gold for his robes to go in the senate…today a senator probably pays about $1500 for his suit…. oh look… that’s exactly the same…
200 years ago the cost of building a decent ranch was about 100 ounces, today it’s about the same… $150k….. I’m talking building costs. not Miami, let’s snort coke and rent a Ferrari and pretend we’re rich spending $5M on some crappy condo that will look like shit in 5 years time costs….
gold is a definition of work done to get it out of the ground…. 1 oz of gold = certain amount of labor and work done… and it always will be like that simple !
the only time that gold blew up was when the spanish came back from the americas, with so much gold the ensuing inflation crashed their economy, and that is why we all speak english not daego….
This post is ignorant of 5000+ years of economic history. Yes, the purchasing power of precious metals can and will fluctuate in the short term, but it almost always returns to an approximate mean. In a Total Collapse of Civilization scenario PMs may temporarily lose significant purchasing power for daily goods, but that is not what PMs are for – Anything more than junk silver or one ounce silver coins is for wealth preservation and (anonymous) transportation. For daily goods, stock barter items (see below).
If you want firsthand knowledge and experience of living through a deteriorating society and hyperinflation, go here: http://ferfal.blogspot.jp/
Start by reading his seminal post:
http://ferfal.blogspot.jp/2008/10/thoughts-on-urban-survival-2005.html
And then get and read his book. It’s well worth it.
Other good SHTF info-
100 items to disappear first (Sarajevo survivor):
http://flutrackers.com/forum/showthread.php?t=4508
Top post-collapse barter items and trade skills:
http://www.shtfplan.com/emergency-preparedness/top-post-collapse-barter-items-and-trade-skills_06102011
There is a hedge against inflation.
An axe, a crossbow, and a cabin in Alaska.
There is one. And if this one fails then the world is in so much shit that even gold would be useless. US Treasury Series I Bonds pay the inflation rate for the year. It might seem worthless on the surface but if you compare that what many investment instruments that have high security pay today, then for the past few years you would have came out on top with a Series I bond. You are allowed to purchase $10,000 a year in these bonds. The bonds have a 30 year maturity but you may cash them in at any time.
Clark Howard is a somewhat famous personal finance writer and he has an article that describes the benefits of them.
http://www.clarkhoward.com/news/clark-howard/personal-finance-credit/series-i-bonds-are-good-deal-now/nC832/
One thing that the past 5 years should have shown you is that despite all the gloom and doom predictions of the financial system, it is quite resilient and is allowed to do just about whatever it wants and seek whatever support it needs to survive. It does not pay to bet against it and it is the most powerful institution in the world.
And as the world went through incredible insecurity over the past five years, the one safe haven that in the end, almost all investors tended to seek and to favor was the US Treasury Bond. The Chinese do not invest in them to control the US markets, they invest in them because of the confidence they offer against any other instrument.
This article explains the downside to buying those bonds.
http://www.lewrockwell.com/sardi/sardi258.html
I believe that a few years from now, people will look back and be browbeating themselves for not seeing how obvious it was that high inflation is coming. Those who can’t see it today have fallen for the Cathedral propaganda (see my Red Pill article in the “recommended for you” list above).
I agree with the commenter who said that storing gold outside your country of residence is wise. It will still have its buying power centuries into the future. When people hunt for buried treasure, they’re not hoping to find paper currency.
If you want to make a fortune, learn how to invest in mining stocks, which are back on the bargain table. For an example of what they’ll be doing over the next couple of years, see what SLW did after the last cyclical low of 2008…in a low-inflation environment, no less. The same opportunity is presenting itself again, and as then, few are buying now because they’re skittish. But, that’s always how it goes. The great opportunity with them exists precisely because so few people believe they’ll come roaring back (the otherwise obviously intelligent author of this article being a case in point). Per Mr. Buffet (“buy when others are afraid”), this is a time when you can rake in free money with a little capital and a lot of patience and courage (the stocks are highly volatile and may well dip lower after you buy).
If history can be relied on, the banksters will see to it that Congress bans or severely taxes bullion down the road, but they love stocks. Make ’em happy and get yourself rich with them. I wrote the book based on my own experience (retired young).
The next three to seven years will be a rocket ride for the quality mining stocks, but not without further scary corrections of course.
No need for debate, really. Time will tell who was correct and who was not.
