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The Screaming Fundamentals For Owning Gold And Silver

The investment thesis for precious metals
Wednesday, June 29, 2011, 8:22 AM

This report lays out an investment thesis for gold and one for silver.  Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report.

The punch line is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Introduction

In 2001, as the painful end of the long stock bull market finally seeped into my consciousness, I began to grow quite concerned about my traditional stock and bond holdings. Other than a house with 27 years left on a 30 year mortgage, these holdings represented 100% of my investing portfolio. So I dug into the economic data to see what I could discover. What I found shocked me. It's all in the Crash Course in both video and book form, so I won't go into that data here.

By 2002, I had investigated enough about our monetary, economic, and political systems that I decided that holding gold and silver would be a very good idea, poured 50% of my liquid net worth into precious metals, and sat back and watched.

Since then, my appreciation for and understanding of the role of gold as a monetary asset and silver as an indispensable industrial metal have deepened considerably.

Investing in gold and silver is still a good idea. Here's why.

Why own gold and silver?

The reasons to hold gold and silver, and I mean physical gold and silver, are pretty straightforward. So let’s begin with the primary reasons to own gold.

  1. To protect against monetary recklessness
  2. As insulation against fiscal foolishness
  3. As insurance against the possibility of a major calamity in the banking/financial system
  4. For the embedded 'option value' that will pay out if and when gold is remonetized

By ‘monetary recklessness,’ I mean the creation of money out of thin air and the application of more liquidity than the productive economy actually needs. The central banks of the world have been doing this for decades, not just since the onset of the great financial crisis. In gold terms, the supply of above-ground gold is growing at roughly 3% per year, while money supply has been growing at nearly three times that yearly rate since 1980.

Now this is admittedly an unfair view, because the economy has been growing, too, but money and credit growth have handily outpaced even the upwardly distorted GDP measurements by a wide margin.  As the economy stagnates under this too-large debt load while the credit system continues to operate as if perpetual expansion were possible, look for all the resulting extra dollars to show up in prices of goods and services.    

Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). This is a forced, manipulated outcome courtesy of central banks that are buying bonds with thin-air money. Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver, but not until then. That is as close to an absolute requirement as I have in this business.

Monetary policies across the developed world remain as accommodating as they’ve ever been. Even Greenspan's 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke has recently engineered. But it is the highly aggressive and ‘alternative’ use of the Federal Reserve balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no way to end these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape.  In Europe, the equivalent would be the sovereign debt now found on the European Central Bank (ECB) balance sheet.  

Federal deficits are seemingly out of control and are now stuck in the -$1.5 trillion range. Massive deficit spending has always been inflationary, and inflation is usually gold/silver friendly. Although not always, mind you, as the correlation is not strong, especially during mild inflation (less than 5%). Note, for example, that gold fell from its high in 1980 all the way to its low in 1998, an 18 year period with plenty of mild inflation along the way. Sooner or later I expect extraordinary budget deficits to translate into extraordinary inflation.

Reason #3, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold. I’m not referring to “paper gold” either, which includes the various tradable vehicles (like the "GLD" ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver because of their unusual ability to sit outside of the banking/monetary system and act as monetary assets.

Literally everything else financial, including your paper US money, is simultaneously somebody else’s liability, but gold and silver are not. They are simply, boringly, just assets. This is a highly desirable characteristic that is not easily replicated.

Should the banking system suffer a systemic breakdown, to which I ascribe a reasonably high probability of greater than 1-in-4 over the next 5 years, I expect banks to close for some period of time. Whether it's two weeks or six months is unimportant; no matter the length of time, I'd prefer to be holding gold than bank deposits.

During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rocket up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy; keep some ‘money’ out of the system to spend during an emergency. I always advocate three months of living expenses in cash, but you owe it to yourself to have gold and silver in your possession as well.

The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high.

Here are some numbers:  The total amount of 'official gold,' or that held by central banks around the world, is 30,684 tonnes, or 987 million troy ounces (MOz). In 2008 the total amount of money stock in the world was roughly $60 trillion.

If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.

Clearly that's a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world's money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a fraction of the world's money supply by gold will result in a far higher number than today's ~$1,500/Oz.

The Difference Between Silver and Gold

Often people ask me if I hold goldandsilver as if it were one word. I do own both, but for almost entirely different reasons. Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.

There is a chance, growing by the week, that gold will be remonetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.

Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive metal known, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in such vanishingly small quantities that it is hardly worth recovering at the end of the product life cycle -- and often isn’t.

Because of this dispersion effect, above-ground silver is actually at something of a historical low point. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed, and today there are perhaps 1 billion ounces above ground, when in 1980 there were roughly 4 billion ounces.  

Because of this consumption dynamic,  it's entirely possible that over the next twenty years not one single net new ounce of above ground silver will be added to inventories, while in contrast, a few billion ounces of gold will be added.

I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

Scarcity

If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 8x more than today, we have to ask how many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation, and how many will close because their energy costs will have exceeded their marginal economic benefits.

After just 100 years of modern, machine-powered mining, nearly all of the good ores are gone. By the time you are reading stories like this next one, you should be thinking, 'Why are they going to all that trouble unless that's the best option left?'

South African Miners Dig Deeper to Extend Gold Veins' Life Spans

Feb 17, 2011

JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa's gold miners are planning to dig deeper than ever before to get access to rich veins.

The plans raise questions about how to safely and profitably mine several miles below the surface. Success would mean overcoming problems such as possible rock falls, flooding and ventilation challenges and designing technology to overcome the threats.

Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company's Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn't in time operate an additional 3,000-plus feet deeper.

"The most critical challenges for all of us in South Africa are depths and depletion of reserves," Mr. Cutifani said in an interview.

The above article is just a different version of the story that led to the Deepwater Horizon incident.  By the time exceptional engineering challenges are being pondered to scrape a little deeper, it tells the alert observer everything they need to know about where we are in the depletion cycle.  We are closer to the end than the beginning.

We are at a point in history where we can easily look forward and make the case for declining per-capita production of numerous important elements just on the basis of constantly falling ore purities, and gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic. It is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.

The issue of Peak Oil only exacerbates the reserve depletion dynamic by adding steadily rising energy input costs to mix. Should oil get to the point of actual scarcity, where we have to ration by something other than price, then we must ask where operating marginal mines fits into the priority list. Not very high, would be my guess.

Supply and Demand - Gold

Not surprisingly, the high prices for gold and silver have stimulated quite a bit of exploration and new mine production. With over a decade of steadily rising prices, there has been ample time to bring on new production. Which leads to a real surprise: In the case of gold, relatively little incremental mine production has occurred.

The analytical firm Standard Chartered has calculated  a rather subdued 3.6% gold production growth over the next five years:

Most market commentary on gold centres on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years.

(Source - Standard Chartered)

Of course, none of this is actually surprising to anyone who understands where we are in the depletion cycle, but it's probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs, while greenfield, or brand-new, projects require a gold price of $2,000 an ounce.

This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: Energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it's not as simple as the fuel that goes into the Caterpillar D-9s; it's the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.

Just as is the case with oil shales that always seem to need an oil price $10 higher than the current price to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, ore body from being developed. Given declining net energy, that's forever, as far as I am concerned.

