Investing in Gold
Investing in Gold: Dreaming of a Gold Christmas
A Daily Reckoning “Side Bar”
byKate Incontrera and Bill Bonner
Good news, goldbugs – your favorite precious metal reached its highest level in 18 years this past year.
We know that longtime DR sufferers aren’t surprised; they’ve been advised in these pages to drop the dollar and buy gold for years now. After all, gold is the anti-paper, and despite recent dollar strength, investors are increasingly exploring alternatives to U.S. and European currencies, as well as stocks and bonds.
“Strength in the dollar is more a reflection of trouble for the euro and the yen,” Addison Wiggin tells us. “Gold is the only investment alternative not susceptible to what ails the dollar.”
And gold has proved to be a better measurement of wealth (and a better way to hold onto that wealth) over paper money time and time again. BillBonner has called gold “nature’s money” – and for good reason. You can’t turn on a printing press or create it out of thin air; this naturally limits the “money supply,” generally keeping it in line with the economy itself.
Investing in Gold: We asked for $500 by Christmas –
Some analysts say that the gold market may been supported by comments from Russian and South African central banks, which hinted that they might want to beef up their gold reserves. Other experts contend that strong physical demand from countries like China and India are driving the rally. And you can’t forget about those who buy gold as a hedge against inflation.
Whatever the reason for this rally, it all looks very good for those smart investors who hold the yellow metal…and many believe that it’ll just keep getting better from here.
“Gold is going to (hit) $500 by Christmas and everything that happens is a step in that direction,” said Peter Hillyard, head of metal sales, Europe, at ANZ Investment Bank. [Editor’s Note: AND IT DID!]
“The funds want to diversify portfolios and they are buying commodities because they are seen as being potentialfor better returns.”
Investing in Gold:Answer Me This…
Would you rather hold one thousand dollars…or two ounces of gold?
It is a little like asking if we would rather have one old woman dressed for Sunday services or two young ones stark naked. Ask us something harder.
What happened recently? The price of gold jumped again. It is headed for $550. We may have to move up our buying target.
Why is the price of gold so important? Because gold is the ultimate competitor to the dollar. A vote for gold is a vote against the dollar, against paper money…and paper assets. It’s a way of saying, “Yes, we know Bernanke, Bush, Greenspan, Trichet and Goldman Sachs have everything under control, but we thought it might be a good idea to have some REAL money, just in case.”
Gold is a remarkable thing. It is found in the earth’s crust like lead or coal and sits on the periodic table. It can be mined, but it cannot be manufactured. It can be polished, but it cannot be enhanced. It can be wrought and worked, but it cannot be manipulated like paper money. It can be flattened into a sheet thinner than paper, but it yields to neither political pressure nor financial desperation.
For thousands of years, gold has been a measure of wealth and a way to keep it. Protecting your wealth was simple: you bought gold and hid it (Invading armies often routinely tortured their victims to get them to tell them where the gold was hidden.).
Investing in Gold: Napoleon Bonaparte – Gold Bug
At last night’s dinner party, we sat next to a woman who is writing a book about Napoleon Bonaparte.
“Bonaparte hated debt,” she said. “And he hated paper money. He had seen what it had done to France during the Revolution. He insisted on an honest currency based on gold coins.”
Why gold coins? Because gold is nature’s money. Central bankers can’t create it at will. They have to buy it like everyone else. This naturally limits the “money supply,” generally keeping it in line with the economy itself.
Bonaparte’s financial system helped make France one of the world’s most prosperous countries. The evidence is all around us. Everywhere you go in France you see the buildings put in the 19th century – handsome edifices, solidly built. Most of Paris itself is a product of the same 19th century prosperity.
But the world turns. By the beginning of the 20th century, it had been a long time since people had suffered inflation. So, along came economists saying to no longer worry about it. In they’d be better off if prices rose a little bit. It would “stimulate” the economy. It would help give people jobs. These same economists offered to “manage” their nations’ monies in order to produce the improvements they promised. Henceforth, no one needed to be crucified on a cross of gold, they explained.
Reluctantly, by fits and starts…the world’s money and gold were unhitched. On August 15, 1971, the last link was cut. Since then, we have been enjoying an experiment – a world of “managed” currencies. As far as anyone can tell, it is a success. The world’s most prolific currency – the dollar – is still accepted everywhere as though it were real money. Lenders have trillions of dollars worth of credits, and hold them as though they will be still be valuable next year…even 10 years into the future. Merchants do not laugh when you take a dollar out of your pocket. You can use the dollar to pay your bills. Dollars you left in your desk drawer last year are worth almost as much a year later.
Is this really a new era, dear reader? After all these thousands of years, has mankind really learned how to control paper money?
