07/14/10 Paris, France – If we were speculators, we might consider selling. But here at The Daily Reckoning, we’re not gamblers. We hold gold because it represents real wealth, not because we think it will go up in price.
We don’t really know what direction it is going. But that’s why we hold it. We don’t know what direction anything is going. The nice thing about gold is that it doesn’t matter. Gold doesn’t go anywhere. It just sits there.
If you buy a bond, for example, you have to worry about the credit quality of the issuer. If things get bad enough, he won’t be able to pay up. Your bond could be worthless.
Same for stocks. A stock is a share of a company. If the company goes out of business, your stock certificates (assuming you have them) are only good for decorations.
Real estate is more reliable. But there are taxes and upkeep to pay.
Gold is a better way to store wealth. You don’t pay property taxes on it. And the roof never leaks.
Besides, gold is especially valuable when other forms of money lose their appeal. The trend of debt destruction will probably not end soon. And the feds will probably sooner or later follow Paul Krugman’s advice to “raise [the Fed’s] long-term inflation target to help convince the private sector that borrowing is a good idea and hoarding cash is a mistake.”
In the meantime, gold may go down in dollar terms. Which will make a good time to buy it.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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When we start reporting the value of the dollar in terms of ounces of Gold, then and only then could we consider Gold to be the thing that sits there while everything moves relative to it.
As it is we report the price of gold in dollars. Proving that it is the dollar that is the central thing. The dollar is the money. The gold is just one more thing to you can buy with a dollar. One of a million or more things that you can buy with dollars.
You can’t actually buy anthing with gold unless you first sell the gold to get dollars.
If you check it out I am sure that you will find that while it is legal to hold god in the U.S., Gold is not in fact legal tender.
If you owe me money and you bring gold to pay, I don’t legally have to accept it.(How would I know it was real pure gold?) Whereas if you bring paper U.S. dollars I believe I would have to accept that (unless I had reason to suspect it was counterfeit)
And don’t forget, you can always burn your paper dollars to stay warm.
InvestorsFriend….
You win today’s Booby Prize…. and all expenses paid ride on the short bus. Unfortunately for you, it’s not exactly a change from your regular means of conveyance.
Your argument seems to be, when boiled down, that holding dollars is a superior form of wealth protection because the government will send men with guns to force shopkeepers to accept it, should they balk…. Will they also enforce prices at the end of the bayonet? If not, does a $40,000 loaf of bread mean that US Dollars were a superior store of wealth, simply because the seller may choose to not accept gold as a replacement? If so….. why aren’t you protecting your wealth in Venezuelan Bolivars? Their government is way ahead of ours in the areas that seem to qualify a medium of exchange as superior in your book!
(My tongue is THROUGH my cheek, and you are a dolt of the garden variety)
If my gold is worth $1200 an ounce today and $300 four years from now, its value is less isn’t it? If you don’t want to own gold in hope that the price will increase and you can sell it, then what’s the point of owning it? If you don’t sell it, and it instead “just sits there”, then the gold has no actual value for you. If, however, you did intend to sell at some point, you’re certainly not going to buy when it’s value is high, or sell when it’s low.
So, I don’t really believe that gold represents wealth, irregardless of price. Conversely, I do think it’s important to decide whether or not to sell, thus realizing the value of your investment.
As far as it being something tangible (as opposed to paper money), isn’t it true that most gold is simply a piece of paper saying you own gold. The reality is that more gold is “owned” than actually is currently distributable. Therefore, most of the gold people possess is nothing more than a piece of paper representing gold. If everyone were to want to claim their gold at the same time, only a small percentage would actually receive the physical product. While this isn’t likely to happen, my point is that it’s not the hard lump of valuable metal that people think it is, but rather another form of paper money.
Beauty is in the eyes of the holder. Since most people don’t hold any gold all they see is practical considerations. Heck, even trophy wives lose their shine to practical considerations .
Micah provides entertainment by calling me a Booby for saying a bunch of “boiled down” things that I never said at all.
I just pointed out that is Gold were indeed the true measure of wealth then we would measure dollars in terms of what they were worth in ounces (or I should say grains) of gold instead of the measuring Gold in dollars.
I never said anything at all about Gold being a bad investment.
But some people see critcism at avery turn.
Since you seem interested in my opinion Micah, To elaborate, in the U.S. dollars are is money. Dollars are gladly accepted all over the world, no gun-point involved my friends. Gold is a thing like land or food or anything else that you buy with money. Gold may or may not turn out to be a long term store of money value. In the last 40 years it has been exceedingly volatile in terms of dollars. One year it buys four suits of cloths (1980) then it buys about a half suit of cloths (circa 2002) then it buys two (2010). Hardly a stable form of wealth in the short term. But apparently pretty good if your time horizon is 100 years.
Inv.Fr, when I was born one US Dollar bought 25 First Class postage stamps, according to the envelope that encloses my Birth Certificate.
Today one US Dollar buys 2 & 1/2 First Class postage stamps. My keen math skills tell me it is worth 10% of what it was when I was born. Inv.Fr, I’m sure your math skills are equivalent to mine.
Hardly a stable form of wealth in the long term, and I’m not even 100 years old.
And just to add to my last post.
And yes admiitedly the dollars that bought 1 suit in 1980 will only buy a half suit of cloths or less now. But the value of dollrs in terms of how many suits it would buy declined rather smoothly. Money was a good store of value over short periods. Gold however, in terms of its value in suits (or potatoes or cars…) was extraordinarily volatile. That is undeniable.
Hah, further proof Paul Krugman is an idiot.
“raise [the Fed’s] long-term inflation target to help convince the private sector that borrowing is a good idea and hoarding cash is a mistake.”
Who would be stupid enough to increase leverage in such an economic environment, when the feds have made it clear they’ll screw up your profit expectations and economic computation (except the feds themselves) ? Keynesian claptrap is too funny.
quite educational discussion, most people do not understand “gold wealth” concept pushed from TV screens…
in my understanding, present scale of world debt destruction equals enormous wealth destruction where money supply disappear creating wide deflation which will include overrated gold buying; it’s a matter of time gold will hit South and only then will be opportunity to buy it providing there is cash left…
Amazing article and discussion! Gold is great (or not so great) as a fail-safe store of wealth, because it does (or doesn’t) increase in value/worth depending on whatever it is (or isn’t) compared with, and, provided one holds it (or doesn’t) in the long (or short) term, because it may be volatile (or not)?
But doesnt history show that when governments economically fail their populace, NOTHING owned outside their system can be safely stored?
Even the original Pied Piper first sucked in the ‘children’ of a clueless, dependent community (no creativity there to invent own rat-traps?), before attempting to fleece the community as a whole over resolving only its perceived problems – and then deliberately (or designedly?) abandoned it to its own ends again; except this time completely deprived of ‘life’ investments.
Now our own self-proclaimed ‘Pied’ Piper also charismatically and just as untransparently, warns us that all our uncertain securities strategies haven’t begun to even slightly fathom out what he truly has in mind for us and ours … or doesnt!
I had inherited some gold coins, but I heard that the government was going to take them away if times got hard, so I sold them all. Now I have cold, hard cash! and no one can take it away. A dollar will always be worth a dollar, and you can’t buy a loaf of bread with a gold coin, but you can always buy plenty of bread with a dollar.