The punch line of the Standard Chartered gold report is that they think $5,000 gold is a realistic target and go on to note the most important shift in gold accumulation of the past 30 years:

The limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold. The result, in our view, will be a gold market in deficit, even assuming flat growth in demand.

With the supply-demand balance so out of kilter, we see the gold price potentially going to US$5,000/oz.

(Source)

The emergence of central banks being net acquirers of gold is actually a pretty big deal. Over the past few decades, central banks have been actively reducing their gold holdings, preferring paper assets over the 'barbarous relic.' Famously, Canada and Switzerland vastly reduced their official gold holdings during this period, a decision that many citizens of those countries have openly and actively questioned.

The World Gold Council out of the UK is the primary firm that aggregates and reports on gold supply-and-demand statistics. Here's the most recent data on official (i.e., central bank) gold holdings:

(Source)

Note that the 2009 data is lowered by slightly more than 450 tonnes in this chart to remove the one-time announcement by China that it had secretly acquired 454 tonnes over the prior six years, so this data may differ from other representations you might see. I thought it best to remove that blip from the data. Also, the data for 2011 is for the first four months only, so we might expect 2011 to be a record-setter if the current pace continues.

Overall, world supply and demand are a bit out of alignment right now, with supply increasing by 2% last year and non-official demand increasing by 10%:

The summary of the fundamental analysis is that with mine production seriously lagging, the price increases for gold, and increased central bank and investment demand, we have set the stage for some hefty price increases irrespective of any fiscal or monetary shenanigans.

However, once we put those back into the mix, I forecast a quite volatile but upwardly sloping price for gold over the coming years. Possibly a very steep upward slope at points.

Supply and Demand - Silver

Silver demand is growing by double-digit percentages, being led primarily by industrial uses and investment demand. The Silver Institute does a fine job of tracking and reporting on these matters.

First, demand:

Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver’s use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011.

Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world’s improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India.

(Source)

Now, supply:

Silver Production 2010

Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year.

Mexico eclipsed Peru as the world’s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010.

(Source)

Again, we are comparing double-digit demand increases against low single-digit supply increases.  After a decade of rather dramatic price increases for silver, the alert observer should be asking exactly why this is the case.

In table form, we can clearly see that the silver balance for the world requires both dishoarding from government stockpiles and the recycling of scrap silver. That is, shortfalls from mining have to be made up from above-ground stocks:

(Source)

There's only so long that such an imbalance can continue before the shortfalls require much higher prices to cool off demand.

One of the precise reasons that I originally invested quite heavily in silver is that I came to the conclusion that the price was far too low, artificially so, and that it would therefore be a great investment. So far, so good.

Given the above fundamentals, I project that prices for the precious metals will be many multiples higher - in today's dollar terms - by the end of the decade.

Part II of this report: How to Play The Greatest Gold & Silver Bull Market Of Our Lifetime delves into the specifics of how much of your net worth to invest and in what forms, what price targets gold and silver are likely to reach, and what indicators to look for that will indicate that it's time to sell out of your precious metal investments.

Click here to access Part II (free executive summary, enrollment required for full access).

Related content

210 Comments

sundarb's picture
sundarb
Status: Bronze Member (Offline)
Joined: Jan 10 2011
Posts: 72
thank you Chris

Pretty Comprehensive analysis, thanks Chris!

Here's a video I found that is less than 5 minutes, but packed with info on gold..

May help people who want to let their friends know the value of gold.

Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1844
Best Article Since The Crash Course

Thank you, Dr. Martenson. This article is, hands down, the best and most useful article I've ever read from you since the Crash Course.

You have really cleared up a lot of the confusion and hesitation out there on the purpose and role of gold and silver. And most importantly - something that a lot of other analysts out there have not put out that I know of - you have reminded us of the fact that the ores out there have already been high-graded. All that's left is the expensive-to-extract stuff that will become even more expensive to extract in the future.

Interestingly, I see a huge spike in today's gold and silver spot prices in the past hour. Coincidence? Maybe not... :-)

Poet


ewspears's picture
ewspears
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Con Job

I saw article part1 on ZH. Clicked on link to read part2. was taken to CM website which indicated I had to Register for free to access part2 so I did so. then when I clicked to read part 2 it brought up another page giving me subscription options.

IT'S CON-JOBS LIKE THIS THAT GIVE THE INVESTMENT COMMUNITY A BAD REPUTATION!!!!!!

[Moderator's note: Generally a statement such as this would be a violation of our forum guidelines inasmuch as it apparently accuses somebody of a fraud or attempted fraud without an adequate basis in fact, which is libel.  However, we will assume that the poster was merely confused because he mis-read the langauge in the link.  See Adam's explanation below for an excellent clarification.]

Doug's picture
Doug
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Posts: 2771
ewspears wrote: I saw

ewspears wrote:

I saw article part1 on ZH. Clicked on link to read part2. was taken to CM website which indicated I had to Register for free to access part2 so I did so. then when I clicked to read part 2 it brought up another page giving me subscription options.

IT'S CON-JOBS LIKE THIS THAT GIVE THE INVESTMENT COMMUNITY A BAD REPUTATION!!!!!!

This site has more free valuable info than any other site I'm aware of.  I've been a member for three years, and pt. II of this article is worth every penny of the fee. 

Doug

Adam Taggart's picture
Adam Taggart
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Part 2 is for enrolled members

ewspears -

This site is supported by an enrollment business model, where the deepest analysis is reserved for paying subscribers. The article on ZH clearly states that to access Part 2, enrollment is required ("free executive summary, enrollment required for full access"). The Part 2 executive summary page reiterates this and includes a very large "Enroll now" button that links to a detailed page further explaining the benefits of enrollment. and enabling those interested to subscribe.

We take great pains to be transparent: no one is trying to "con" anyone here.

And as Doug notes, we invest heavily in producing high-quality public content and have a well-demonstrated history of making a large amount of analysis & commentary free to all vs other subscription sites. We view maximizing the value we offer to both free and paying readers is in everyone's best interests. 

Siemster's picture
Siemster
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Table

Adam,Chris,

Great stuff, as always!

I think I've noticed an error in THE last table in part 1. Supply and demand totals are equel.

Kind regards from Holland,
Siemster

thc0655's picture
thc0655
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Posts: 660
Gold spike, enrollment

Poet:

The dollar is dropping and goldandsilver rising because the President is speaking/lying/obfuscating on national TV!!  :)  Besides we can save the phrase "huge spike" in goldandsilver for when gold rises $100-300 in a day and silver $10-30 in a day. Those days are coming soon enough.  Yahoo!

ewspears:

I held off getting a subscription, then got a 3 month subscription, and now an annual renewing subscription.  VERY VERY worth the price.  For a lot less, you can buy Mike Maloney's book Rich Dad's Guide to Investing in Gold and Silver and get an extremely comprehensive look at the subject which completely agrees with Chris Martenson (without the up to the minute quotes and stats).

Ready's picture
Ready
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Posts: 917
ewspears wrote: I saw

ewspears wrote:

I saw article part1 on ZH. Clicked on link to read part2. was taken to CM website which indicated I had to Register for free to access part2 so I did so. then when I clicked to read part 2 it brought up another page giving me subscription options.