We will watch see. We will see. We will hold gold tight and enjoy the show.
Kate Incontrera & Bill Bonner
The Daily Reckoning
P.S. Some paper currencies are destroyed almost absentmindedly. Others are ruined intentionally. But all go away eventually. By contrast, every gold coin that was ever struck is still valuable today, most have more real value than when they first came out of the mint.
Central bankers reported in early 2005 that 70 percent of them were increasing their reserves of euros. As for the world’s erstwhile and present reserve currency, the dollar, they seemed to have, not growing reserves, but growing reservations. We also have reservations about the dollar.
Whatever it is worth today or tomorrow, we are sure it will have less worth eventually. That it is not regarded as worthless already is remarkable.
The average dollar is nothing more than electronic information. It exists thanks only to the ability of digital technology to keep track of it.
Investing in Gold:The Dollar vs Gold
Relatively few dollars ever make it to paper, and many of them end up in the pockets of Russian drug dealers and African politicians. Most dollars in most people’s accounts are not even graced with the image of a dead president; when the end comes, they won’t even be useful for starting fires.
It is imperial vanity that keeps the dollar in business. And it is vanity as well as the decline of the empire that will make it worthless.
Economists want money they can control. Central bankers want money they can debase. And politicians want money they might get their mug on.
The trouble with gold is that it turns its back on world improvers, empire builders, and do-gooders. It is money that no central bank promotes and none destroys. It is money that exists only in a tangible form, a real metal – a number on the periodic table.
“Gold goes up and down, just like other kinds of money,” say economists.
Which is true. “You can protect yourself from inflation in other ways,” say the speculators. True again. “Gold pays no dividends or interest,” say the investors. True. Nor will gold cure baldness or add inches to your most private part. Even as money, gold may not be perfect. But it is better money than anything else.
Gold was around millions of years before the U.S. dollar was invented. Itwill probably be around a billion years after. This longevity is not in itself a great recommendation. It is like buying a suit that will last longer than you do; there is no point to it. But the reason for gold’s longevity is also the reason for its great virtue as money. It is inert; it yields neither to technology nor to vanity.
Investing in Gold:Tangible Money
The world improvers will always be with us. They will spend more than they have, boss other people around, and generally make the world a worse place to live. They will offer proposals like those of Thomas L. Friedman. The nice thing about gold is that it is so unresponsive. It neither laughs nor applauds. Gold is money that no central bank promotes and none destroys.
It is money that exists only in its tangible form – a real metal, a real thing.
Paper money is a handy tool for the world improvers. They use it like politicians use civil service jobs and generals use heavy bombers – to get their way. Whatever the vapid ideal du jour, it takes money to pursue it.
Given enough money, the poor can be fed and housed. The middle classes can be given free medical care and low-cost loans for houses. The upper classes can be given contracts and favors. Enemies can be summoned up, bombed, and reconstructed. Bread, circuses, war – the imperial program costs money.
How to get more money for these great new programs, these marvelously worthwhile ideals, these fabulous public spectacles? Gold flatly refuses to cooperate. It doesn’t even give a reason. Instead, it stays as mute and reticent as a dead man in front of a television. No matter how persuasive the advertising, the man is not going to go for it.
Paper money, on the other hand, barely needs encouragement. Start up the presses! Lower the interest rate! Relax reserve requirements and lending standards! Sell more bonds! Create more paper! Paper money is ready to go along with anything. Like George W. Bush, it never met a boondoggle it didn’t like. Sooner or later, it ends up as worthless as the projects it was meant to pay for.
Gold Protection Against Untrustworthy Currencies a Daily Reckoning Special Report
Gold and 1,000 Frozen Pizzas
by The Mogambo Guru “I noticed that my entire portfolio used to be able to buy exactly 1000 frozen pizzas, but after all of this inflation, my quarterly statement shows that my portfolio can only buy 960 pizzas.”
In The Aftermath, Part II
by Justice Litle “At the end of the day, America has essentially borrowed $2 trillion from the rest of the world and spent it in mostly nonproductive ways. The Fed fueled this binge and facilitated a gold rush in paper assets.”
by The Mogambo Guru “You will be surprised to know that there have been times when silver traded at a premium to gold. So, if this were one of those times, silver would be at over $470 per ounce. It is selling for about $7 right now.”
Other Useful Links:
Kitco.com – one of the world’s premier retailers of precious metals.
World Gold Council– The global advocate for gold.
Gold-Eagle– An informational site that provides articles, analysis, and charts about gold investment trends.
The Daily Reckoning Gold Page –The Daily Reckoning is a freewheeling Web site for libertarians,
gold bugs and doom enthusiasts of every stripe.
The Gold Rush – A complete compendium on the California Gold Rush.
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