Can't see the forest for the trees? The dramatic events in the current economic crisis have been blocking our view. But here are a few charts that take a long view and should help you get a sense of what the forest really looks like. These are very basic charts that give you forest view information. Take a look.
The first comes from James Turk, the founder of Gold-Money, in an article titled "Gold Climbs Eight Years in a Row." What it shows is that gold has posted double digit average annual gains against EVERY major currency over the last eight years. For example, if you took $100 dollars (USD) and bought some gold at the beginning of 2001 and then sold that gold for dollars at the end of 2008, you would receive $324 dollars for your original investment. In other currencies, the specific yield would vary. But regardless of the currency you used to make your original purchase, you would come out way ahead if you bought and held gold for the last eight years. The current crisis is starting to make people THINK about gold. For eight years already, it's been more than just a a good thought!
Here is a link to a series of charts prepared by Michael Maloney from GoldSilver.com. I consider his entire article required reading for any member of the Light-work fraternity of economic awareness. Let me show you just two of his charts to get your attention. (By the way, both of these charts are built on data from the Federal Reserve itself. )
The first one shows you the total amount of coins and paper dollars that have been created since 1919. I have noted in red and blue what ought to jump out at you: It has taken us 200 years to create the first 800 billion
dollars - it has taken us only a few months to create the second! Have you noticed that the $100 bills the bank is giving out these days are all fresh and new? No surprise, according to the chart. There are tons of them looking for new homes. But you ain't seen nothin', yet. Take a look at a second chart presented by Mr. Maloney.
This one shows you how much of this money is circulating. If you want to seize some VERY SPECIAL INSIGHT, you need to compare this chart to the previous one. Ask yourself, "How much of the money that has been printed or coined (previous chart) is actually circulating (this chart)?" Notice the modest little up-tick at the very end that probably shows about a 50 billion dollar increase. That ain't peanuts, but it is a drop in the bucket compared to the 7-800 billion dollar vertical line at the end of the previous chart. Conclusion? While the amount of money that has been created in the last few months is staggering, comparatively little of it has entered the marketplace, YET! When those dollars show up, there will be twice as many of them chasing the same amount of goods and services. I am neither a prophet nor the son of a prophet, but it doesn't take that kind of insight to see what's coming. Those dollars will be like lemmings headed for the cliffs.
I am not giving out financial counsel, but a stroll through the above forest shows me something quite plainly: Gold good, dollar bad. I cannot tell when all those newly printed dollars will "come to market," but when they do, escalating prices cannot be far behind.
The fact that gold has increased for the past eight years could simply mean that it will be the next bubble to burst.
After doing some research on this subject recently, it is my opinion that gold is a very poor long term investment, both as a hedge against inflation or as a practical currency of exchange.
I remember the first time I began hearing that gold was a superior long term investment. It was in the early eighties when interest rates were 17% - 18% and unemployment was in the double digits. Much like we hear today, it supposedly could only go up in value, at least according to all the advertisements and gold brokers. The truth, however, is that gold was selling at a peak then close to $700 (1980) http://goldprice.org/30-year-gold-price-history.html and did not return to that price for another 24 years. Even with today's rates approaching $1,000, and even unadjusted for inflation, that's only a 30% increase over a 29 year period! A simple CD or a saving account would have easily outperformed gold in a lot less time. In fact, can you imagine what a comparable investment in a CD or treasury bill would yielded at the then 11% - 13% rates?
Of course, if there was a return to the gold standard, whereby it was used to back our currency, then maybe gold would be a worthwhile purchase. If things continue to slide, I guess there's that chance, but I think there is a greater chance of a whole new currency if the financial system really tanks. But that's just one opinion, which there are certainly many to go around right now.
Finally, I've read that 70% of gold is used for jewelry, and the rest mainly for manufacturing. Therefore, I do not see where it has any real intrinsic value for anything other than its intended purpose. Again, if the economy continues to go south, especially if it REALLY goes south, I doubt there would be much demand for jewelry. Rather, food, water, and oil would be the commodities of choice.
Posted by: Randy | February 21, 2009 at 03:29 PM
Correction on a reference in last comment: 45% increase over 29 years or an average 1.5% per year.
Posted by: Randy | February 21, 2009 at 04:06 PM
You mentioned that you respect Ron Paul and Peter Schiff. Both say that you're absolutely wrong about gold. Schiff says Gold will be 2,000 an oz by the end of this year, and somewhere over 5,000 an oz in 5 years. This of course ignores that gold has hands down outperformed the DOW from its inception to today (which lost nearly half of its value since last year or so).
Also, people who say "gold doesn't have any intrinsic value" neglect the theory of money. Bear in mind that "money" has intrinsic value just by being money--it's always in high demand because it keeps economic participants from having to find someone who wants the exact "stuff" they have (often through multiple cumbersome steps). There is a light-work post directly addressing this point, but I didn't bother to find a hyperlink to it. (I'm in Labor Relations right now, so not being as rigorous as usual). Anyway, the point: "money" may not be edible, shelter, or clothing, but it allows you to procure all of those things and THAT means it will ALWAYS have an intrinsic numismatic value.
The question, then, is "what is money?" The answer is: money is something someone is willing to accept as a payment because they can trust they will be able to, in turn, trade it for something they want later. There's a difference between there being trust and that trust being well-founded. (Look at all the folks who thought CDO's were a sure thing; I mention it only to point out that there are two kinds of trust: well-founded and poorly-founded.)
Gold's value doesn't engender mistrust. It has intrinsic numismatic value in spades and if there's flight out of the dollar, demand for it will catapult into the stratosphere. This is especially true where there has been massive unsustainable price manipulation, as in the case of both gold and silver via naked-shorting, gold-leases, fractional reserve systems and various other cheating measures institutions have thus far employed. All kinds of artificial down-ward pressure has been brought to bear on the spring of metals prices. When all that pent-up energy can no longer be contained, it will surge upward with extra momentum.
Again: gold isn't the only refuge from what's coming, but it is far better than a CD, a debenture, bond, or stock, i.e. in anything whose earnings are skewed (as are virtually all securities one might usually acquire in U.S. financial markets right now). People who put their money elsewhere are going to take a bath in the long run. Period. The fundamental assumptions that underlie the financial establishment's conventional wisdom have all changed unnoticed. People buying into that dangerous consensus will get hosed.
Posted by: Austin | February 24, 2009 at 12:51 PM
Here are two excellent links outlining a real analysis of why metals prices are undervalued.
http://www.youtube.com/watch?v=iIb6dWQtX0c&feature=related
http://www.youtube.com/watch?v=Do8KrwDtxzE&feature=related
Posted by: Austin | February 25, 2009 at 11:46 AM
Also, here's the light work post that explains where the theory of "real" value and money (metals) comes from.
http://lightwork.typepad.com/lightwork/2008/02/whats-in-fort-k.html
Posted by: Austin | March 02, 2009 at 01:40 PM
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=6323
Posted by: Austin | March 27, 2009 at 12:46 PM