IT'S CON-JOBS LIKE THIS THAT GIVE THE INVESTMENT COMMUNITY A BAD REPUTATION!!!!!!

Mr/Ms Spears,

This is not Zero Hedge. Comments on this site are held to a higher standard.

There are many sites on the net where a free-for-all atmosphere for posting and the idea that pretty much anything goes is the theme, but this is simply not one of them. You are invited to participate in the discussion, offering considered opinions and valuable knowledge, but I am afraid you will not last long with the posting style you have adopted should it continue. Simply put, attacks are not tolerated.

JAG's picture
JAG
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Joined: Oct 26 2008
Posts: 2490
Here it comes....

Oh boy,

The gold-bug baggage in this piece is top-dollar. Dr. M, your rationalizing skills are better than most, but the reasons that you cite for holding gold are lacking any proven correlation. For example:

  • Thin-air Money: Money has been created from thin-air for our entire lifetimes. If there was a correlation between money being "printed" by the central bank (or banking system) and gold, then how do you explain the bear market in gold during the 80s and 90s? Did the money supply decrease during the greatest bull market in our history?
  • Financial System Collapse: Since the price of gold is determined by the financial markets, what do you suppose will happen to its price action in the absence of a financial market? What happened to the value of credit default swaps when that market shut down? Granted, local physical markets may still exist in such a scenario, but when people are faced with physical survival, will any form of money (including gold) have any personal value?
  • Gold Remonitized: Ok, so let's assume that a one-world currency is in our future and that its value will be based on some fraction of physical gold. Do you really think that architects of such a monetary system would not confiscate all the gold they could prior to its implementation? Would they allow a redistribution of wealth to occur, or would it be the same system with a new face on it?
  • Supply & Demand: In our distorted market environment, supply and demand analysis has a diminished role in the price action of commodities. The biggest component of commodity prices is wall street speculation. The spike in oil in 2008 is a good example. Prices didn't rise because there was a shift in the supply-vs-demand equation, they rose because wall street was exploiting the market for profit.

On the other hand, you did give one reason that does have a good correlation to the price of gold; Negative Real Interest Rates. But this phenomenon seems more likely in a deflationary environment, rather than in the "extraordinary inflation" environment that you are hedging against by holding gold.

Bottom Line: Just like we did with the internet bubble in the late 90s, we are fooling ourselves with all our rationalizations about the value of gold. Gold is in a bull market for one reason, so Wall Street can profit from our rationalizations and expectations. The game is always the same, and the "gold game" is getting big enough these days, that a crash in gold will likely be the hallmark of the next economic crisis.

It was an enjoyable read and great writing, as usual. You almost had Captain Sheeple convinced.Laughing

robbie's picture
robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
Original mint tube vs. Dates our choice

"Dates our choice" always seems to be the cheaper option when purchasing coins (Eagles). If there is no numismatic value, is there any reason to pay more for original mint items in a tube i.e. it's only the number of ounces that really matter right?

12bones's picture
12bones
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Posts: 7
bio fuel

Ready,

I agree with your comments.This site is not a pitch site for anyone and something for nothing is what got us in this current state of affairs. Chris is

one of the few straight shooters out there but the cost of what he does is very small compared to the service he provides.

On another subject:

I am just starting to pull together a biodiesel effort. I am a small farmer and grow soybeans and sunflowers in the south.

Do you know of any programs near Virgina that teach diodiesel production to small farmers . i am thinking along the lines of providing a portable

press to the local farms. I have been thinking about a 300 gal press to test the water and investing in a larger press if it proves to make sense over time .

Any advice concerning scale to start would be helpful.

zoneblue's picture
zoneblue
Status: Member (Offline)
Joined: Nov 23 2008
Posts: 6
Remonitization?

I have to disagree with Chris on the gold remonitization angle. The pattern of escalating power consolidation mitigates against this. The Ron Pauls of the world notwithstanding, the chance of a more 'sound money (even if you thought gold the solution, which i dont) being one of the outcomes of a dollar collapse isnt one of them i am afraid. A new currency/reserve is much more likely to be more of the same, albeit devalued, fiat, and probably something based on  highly cornerable assets, eg. carbon credits.

I also agree with others that find the pro gold/inflation consensus of 'experts'  concerning. Im fairly new to all this but it seems to me that four things will shortly collide:

a) further (a good deal more if  you believe the investment media) credit/business contraction, deflationary tendancy, reduced demand for commoditys incl PMs, associated flight to cash.

b) QE addicton, to keep interest rates down, reduce the value of the soverign debt, minimize constituant flashback, and postpone treasurys default as long as possible

c) peak oil and supply constraints of other inelastic commodtiys, which leads to an significant unwinding of industrial/consumer infrastructure.

d) continuing relentless population growth and momentum of third world expectations of increased standard of living.

If my economics is right c supports a, and d supports b. Therein lies the 64K question about what that combination will actually look like, maybe stagflation is the best it gets, and warfare to the bottom being the worst.

However of only one thing i am certain and thats that local food production and rebuilding community are the only two prioritys we should really have. All the rest is noise. 

MrEnergyCzar's picture
MrEnergyCzar
Status: Bronze Member (Offline)
Joined: Oct 14 2010
Posts: 54
metals

You can't print more of it is about all you have to know.....  Everyone should see Chris give one of his talks....

MrEnergyCzar

Denny Johnson's picture
Denny Johnson
Status: Gold Member (Offline)
Joined: Aug 13 2008
Posts: 324
JAG wrote: Oh boy, The

JAG wrote:

Oh boy,

The gold-bug baggage in this piece is top-dollar. Dr. M, your rationalizing skills are better than most, but the reasons that you cite for holding gold are lacking any proven correlation.

JAG.........what do you recommend to protect wealth after one is comfortable that he is materially prepared for a tumultuous future?

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
JAG wrote: Oh boy, The

JAG wrote:

Oh boy,

The gold-bug baggage in this piece is top-dollar. Dr. M, your rationalizing skills are better than most, but the reasons that you cite for holding gold are lacking any proven correlation. For example:

  • Thin-air Money: Money has been created from thin-air for our entire lifetimes. If there was a correlation between money being "printed" by the central bank (or banking system) and gold, then how do you explain the bear market in gold during the 80s and 90s? Did the money supply decrease during the greatest bull market in our history?
  • Financial System Collapse: Since the price of gold is determined by the financial markets, what do you suppose will happen to its price action in the absence of a financial market? What happened to the value of credit default swaps when that market shut down? Granted, local physical markets may still exist in such a scenario, but when people are faced with physical survival, will any form of money (including gold) have any personal value?
  • Gold Remonitized: Ok, so let's assume that a one-world currency is in our future and that its value will be based on some fraction of physical gold. Do you really think that architects of such a monetary system would not confiscate all the gold they could prior to its implementation? Would they allow a redistribution of wealth to occur, or would it be the same system with a new face on it?
  • Supply & Demand: In our distorted market environment, supply and demand analysis has a diminished role in the price action of commodities. The biggest component of commodity prices is wall street speculation. The spike in oil in 2008 is a good example. Prices didn't rise because there was a shift in the supply-vs-demand equation, they rose because wall street was exploiting the market for profit.

