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Friday, October 23, 2009

Gold $2k or Dow 20k?

I was watching the Communism Channel, and they were saying "Hooray! The Dow index went over 10,000! The recession is over! Buy stocks!"

When the FRN-denominated price of gold went over $1k/oz, the comedians on the Communism Channel said "You missed out on the gold rally! Sell gold! Gold investors are idiots!" The story was not highlighted with as much fanfare as Dow 10k.

That's an interesting evil fnord. "Dow 10k!" is heavily hyped, but "Gold $1k!" is hardly mentioned.

Over the past 10 years, gold has outperformed the stock market by a wide margin. It isn't a small error. It's a *HUGE* difference. It's too big an error to be a coincidence. Even thought this has been a pretty good year for the stock market, gold still has performed slightly better than the S&P 500 so far in 2009.

From 1933-1975, gold ownership was illegal in the USA and most other countries, making a comparison invalid. In the 80s and 90s, central banks were selling/leasing their reserves to keep down the price of gold, so that gold would be discredited as an investment and worthless paper would seem valuable. Between 1975 and the early 80s, central banks decided to keep their gold because it was the only valuable asset they owned; after the gold price spike, they adopted a policy of selling off their gold and manipulating the price downward. The central banks have nearly exhausted their gold reserves, limiting their ability to manipulate the price of gold.

My father likes watching the Communism Channel, and has their propaganda well memorized. Whenever I advise him "Buy gold!", he recites various pro-State troll excuses. "Gold is a deadweight asset; you don't get a dividend." "There are no industrial uses for gold." "It's hard to value gold. With a stock you get earnings and a dividend. Gold has no intrinsic value." "There's no safe place to store gold!" Those excuses seem pathetically obviously wrong to me now, but I can't convince him.

I'm seriously considering converting all my State paper investments to physical gold and silver. For now, I'm keeping my State paper investments and buying GLD and SLV. Once I get my own apartment, I'll start buying physical metal; my parents forbid me to invest in gold and silver while living with them, because they think it would attract robbers.

I'll make the "bold" prediction that gold will reach $2k/oz long before the Dow index reaches 20k. Even if that turns out to be wrong, doesn't mean that gold is a bad investment. I doubt I will be wrong.

As a small investor, when you buy shares of a corporation you aren't really buying anything. You can't prevent the CEO from giving himself and his friends huge salaries and bonuses and option/equity grants. Via the Principal-Agent problem, the incentive is for the CEO to line his pockets at the expense of shareholders. Even if the CEO has good intentions, it's a natural consequence of the Principal-Agent problem, which occurs whenever someone controls resources they don't technically own.

With gold, you're protected from theft via inflation. Theft via inflation occurs via money supply inflation, and for corporate shares of stock, when the CEO dilutes your ownership via option/equity grants. With gold, you're protected from theft via fraud and waste, provided you take physical delivery of your metal. Gold is the only investment where you're protected from theft via State parasites. That's why gold makes good free market money. That's why State parasites declared it illegal for people to use gold and silver as money.

When you consider that the entire financial system and political system will probably collapse within the next 20 years, gold is the best option for preserving your savings during and after the collapse. Without a network of trustworthy trading partners, gold is useless. A prudent agorist should make other precautions for the coming collapse. Buying gold is one of several preparations you should make.

Gold is the best investment that has stood the test of time. Physical metal and other tangible assets are the only way to protect your savings from theft by parasites.


fritz said...

The day is near at hand when the gold price matches the Dow.If hyper inflation and economic collapse occur simultaneously soon I believe we could see $2,000 gold and 2,000 Dow. Hyper inflation and partial collapse would bring $5,000 gold and 5,000 Dow.

Don't discount silver, its the new gold. Silver has industrial uses mainly in computers. And once people cant get gold or it has topped out. People will gravitate towards silver. Third world countries are buying up silver very quickly right now.


Anonymous said...

I think that most people are invested in the stock market and have lost the most in the stock market so of course the mainstream media is hyping DOW @ 10k. Very few people have significant gold holdings in their retirement accounts. Remember the DOW isn't even a proper index, and they switch the components around to fit their agenda whenever major companies composing it go bankrupt.

fritz said...

I have been researching silver tonight with some interesting results. From 1986 to 2003 silver stayed at about $5 an .oz . Since then it has been steadily rising to its present rate of $17.71 an .oz.

It rose to $20 in early 08 than back Down to $10 early this year. Silver has doubled this year alone.

Due to medical supplies and electronic applications the demand for silver is rising, but is offset by less demand for film based photography

Insiders mess with silver demand by purchasing large amounts to place in their portfolios,and flooding the market at peak times.

It is my understanding that silver is rising faster in U.S. dollars because the value of such is lessening.

I Do not know, blah blah blah.
But I would still put my money on the silver horse to win.


Doug Digger Eberhardt said...

Some good info in your article. You've done your homework. Most don't even know any of this.

First, DOW 10,000 of 2009 doesn't have the same purchasing power as DOW 10,000 of 1999. It's 23% less based on the decline of the dollar.

Secondly, you said; "Without a network of trustworthy trading partners, gold is useless. A prudent agorist should make other precautions for the coming collapse."

In Argentina, during their hyperinflation, swap meets were set up so people could do their day to day buying of food and what not. Instead of using the Argentine Peso which was depreciating by the minute (ha), they would have people trade in something of value (gold, silver, other items that people wanted like food and clothing), and receive scrip for it. The scrip could then be used to buy whatever the person wanted. The world over knows gold. It's not just a U.S. thing which I believe you know.

I wrote articles on my blog addressing these two issues that you might find interesting.

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