Mining stocks are the most difficult sector to invest in. I advise against it.
if gold could not trade higher on QE infinity and central banks around the world lowering rates and monetizing debt, nor go higher with the stock market surging, then gold is headed lower. add to that all the large leveraged positions in gold (Paulson, Blackrock, etc) and you got big downside. all that’s happened so far is a correction.
ironically, the recent correction in gold came just after a Return of Kings article on money printing and the coming hyper inflation. perhaps this article on gold and inflation is another contrary indicator? slap on some DZZ…
All wrong. Harsh, but true.
The collapse of the USD monetary regime will not lead to an equal appreciation of all non-USD denominated assets. One or more goods will become monetized to replace it. What goods will those be? Gold is a strong bet. Cases can be made for bitcoin, silver, remnimbi.
In any case, real assets will preserve their value: Land, equities, commodities, guns, art. If you want to make a bet with huge upside potential though, potential new monetary bases are where to be. If you have significant assets, a small fraction in gold will be enough to make you quite wealthy if it’s ever remonetized.
Good on the author for taking on an interesting topic though.
The best article I know of on this general subject is Why the Global Financial System is About to Collapse by the pseudonymous John Law, now better known by the alternate pseudonym Mencius Moldbug (of Unqualified Reservations fame). Although the article’s titular prediction was wrong (at least so far), it offers a brilliant explanation of what money actually is.
The Author offers no basis in fact to support his conclusions.
For example, in the hyperinflation of Wiemar Germany Argentina and nearly all others Gold EXCEEDED the inflation rate (in Wiemar it exceeded it by 1.8 times).
The reason is simple, Gold became scarce, thus commanding a premium when there arose and overwhelming demand for a reliable means of exchange.
History is your friend.
you’re a fool. That is all
The best protection against inflation isn’t gold, it’s productive assets. Things like farmland, apartment buildings, good companies, etc that provide a consistent, sustainable cash flow. The cash flow that gold produces is 0, as you noted above.
And if you feel that inflation’s coming, better to take on fixed-rate debt to buy such things, then pay those debts off with cheaper dollars while you get to keep the assets.
Also, I think the real threat in the US isn’t so much inflation, as it is deflation. The Fed is inflating assets and has become a serial bubble machine. What happens when those bubbles explode? When the stock market crashes, interest rates rise, and commodities collapse, it will be deflationary. Of course, the Fed could respond to that event and decide to print $5 trillion a year that could lead to hyperinflation, but I think the short term threat in this country is deflation. Longer term, very high inflation is certainly a possibility.
No way, here is how to hedge against inflation: http://adviceaboutfinance.com/2013/10/02/how-to-hedge-against-inflation/
Look, your article is right on the ball in terms of gold as an investment, but you forget one very important aspect of owning gold bullion, which is that nobody knows you have it. Unlike other investments, physical gold is not linked to your name. If you own stocks, if you own real estate or if you have cash in a bank acccount, it’s all in your name, which means that when (not if) your slutty North American wife divorces you after banging an alpha-male bodybuilder with a tattoo sleeve, she gets half of all your investments. If you own gold bullion, however, and you haven’t told anybody about it (which you shouldn’t), and you’ve hidden it well (for example, buried it deep in a small piece of land or tiny rural forest you own), it’s yours and yours alone. In addition to owning gold after your divorce, you can rent a beautiful condo and lease a Porsche. That way, the condo isn’t yours, you don’t own the Porsche (the leasing company does but you get to drive it anyway), and you can exchange your gold for cash whenever you want to go to a fancy restaurant, buy a piece of high end furniture, or make it rain in the club if that’s your thing, and your former wife-whore never sees a red cent. Of course you could hide cash, but between gold and cash, gold is the best investment. Whether stocks or real estate are better than gold is irrelevant if you’re trying to protect your wealth from a cheating, divorcing wife.
And that, my friend, is the most important case for owning gold. Come inflation or deflation, or good economy or bad economy, or hell or high water, gold is freedom, other investments are not.
Think about this for a second:
“This is what it comes down to: if the price of gold in dollars goes exponential in a hyperinflationary situation everything else priced in dollars is going to do the same. You can’t expect that your gold coin will buy the same goods that it would buy now if this happens. The actual purchasing power of your gold will surely decline as day-to-day essentials become prioritized.”
What about the millionaires and the billionaires? Would they want to store their wealth in something mobile, small and easy to move? While the masses may rush out to buy flour and rise. Anyone in the above 30% of the world population and this includes many of us will ant to invest in real assets such as gold.
Allow me a small self advertising here, I write about real alternative assets such as gold, real estate and crypto on my blog:
For example:
Property: http://investitin.com/p2p-property-fund-landlord/
Whisky: http://investitin.com/invest-scotch-whisky/
Farming: http://investitin.com/how-to-invest-in-aloe-vera/