On the other hand, you did give one reason that does have a good correlation to the price of gold; Negative Real Interest Rates. But this phenomenon seems more likely in a deflationary environment, rather than in the "extraordinary inflation" environment that you are hedging against by holding gold.

Bottom Line: Just like we did with the internet bubble in the late 90s, we are fooling ourselves with all our rationalizations about the value of gold. Gold is in a bull market for one reason, so Wall Street can profit from our rationalizations and expectations. The game is always the same, and the "gold game" is getting big enough these days, that a crash in gold will likely be the hallmark of the next economic crisis.

It was an enjoyable read and great writing, as usual. You almost had Captain Sheeple convinced.Laughing

Jeff,

I love reading your thoughts.  When you, my brother-in-law, and a friend's husband buy gold is when I bail big time.  Please post when you go bullish on gold.  You're one of my qualitative indicators.Wink

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Denny Johnson

Denny Johnson wrote:

JAG.........what do you recommend to protect wealth after one is comfortable that he is materially prepared for a tumultuous future?

Once you're "comfortable [and] materially prepared for a tumultuous future", what do you need wealth for?  Are you gonna buy some slaves?

Mike

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Johny Rebel
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Posts: 1
Price of Subscription

To any whiners,

I have been a free subsciber ofr well over six months.  First, Thank you Chris!!!!  You are one of the few honest gold/silver websites in the world, bar none.  Not once have I ever been asked for a penny for all of the excellent advice that I receive every week.  I live in a small South American country and make in a month what most of you make in a day.  Every penny of savings that I do have is in silver and gold.  I have been a buyer since 1981.  I will return to the US this year and one of the very first things that I will do is buy a full sunscription to Chris' web site.  Why?  His information is the most acurate and well written that I have seen and I read most of the metals web sites.  I feel that the free services that he provides id more valuable than most of the pay sites.  Sunscribe to his free emails and you will understand that his information is not only honest and well written but covers a lot more than just gold and silver.  He understands the backgrounds of the who's and why's.  The internet is filled full of junk in this area and most are just trying to get a buck.  Chris has naver once asked me for a penny and that is why I am indebted to him.  Go to Google and find another site if you feel anything here is a scam.  I have yet to have a bad experience and have even received free iformation usually for only paid subscribers because Chris thought they were so important that the information had to be given out because it was the right thing to do at the time and not to sell you something.  Chris is a staight up guy and I will defend him and his website.  I have made money not because of him but he has helped me keep my focus and to not panic when many of my friends have panicked.  I bought most of my metals when silver was 5 and gold was 300 but I have continued to buy whenever I have gotten any bonusses or received any extra money.  I have never sold an ounce and that is one of the reason that I will become a sunsciber because I do not know enough about the market yet but Chris has helped me and my education in ways that I could never place a price.  Once again, Thank you Chris!!!

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Denny Johnson
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Damnthematrix wrote: Once

Damnthematrix wrote:

Once you're "comfortable [and] materially prepared for a tumultuous future", what do you need wealth for?  Are you gonna buy some slaves?

Mike

Hi Mike.......as I am not totally self sufficient and don't ever expect to be, I see wealth as something to possibly exchange for goods and services. Perhaps for my own benefit, perhaps for the benefit of others........mmmmmm, perhaps I could buy some slaves........... and set them free.

Let me guess.......you are still young and indestructible, unaware of the reality and limitations of aging.

I feel very fortunate to have some stored, but liquid, wealth; for example, it allows me to subscribe to this site, and that's almost priceless. It meant I could take my 89 year old mum out to dinner tonight. It meant I had something to exchange w the guy who fixed my flat car tire yesterday.

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Nate
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Posts: 461
12bones wrote: Ready, I am

12bones wrote:

Ready,

I am just starting to pull together a biodiesel effort. I am a small farmer and grow soybeans and sunflowers in the south.

Do you know of any programs near Virgina that teach diodiesel production to small farmers . i am thinking along the lines of providing a portable

press to the local farms. I have been thinking about a 300 gal press to test the water and investing in a larger press if it proves to make sense over time .

Any advice concerning scale to start would be helpful. 

12bones,

An excellent book on biodiesel is "From the Frier to the Fuel Tank" by Joshua Tickell.  He covers crops, chemistry, small and large scale efforts, and suppliers.  Good place to start.

Nate

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Dogs_In_A_Pile
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Posts: 2491
Blue Ridge Permaculture

12bones wrote:

On another subject:

I am just starting to pull together a biodiesel effort. I am a small farmer and grow soybeans and sunflowers in the south.

Do you know of any programs near Virgina that teach diodiesel production to small farmers . i am thinking along the lines of providing a portable

press to the local farms. I have been thinking about a 300 gal press to test the water and investing in a larger press if it proves to make sense over time .

Any advice concerning scale to start would be helpful.

12bones -

Give these guys a shot. 

http://www.blueridgepermaculture.net/

Every now and then a biodiesel workshop comes up.  If one isn't scheduled in the near term, I'll bet BRPN can get you set up with someone who knows biodiesel.

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nickbert
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Damnthematrix wrote: Once

Damnthematrix wrote:

Once you're "comfortable [and] materially prepared for a tumultuous future", what do you need wealth for?  Are you gonna buy some slaves?

Yes!  Actually, energy slaves (gasoline, electricity, natural gas) if you want to be specific  Laughing

I'm preparing for a future of using much less, but I expect I will still be using them to some small degree...

- Nickbert

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Damnthematrix
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Posts: 3998
I wish.....

Denny Johnson wrote:

Damnthematrix wrote:

Once you're "comfortable [and] materially prepared for a tumultuous future", what do you need wealth for?  Are you gonna buy some slaves?

Mike

Let me guess.......you are still young and indestructible, unaware of the reality and limitations of aging

I wish.......

At 59 I'm not exactly old yet, but I sure as hell am aware of "the reality and limitations of aging", especially after doing my back in the other day for just picking my socks up off the floor!

I expect we'll be swapping some food, water, and solar energy for some labour...

Mike

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r
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Joined: Oct 2 2008
Posts: 262
Gold standard RIP

While I understand that the fiat money system requires a world with unlimited resources, I would not care to see the clock wound back to the 19th century with a return to the Gold standard. Yes, some people would become very wealthy over-night, but many others would remain very poor. And hoarding is one the reasons we lost the gold standard in the first place.

Gold, especially at $6000+ an ounce is not easy to sell. I don't mean there won't be buyers, that's absurd, but in a dangerous world, and it is predicted here that we are heading toward an even more dangerous world, storing and transporting gold will be difficult.  And it may be confiscated.

Mining gold is not "clean" in more ways than one. We need to find some other way of stabilizing currency.

