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Friday, May 14, 2010

New Record Gold Price

The FRN-denominated price of gold set a new record recently. The price of gold is the least biased inflation measure that's publicly available.

My father enjoys watching the Communism Channel (CNBC). He recites their propaganda very well. There are all sorts of pro-State troll excuses for not buying gold.

Here's one common excuse for not buying gold. "Gold is a deadweight asset. You have to pay storage costs. There's the risk someone will steal your metal, if you keep it in your home. With stocks, you get a dividend and the growth of the business."

The fallacy is that, with stocks, there's fraud and theft. The CEO gives himself and other executives stock/option grants, diluting your ownership. The CEO gives lucrative consulting contracts to his friends. There's all the waste and inefficiency of a corporate bureaucracy.

When I realized that a stock investment doesn't outperform true inflation (gold), it was like discovering that Santa Claus didn't exist.

A pro-State troll says "In 1979-1980, the price of gold sharply rose and the it crashed. The price of golf sharply rose recently. Therefore, it will crash again."

From 1933-1975, it was illegal for individuals to own gold in the USA and most other countries. In the USA, gold dealers are heavily taxed and regulated. This creates additional costs for would-be gold investors. In China, gold ownership was recently re-legalized. Politicians in China are actively encouraging individuals to invest in gold. China now has a more liquid gold market than the USA! When it comes to gold investing, people in China have more economic freedom than gold in the USA.

From 1933-1968, the official price of gold was $35/oz. Most individuals did not have the right to trade their paper for gold at the official price. This allowed the farce of $35 gold to be maintained, in spite of fiat money inflation. Whenever the free market price of gold rose over $35/oz, the central banks sold enough gold to push the gold down. Foreign central banks, like France, started refusing to accept paper dollars and started demanding gold. Eventually, the farce could no longer be retained. Even insiders could no longer redeem their paper for gold at the official price.

In 1975, individuals in USA were allowed to buy gold again. This law was sponsored by Ron Paul. There was no official connection between gold and fiat money anymore, making the ban seem silly. More than a generation later, people had been brainwashed to believe that paper was money and gold was not money. Fake pro-State troll economics brags about the superiority of paper money to gold money. In the present, many laws and taxes make it impractical/illegal to use gold as money.

Once gold-ownership was re-legalized, the price of gold skyrocketed. The banksters started to panic. In 1975, the central banks were hoarding gold, because it was the only valuable asset they owned. They could not push the price of gold all the way down to $35/oz. However, they could use their gold reserves to suppress the price. They started selling some, but not all, of their reserves, causing the price of gold to crash. They adopted a policy of selling gold whenever the price sharply rose. For this reason, the historic volatility of gold/$ is much less compared to silver and other commodities. Lower gold price volatility is a symptom of gold price manipulation.

In effect, the banksters were selling back to the people the gold that they stole in 1933. Having nearly exhausted their reserves, the central banks are losing their ability to manipulate the price of gold. That's the reason there won't be another gold market crash like in the early 80s. The banksters would crash the gold market if they could, but they don't have enough physical metal.

There are plenty of people that would buy gold and take physical delivery, if the price of gold suddenly tanked. In late 2008, the official price of gold sharply tanked, but many online gold dealers had no inventory. As long as gold futures buyers can take physical delivery, the "official" price shoudn't deviate too much from the price at which you can actually buy gold coins.

There's another amusing joke on the Communism Channel. Whenever the price of gold sharply rises, they say "It's too late to buy gold! You missed your chance!" Whenever the price of gold temporarily drops they say "We told you! Gold is a lousy investment!"

Contrast this with stock market propaganda. They say "The stock market is hot right now! Buy or you'll miss out!" Alternatively, they say "Stocks are cheap right now! It's time to buy!"

It's always a good time to buy gold. To minimize the impact of swings, you should make equal purchases at regular intervals. This is "dollar cost averaging".

In recent years, gold has outperformed the stock market by 10%+ per year. If this trend continues, eventually even a buy-and-hold gold investor from 1980 would have outperformed a buy-and-hold stock market investor. If you had bought-and-held an equal amount of gold every year since 1980, you probably would have outperformed an equivalent stock market investment, although I haven't checked the calculation exactly.

Gold and silver, taking physical delivery, is the best way to protect yourself from theft via inflation. For this reason, State comedians denigrate gold investors at every opportunity. For this reason, there are many taxes and regulations restricting gold investors. People who try to set up alternate monetary systems based on gold or silver find themselves the victim of State violence, as occurred with the Liberty Dollar and E-Gold.


Unknown said...

Sure; just as long as we can all admit that gold has no inherent value and is only worth something because people are willing to say it is. Just like worthless pieces of government issued paper, you can't eat it, it makes a lousy house, and it's a terrible blanket.

I can understand how the official lie is "don't bother buying gold"; but I'm not sure how buying gold solves the problems of inequity in the system. It's kinda like buying gold is a way to continue subscribing to a system that is meant to screw people and buying gold prevents people from being screwed in one particular way.

cmditch said...

Gold has served as a medium of exchange for thousands of years. A medium of exchange makes possible accounting and the development of complex production processes. Without a medium of exchange you wouldn't live in the house you live in, the thread count of your blankets would be laughable.

Gold has intrinsic value, or it would never have become money. It is not like paper money at all, our ancestors accepted gold voluntarily.

Buying gold is just like buying anything else, like the labor you spend on your paper money that you are forced to accept, accept saving in gold will make it so your wealth doesn't evaporate.

Buying gold is a repudiation of paper money, the philosophers stone of state violence.

Unknown said...

Clearly you've never seen that episode of the Twilight Zone where the the last thief struggles through the desert with the gold he stole 50 years ago...

I'm also not a fan of the argument that gold is the only possible valid medium of exchange that humans can think of since it has the longest history. I'm not discouraging anyone from buying gold. I just think that alternative thinking people can come up with a solution that isn't so ...surface level.

cmditch said...

Luckily I don't live near the desert. I wasn't arguing for gold as the RIGHT medium of exchange, I was just arguing for medium of exchanges in general, in particular the ones that people accept voluntarily.

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