The Toxic Shimmer of Gold

"Today most mining operations use a process called heap-leaching, where gold is chemically sifted from huge piles of low-grade ore using a water-based sodium cyanide solution. To get a sense of the scale of the process, at the Yanacocha mine in Peru for example, Newmont Mining must extract and leach approximately 30 tons of dirt and rock to recover just one ounce of gold."

http://www.pbs.org/frontlineworld/stories/peru404/environmental.html

Congo's Gold

"Five million people have died in the Democratic Republic of Congo in a war fueled primarily from gold mined in the country by warlords and smuggled out to be sold on the open market."

http://www.cbsnews.com/video/watch/?id=5825990n#ixzz1QjC6ZaLo http://www.cbsnews.com/video/watch/?id=5825990n

Alaska's choice: Salmon or Gold

"If built, a huge mine would trans­form Alaska’s Bristol Bay region, possibly jeopar­dizing the world’s richest sockeye salmon fishery."

http://ngm.nationalgeographic.com/2010/12/bristol-bay/dobb-text

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Johnny Oxygen
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Posts: 1441
Johnny Rebel wrote: To any

Johnny Rebel wrote:

To any whiners,

I have been a free subsciber ofr well over six months.  First, Thank you Chris!!!!  You are one of the few honest gold/silver websites in the world, bar none.  Not once have I ever been asked for a penny for all of the excellent advice that I receive every week.  I live in a small South American country and make in a month what most of you make in a day.  Every penny of savings that I do have is in silver and gold.  I have been a buyer since 1981.  I will return to the US this year and one of the very first things that I will do is buy a full sunscription to Chris' web site.  Why?  His information is the most acurate and well written that I have seen and I read most of the metals web sites.  I feel that the free services that he provides id more valuable than most of the pay sites.  Sunscribe to his free emails and you will understand that his information is not only honest and well written but covers a lot more than just gold and silver.  He understands the backgrounds of the who's and why's.  The internet is filled full of junk in this area and most are just trying to get a buck.  Chris has naver once asked me for a penny and that is why I am indebted to him.  Go to Google and find another site if you feel anything here is a scam.  I have yet to have a bad experience and have even received free iformation usually for only paid subscribers because Chris thought they were so important that the information had to be given out because it was the right thing to do at the time and not to sell you something.  Chris is a staight up guy and I will defend him and his website.  I have made money not because of him but he has helped me keep my focus and to not panic when many of my friends have panicked.  I bought most of my metals when silver was 5 and gold was 300 but I have continued to buy whenever I have gotten any bonusses or received any extra money.  I have never sold an ounce and that is one of the reason that I will become a sunsciber because I do not know enough about the market yet but Chris has helped me and my education in ways that I could never place a price.  Once again, Thank you Chris!!!

Yeah! Another Johnny!

Great first post Smile

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ccpetersmd
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Great post, as usual, Chris;

Great post, as usual, Chris; thank you!

While I have acquired a fair amount of physical gold and silver (nowhere near 50%, but still what I consider a fair amount), I understand JAG's concerns. Gold, and to a lesser extent, silver, have been time-honored stores of wealth. It is hard to ignore the vast swath of human history during which this has been true. Still, much of this history occurred before the advent of carbon-based fuels, which empowered and extended the industrial revolution, and I continue to have nagging doubts as to whether or not the time-tested value of gold and silver may be past.

If we finally realize that our fiat systems of money are inherently flawed, and seek out a commodity upon which to base a new system of currency, would not energy be a more useful base? I don't know how this would be constructed, perhaps based upon something akin to carbon credits, as another respondent suggested, but the idea seems to have merit.

Still, for now, I believe that the arguments that Chris has presented regarding the wisdom of converting fiat wealth to gold and silver are valid, possibly excepting the remonetization argument. I will continue to buy precious metals during periods of price depreciation, and will sell when JAG decides to buy!

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Ready
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Posts: 917
JAG wrote: Bottom Line: Just

JAG wrote:

Bottom Line: Just like we did with the internet bubble in the late 90s, we are fooling ourselves with all our rationalizations about the value of gold. Gold is in a bull market for one reason, so Wall Street can profit from our rationalizations and expectations. The game is always the same, and the "gold game" is getting big enough these days, that a crash in gold will likely be the hallmark of the next economic crisis.

Mornin' Jeff,

I do appreciate your views, and often seek them out to balance my incoming data so as to form a more objective and well informed position. After reading your post several times, I have to say you missed the mark on this one a bit. Not because anything you say is directly wrong (although I might pick apart a few sentences, like "gold is priced by the financial markets [TODAY]". I'd add the word today because no one is certain of what is to come next, and when someone tells me they are, I call BS.

You seem so certain of your position, that it makes me concerned that you are as emotionally con-gold as the pro-gold gold bugs you tend to mock.

Anyhow, I enjoyed reading your post. I always learn something from you. What I learned this post was to stay neutral mentally and make necessary changes as the landscape shifts. Right now, I am neither buying nor selling, just watching intently.

Cheers,

R

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Ready
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12bones wrote: On another

12bones wrote:

On another subject:

I am just starting to pull together a biodiesel effort.  

12Bones, welcome to the site. Always happy to meet a fellow smale scale farmer.

I'd like to take up this conversation either via PM or on the Biofuels thread so as not to hijack this PM thread.

Shoot me a PM or email and I'll get you going best I can.

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Arthur Robey
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Posts: 2542
Confusion confession.

My money is not where my mouth is. I am into silver.

At present I am as least unsure as I can be that silver will swoon before bubbling. The reason is the promise to end QE which will expose just how fast money is evaporating with none performing debts. (When promises-to-pay evaporate, so does money). ie deflation.

Money will become scarce and the paper dollar becomes king. So I shall follow Chris's advice and keep my powder dry. However there may not be an industry to desire my silver when it all goes belly up.

I have posted before that I cannot think of an historical precident where money became less abstract, so I am not totaly comfortable with the idea that precious metals are the only alternative to fiat money. If we go peer-to-peer digits (Bitcoin) that will satisfy the always more abstract arrow of money. (Always goes from less absract to more abstract.)

Another factor I feel favours Bitcoin is that large centralised organisations are fast losing any credibility, and so an unregulated peer to peer system will seem a better bet to the punter.

Money might become so vaporus as to disappear altogether. We can get along quite nicely with no money when all our needs are met by slaves. Mechanical slaves. (Isaac Asimov).

This tendancy towards grass roots deregulation will be countered with Fascism.

I trust you are now all as confused as me.

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Tommygun
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Gold part V

Chris,

What a good view point on Gold and its potential future. There is another viewpoint in Part V from The Automatic Earth website. There are interesting and subtle differences in thinking and in the future projection of potential gold outcomes as it plays into the demise of fiat currencies and debt destruction.

Tom

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JAG wrote: Supply & Demand:

JAG wrote:

Supply & Demand: In our distorted market environment, supply and demand analysis has a diminished role in the price action of commodities. The biggest component of commodity prices is wall street speculation. The spike in oil in 2008 is a good example. Prices didn't rise because there was a shift in the supply-vs-demand equation, they rose because wall street was exploiting the market for profit.

Bottom Line: Just like we did with the internet bubble in the late 90s, we are fooling ourselves with all our rationalizations about the value of gold. Gold is in a bull market for one reason, so Wall Street can profit from our rationalizations and expectations. The game is always the same, and the "gold game" is getting big enough these days, that a crash in gold will likely be the hallmark of the next economic crisis.

It was an enjoyable read and great writing, as usual. You almost had Captain Sheeple convinced.Laughing

Hi Jeff,

Have you read Jim Rogers book Hot Commodities? Rogers analyzes bull markets in commodities and how they have run historically in 20-year cycles. This cycle started around 2000 or so, give or take, so we have another 10 years or so to go. This Time is Different however, because of population growth and hitting limits on important resources. I highly recommend you read the book.

I also disagree with your statement that gold is in a bull market so Wall Street can profit. In 2008 during the financial meltdown, my company brought in our financial advisor from Merrill Lynch to go over our 401K's and to re-assure us everything would be fine. Anyways, the advisor discussed various investments and returns and when she got to gold and silver, she broke out some chart on gold and said it was not a good investment. I had to bite my tongue. SealedGold was the best investment of the last decade. So 3 years ago, Wall Street was not into gold and even now, they are just tip toeing in and around gold. How do you explain that gold is in a bubble? Eventually, I could see gold being in a bubble, but not right now. Not even close. Especially not when I told my co-worker about a year ago who was looking to sell gold jewelry that gold was 1150 an ounce, and she understood me say saying it was 11 dollars and 50 cents an ounce. She really thought it was that price! Surprised

You do raise a good point about the bear market in gold in the 80's and 90's. I would explain that by saying money printing thenwas not as prolific then as it is now. Also, Paul Volkker took a lot of money out of the system with his sky high interest rates early on in that time period. Volkker is not in chare of anything now right? Party on gold bulls, Party on! Money mouth

Otherwise, as Ready said, I enjoy reading your contrarian viewpoints too. Keeps my mind balanced as well.

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JAG
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When Captain Sheeple buys gold...

ccpetersmd wrote:

I will continue to buy precious metals during periods of price depreciation, and will sell when JAG decides to buy!

ao wrote:

Please post when you go bullish on gold.  You're one of my qualitative indicators.Wink

LOL, I wouldn't recommend this approach, because your gold coins would be nearly worthless at that point. Captain Sheeple is a market sentiment trader, and therefore the only time he buys is when the market finds no value in a particular asset (notice the snobby 3rd person narrative here, lol). 

If you bought gold in the early oughts, then kudos to you for buying into a "hated" asset. But if you are chasing gold at this point, then your investment risk is rising exponentially. Gold wasn't on my radar a decade ago, so I was too late to enter the gold game as a long-term investment. 

I figure my next big trade will be to short gold, if only to hedge against my investment manager's overweighting of gold in my portfolio. Look for my short just before all the whining about gold manipulation starts up again. 

Denny Johnson wrote:

JAG.........what do you recommend to protect wealth after one is comfortable that he is materially prepared for a tumultuous future?

Hi Denny,

See Puke: The Best Investment for my observations on proven wealth protection strategies.

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sundarb
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Posts: 72
JAG wrote: Oh boy, The

JAG wrote:

Oh boy,

The gold-bug baggage in this piece is top-dollar. Dr. M, your rationalizing skills are better than most, but the reasons that you cite for holding gold are lacking any proven correlation. For example:

  • Thin-air Money: Money has been created from thin-air for our entire lifetimes. If there was a correlation between money being "printed" by the central bank (or banking system) and gold, then how do you explain the bear market in gold during the 80s and 90s? Did the money supply decrease during the greatest bull market in our history?

As already answered by one of the members, it is the interest rate that did the trick to kill the gold bull market. Paul Volcker rised it to as ridiculously high as 21% to tame inflation and cash became dear. gold came back down. Also prior to the 70's when US was on a gold standard, deficit spending = inflation. This equation cannot be violated as this is basic economics. But after US went off the gold standard, deficit spending != inflation. Voila! how did that come about? The secret lies in the fact that US dollar was the de facto world reserve currency, so everyone doing trade had to accumulate dollar reserves. US dollar in a perverse way, had become gold of fiat currencies. Money supply kept increasing, but the money never stayed in the US. It went all over the world. But as they say, world is a finite place and you can print only so much dollars until it becomes worthless.

JAG wrote:
  • Financial System Collapse: Since the price of gold is determined by the financial markets, what do you suppose will happen to its price action in the absence of a financial market? What happened to the value of credit default swaps when that market shut down? Granted, local physical markets may still exist in such a scenario, but when people are faced with physical survival, will any form of money (including gold) have any personal value?

Gold is priced by financial markets only as long as the dollar survives. If dollar collapses, who cares about financial markets any more? Price of gold is determined by what the human owning gold values to be exchanged for. Value determination becomes subjective and will vary from person to person, which is how it should be in the real world. Gold will continue to have value as long as humans think there is value. There is an axiom in Austrian Economics: value does not exist outside of mankind's consciousness. This statement is self-evidently true and in the event of a currency crisis, gold/silver will automatically come to the forefront. gold/silver are the currencies of choice by the free-market.

The below video describes the Menger Axiom and calls BS on Keynesian economic models in practice today.

JAG wrote:
  • Gold Remonitized: Ok, so let's assume that a one-world currency is in our future and that its value will be based on some fraction of physical gold. Do you really think that architects of such a monetary system would not confiscate all the gold they could prior to its implementation? Would they allow a redistribution of wealth to occur, or would it be the same system with a new face on it?

This is a risk, but think about this: Can the US really confiscate gold again? I mean the markets are so widespread, there are so many options these days for storing gold/silver - I am sure people would diversity their holdings geographically. It would be an extremely arduous task to do this in today's world. The world is not 1933. Also, if it means that our survival in a collapse depended on owning some physical, then why would you not take the risk?

JAG wrote:
  • Supply & Demand: In our distorted market environment, supply and demand analysis has a diminished role in the price action of commodities. The biggest component of commodity prices is wall street speculation. The spike in oil in 2008 is a good example. Prices didn't rise because there was a shift in the supply-vs-demand equation, they rose because wall street was exploiting the market for profit.

What you say is true, This is the reason why going forward we will see a large divergence between the paper market (derivatives based on metals) and the actual physical market. Silver Eagles are already selling at a high premium and the supply crunch is quite visible, if you want the physical right away. So I think rife speculation can go on, until the paper exchanges can run. Comex silver is running all-time low inventories and it will take one or two hedge fund billionaires to empty their shelves. If there is a default on the Comex, that will spell the death-knell for paper derivatives. Also, a fiat monetary system is a confidence game. It runs as long as people believe in the faith and credit of the US Govt. Once the faith dies, all bets are off.

JAG wrote:

On the other hand, you did give one reason that does have a good correlation to the price of gold; Negative Real Interest Rates. But this phenomenon seems more likely in a deflationary environment, rather than in the "extraordinary inflation" environment that you are hedging against by holding gold.

Gold does well regardless of whether we have inflation or deflation. As long as there is uncertainty in the markets surrounding its stability, gold will continue to do well. Jim Grant observed <i>“Gold is a very difficult investment because its value is indeterminate. It is the reciprocal of the world’s confidence in the likes of Ben Bernanke. I think the price will go higher.” </i>

JAG wrote:

Bottom Line: Just like we did with the internet bubble in the late 90s, we are fooling ourselves with all our rationalizations about the value of gold. Gold is in a bull market for one reason, so Wall Street can profit from our rationalizations and expectations. The game is always the same, and the "gold game" is getting big enough these days, that a crash in gold will likely be the hallmark of the next economic crisis.

It was an enjoyable read and great writing, as usual. You almost had Captain Sheeple convinced.Laughing

The world is running on the fuel of debt. Look at the staggering debt numbers and see if these countries can actually pay up. There are going to be more, larger defaults like Greece coming. The largest one, elephant in the room is the United States. We are in a time of history, where world wide central planning is trying its best to prop up a system that is inherently unstable to begin with. No historical references can help us understand this time we are in. This is unique. 

Overall, you make excellent points, although I hope I have clarified a few :)

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JAG
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Posts: 2490
Certainty & Emotion

Ready wrote:

I'd add the word today because no one is certain of what is to come next, and when someone tells me they are, I call BS.

You seem so certain of your position, that it makes me concerned that you are as emotionally con-gold as the pro-gold gold bugs you tend to mock.

Hey Rog,

I think you know me better than to think I am 'certain of what comes next' . The very fact that I am part of this community shows that I am uncertain about our future. And my impression is that many people here are much more confident in their own beliefs about the future than I am. Everyone must assign the own probability spectrum to our future, and I guess mine is a little different than most here. 

I don't understand the perception of emotion in my posts. My point of view on this subject is as objective and unemotional as I can make it; you buy an asset when it is out-of-favor and you sell it when it becomes the asset-de-jour. It's a simple approach that removes emotion from the investing equation. 

Perhaps I should follow your lead and use the term pro-gold instead of gold-bugs. My apologies if I offended anyone with this term.

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1441
I've gone all out.

I finally just plated myself in gold.

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JAG
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Posts: 2490
Thanks...

Good points Joe and Sundarb,

You gotta love this community. Where else on the net would you find a "dinner party" conversation of this quality?

I would like to clarify one common point in your rebuttals. It wasn't my contention that money supply was correlated with the price of gold, it was Dr. M's (and many others) observation. I agree with you and Dr. M on the interest rate correlation.

All the best....Jeff

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rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Bitcoin

I support the idea of alternative currencies and I wish Bitcoin all the best, but it is not a currency I would use.  I think Doug Casey did a fairly good  review of why not to use Bitcoin. 

The basic reason I won't use it is it offers no advantage over other currencies.  The only thing Bitcoin brings to the table is limited availability (maybe), but requires a well connected network to operate, has no physical representation that can be used without a computer and whose trust mechanism is based on encryption and hashing techniques which can and will be broken in the future.

Bitcoin is at best just another currency that might offer transactional convenience.  I believe it is highly questionable as a long term store of wealth.  Of course the same can be said of all currencies including gold and silver. Gold and silver are only valuable because they have functioned well as currencies over the long term, primarily because they cannot easily be obtained, are of limited in supply, and not centrally controlled.  However, like all currencies, they only act as a store of value because people will accept them in exchange for other goods.  The only truly long term store of value is productive capacity.

Denny Johnson's picture
Denny Johnson
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Posts: 324
JAG wrote: See Puke: The

JAG wrote:

See Puke: The Best Investment for my observations on proven wealth protection strategies.

Hi Jeff....I had a look over there .....wasn't very convincing, felt like you could be selectively citing examples from the past that supported your strategy.

It would be interesting to test your proven wealth protection strategies going forward......perhaps you could let us know about current or future PUKE ideas that you are actually invested in, we could compare the future performance w Doctor M's readily trackable suggestions.

Could be the start of something big, seems a guy w proven 'proven wealth protection strategies' could make a fortune.

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Reggieoo
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Posts: 1
Open question

I am just learning about Gold and think I understand the Goldsmiths Tale, but permit me to make an observation that begs an answer.  I noticed that the most knowledgeable persons about currency, monetary policy as well as macro and micro economics seems to be people who own Gold.   I ask this rhetorical question:

Given my assumptions above, why would ANYONE who has any quantity of Gold metal EVER want to trade it for fiat currency?  You may have converted me into being a "believer"? I respect the knowledge that parallels MOST ownership of Gold.  Why would any sane person sell Gold?  And why would they trade buttery, yellow, shiny gold metal for paper play money--the US Dollar?  Is there some secret that the owner of Gold knows that makes "them" want my  paper play money?

If I bought Gold at any price ---even if it were at $2,000 an ounce, given the terrible state of our monetary system, why would ANY one ever sell it?  Gold looks like a buy, hoard and wait commodity.  No problem...but what would motivate one to actually sell Gold for any reason?  If there are any Gold harders out there, why would you trade REAL Gold metal for Helicopter Ben dollars?  Try to convince me!  Please don't tell me that the only people who sell Gold are broke, insane or crazy or all three.  Are only "crazy people" selling Gold ?

Denny Johnson's picture
Denny Johnson
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Posts: 324
Welcome Reggieoo, Doctor M

Welcome Reggieoo,

Doctor M discusses "The six signs I watch to know when it's time to get out" in Part 2 of this report.

If you have the $30 for a one month subscription, may be the best $30 you could spend. Allows you full access to all past reports.

Jeff.........in case you are wondering, you were not one of the six signs.Wink

Peace

Denny

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rhare
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Posts: 1271
Because the government says so....

Reggieoo wrote:

Given my assumptions above, why would ANYONE who has any quantity of Gold metal EVER want to trade it for fiat currency?

Because right now you have to have fiat currency to buy other goods that you need or want.  You can't buy things directly with PM (yet).  Also, the only true wealth is productive assets.  Gold/Silver/Currencys are mostly intermediarys.   Gold/Silver just happen to be better at holding their value than the fiat because they also have intrinsic value, particularly silver as an industrial metal.

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 2817
U.S. $ will soon be worthless if the Fed keeps printing money!

OK....Who is that quote from?

This could almost have been posted in the humor thread.....Hmmmm,  Anybody here been on a hot date lately that they aren't talking about?

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Ready
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Posts: 917
JAG wrote: Perhaps I should

JAG wrote:

Perhaps I should follow your lead and use the term pro-gold instead of gold-bugs. My apologies if I offended anyone with this term.

Sorry I didn't reply sooner, I hit the ignore user button on you after you offended me LOL.

Perhaps emotional is the wrong word to describe your reactions. I'll try to think of a better one, but disconnected is certainly not it.

Truth is, I don't give a rat's , uh, tail about gold or silver specifically, I don't wear it, carry it in my pocket, use it on a daily basis, look at my stash, count it, or interact with it in any way, it just doesn't hold anything over me any more than a $100 bill does. I care about being able to do things like pay for healthcare in the uncertain future. I suppose this is a personal limitation that I have to deal with, but I just can't figure out a better way to preserve my savings at this point, considering I am fully prepped and have physical cash as well. If a better store of wealth, outside the banking system, were to show itself tomorrow, I would quickly move to it. Yet, lumped in with the "gold bug mentaility" I go.

Looking at your OP, it starts off on what I percieved as a statement of emotion, but if you say that's not true, I believe you. Gold Bug Baggage  (GBB) ought to have a  wiki, so I'm off there now to add one. Now, what would be the opposite of GBB, hmmmmmmmm, I'll have to figure that out for the wiki. Not that anyone here has experienced that phenomenon! Innocent

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Johnny Oxygen
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saxplayer00o1

saxplayer00o1 wrote:

OK....Who is that quote from?

This could almost have been posted in the humor thread.....Hmmmm,  Anybody here been on a hot date lately that they aren't talking about?

Remember when Joe Kennedy said:

"When the shoeshine boys talk stocks its a great sell signal" in 1929?

I think this applies to the dollar here.

JAG's picture
JAG
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Posts: 2490
Clarification

Denny Johnson wrote:

It would be interesting to test your proven wealth protection strategies going forward......

Looking back at my wording, I can see how you thought I meant my proven wealth protection strategies. But actually, I was referring to value investor Seth Klarman's (and other value investors like Warren Buffet's) proven strategies. And yes, these approaches to wealth conservation have been proven, to the extent that any idea can be proven outside of the hard sciences. 

The point of my response to you was to emphasize that wealth preservation is an active process, requiring one to adapt to opportunities as they arise. The old buy-and-hold strategy just makes you a target for Wall Street exploits, especially if you didn't get in before they did. 

Also, if you like to sign up for the Captain Sheeple Investing Newsletter, just call 1-800-Panic-Now, lol.

Nate's picture
Nate
Status: Gold Member (Offline)
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Posts: 461
r wrote: Gold, especially at

r wrote:

Gold, especially at $6000+ an ounce is not easy to sell.

Valid point.  A friend recently offered ranchland in Wyoming, farmland in Iowa, or timberland in Georgia for gold or silver.  My gut tells me that gold and silver will "appreciate" more than the property offered, so I am currently in the waiting mode.

IMHO, the time between a dollar collapse and the birth of a "real currency",  gold will be used for large purchases (homes, land, and businesses) and silver will be used for daily needs.

Nate

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sofistek
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Posts: 644
A 20 Year Investment?

When I read something like, "Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well.", I find it very difficult to read further. This is from someone who has done an excellent job of convincing us that the next 20 years will be nothing like the last 20 years (though that was a few years ago). Why is anyone here looking for an investment of up to 20 years (and probably more)? As I understood it, gold and silver are just a means of preserving wealth until you can prepare much better for an uncertain future.

Now, uncertain surely doesn't mean a little like today; Chris has rammed home that message many times. Uncertainty is more, how bad is it going to get or how different will it be. What on earth will people do with their $60,000 per ounce of gold in a decade (assuming they can hold on to it or be allowed to use it)? Will they be shaving leaves off their bars and going down to the local supermarket to buy some delicacy from a far off land, or perhaps going to the local DIY store to start buying some stuff to dig a garden?

I have enough in savings to buy a reasonable amount of gold but, after several years of reading this stuff, I still remain to be convinced of the usefulness of doing so. In the short term, my savings are safe. In the long term, I expect to have spent as much of it as I can in becoming self-sufficient, or as self-sufficient as I can  within a self-sufficient community. Well, perhaps "expect" is not the right word, more "hope". But that seems to be a far better goal than having oodles of precious metals in 20 years.

I just keep getting mixed messages from Chris. It's like he's got the right mindset and then he ploughs back into the gold story. And I shake my head yet again.

Tony

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
mucho kvetching

sofistek wrote:

When I read something like, "Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well.", I find it very difficult to read further. This is from someone who has done an excellent job of convincing us that the next 20 years will be nothing like the last 20 years (though that was a few years ago). Why is anyone here looking for an investment of up to 20 years (and probably more)? As I understood it, gold and silver are just a means of preserving wealth until you can prepare much better for an uncertain future.

Now, uncertain surely doesn't mean a little like today; Chris has rammed home that message many times. Uncertainty is more, how bad is it going to get or how different will it be. What on earth will people do with their $60,000 per ounce of gold in a decade (assuming they can hold on to it or be allowed to use it)? Will they be shaving leaves off their bars and going down to the local supermarket to buy some delicacy from a far off land, or perhaps going to the local DIY store to start buying some stuff to dig a garden?

I have enough in savings to buy a reasonable amount of gold but, after several years of reading this stuff, I still remain to be convinced of the usefulness of doing so. In the short term, my savings are safe. In the long term, I expect to have spent as much of it as I can in becoming self-sufficient, or as self-sufficient as I can  within a self-sufficient community. Well, perhaps "expect" is not the right word, more "hope". But that seems to be a far better goal than having oodles of precious metals in 20 years.

I just keep getting mixed messages from Chris. It's like he's got the right mindset and then he ploughs back into the gold story. And I shake my head yet again.

Tony

Lots of kvetching there.  Why would anyone NOT look for an investment of 20 years or more?  I don't see any inconsistency in Chris's message.  I do see misunderstanding in what you write.  But if not holding any PMs and keeping your all your wealth in cash and self-sufficiency items floats your boat, who am I to argue.

Montana Native's picture
Montana Native
Status: Silver Member (Offline)
Joined: Mar 17 2009
Posts: 149
Where else should I park liquid assets?

There are a couple anti-gold posts here from repeat offenders (you know who you are). Trying to shoot holes in Chris’ story is admirable and needed for a balanced debate, but in the end, current trends and past history make a very compelling case for gold and silver. As members here, you are no doubt familiar with exponential growth. Our debt and monetary creation are compounding and turning the corner on that hockey stick as we speak.

How one can just stick their nose up at money that has served humanity for millennia makes me scratch my head. As Chris plainly shows, mine production can’t grow exponentially. Barter is extremely difficult, and yes, people have used gold to buy food, drink, land, whatever, since the dawn of civilization. Ignoring such a glaring trend seems a little reckless to me, particularly seeing we are headed to financial crazy town.

As a young man how am I supposed to save for my future? I’m working on many forms of resilience, but have to store something for lean times. It’s as simple as the grasshopper and the ant. Shall I save in dollars created by the keystroke of the Bernank or perhaps a rigid 401k competing against nimble black box traders. How do I save??

In the end, precious metals and currency are a matter of trust. I think that globally we are facing the death of debt based money. How many bailouts does Greece get before we just say they are flat broke? Maybe the tootsie pop owl knows. In the mean time, folks like me will remove physical metal from the market. This is not an attempt to become rich, but an attempt to beat a system that has failed us.

In closing I will note that everyone who claims gold isn’t worth $1500 an ounce or $60,000 for that matter should question how much a dollar is really worth. It’s worth increasingly less every decade and cruising toward the edge of El Capitan from what I see. There will be ups and downs, but the endgame looks dreadful.  Chris’ premise is less energy and more monetary creation moving forward. I’m not claiming gold is a panacea, but if the shoe fits, wear it. I’ll be here in two years and we can see how this plays out.

TJ

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 2542
Good debate everyone. I am

Good debate everyone.

I am not sold on Bitcoin, nor is my ego so fragile that I have to rush in and defend any position that I might have taken.

Let me give my favourite analogy. The difference between hummingbirds and seagulls. Hummingbirds are glamourus specialists. Seagulls are do-anything generalists. Which one is more vulnerable? I try to emulate the seagull. So I  walk and chew gum.

Gold and silver part of the mix.

The seagull serves his stomach, not his ego. Place a seagull on my pennant.

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
Arthur Robey wrote: The

Arthur Robey wrote:

The seagull serves his stomach, not his ego. Place a seagull on my pennant.

Not all.  Some have a higher calling. 

http://en.wikipedia.org/wiki/Jonathan_Livingston_Seagull

That being said, I'm a seagull admirer myself.  They can survive bitter cold and oppressive heat, are equally at home in the air, on land, and on the sea, can survive on any type of food, and still look good doing it all.  

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