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The Screaming Fundamentals For Owning Gold And Silver

The investment thesis for precious metals
Wednesday, June 29, 2011, 9:22 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).

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210 Comments

Doug's picture
Doug
Status: Diamond Member (Offline)
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Dogs_In_A_Pile wrote: Doug

Dogs_In_A_Pile wrote:

Doug wrote:

As noted above, day to day transactions in a USD collapse situation would probably be done in silver, particularly junk silver as everyone is familiar with the coins and would be less fearful of fakes.  Also, the smaller denominations would be unlikely to be counterfeited, just as you never hear of problems with counterfeit $1 or $5 bills.  I think the use of vodka and cigarettes in Russia may be more a reflection of Russians' apparent penchant for self-destruction than an indication of enduring value.  That doesn't mean alcohol and tobacco won't have value.  After all, addictive drugs always have a market.

As was also noted, the Russian experience was a relatively brief transition period.  I don't think we're talking on this site of short term events with eventual return to some form of normalcy.  We are talking about permanent paradigm shift.  The USD was good in Russia because it was a stable world reserve currency, the ultimate store of value at that point in history.  That is clearly no longer true.  In the absence of a stable fall-back reserve currency, we look about for another store of value.  The default position, it seems to me, is a form of money with a long term history. 

What oh what might that be? Innocent

Doug

Is it hot peppers?  Laughing

ding, ding, ding, give that man a cupie doll!! Money mouth

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capesurvivor
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Russia

I support gold ownership but if you read Dmitri Orlov's "Reinventing Collapse", I'm not sure that gold was even mentioned (I read 1st ed in 2008). Functional items such as vodka, cigarettes, food, gasoline...that's what ran the daily economy. Orlov was there and I trust his judgement. I wouldn't be so quick to rule them out.

CS

ao's picture
ao
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Dogs_In_A_Pile wrote: Doug

Dogs_In_A_Pile wrote:

Doug wrote:

As noted above, day to day transactions in a USD collapse situation would probably be done in silver, particularly junk silver as everyone is familiar with the coins and would be less fearful of fakes.  Also, the smaller denominations would be unlikely to be counterfeited, just as you never hear of problems with counterfeit $1 or $5 bills.  I think the use of vodka and cigarettes in Russia may be more a reflection of Russians' apparent penchant for self-destruction than an indication of enduring value.  That doesn't mean alcohol and tobacco won't have value.  After all, addictive drugs always have a market.

As was also noted, the Russian experience was a relatively brief transition period.  I don't think we're talking on this site of short term events with eventual return to some form of normalcy.  We are talking about permanent paradigm shift.  The USD was good in Russia because it was a stable world reserve currency, the ultimate store of value at that point in history.  That is clearly no longer true.  In the absence of a stable fall-back reserve currency, we look about for another store of value.  The default position, it seems to me, is a form of money with a long term history. 

What oh what might that be? Innocent

Doug

Is it hot peppers?  Laughing

Dogs,

It sounds like you have a serious glycoalkaloid addiction.  There's only one cure.  Get rid of all your hot peppers.  I'll be glad to take them off your hands.Smile

tictac1's picture
tictac1
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Posts: 174
So own some gold and junk

So own some gold and junk silver, learn to brew and distill, grow some tobacco along with your other veggies, and you're all set...:)

Seriously though, food and gas make perfect sense, but vodka and cigarettes will only work in a society already addicted to them.  Here in CA, cigarettes probably won't get you too far, not sure about the alcohol.  I think alcohol and other forms of distraction usually do well in hard times, no?

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Back off you solanine thief!!!

ao wrote:

Dogs,

It sounds like you have a serious glycoalkaloid addiction.  There's only one cure.  Get rid of all your hot peppers.  I'll be glad to take them off your hands.Smile

Live on the edge.  More people should eat things from the solanacea family.  Nightshade should be a part of everyone's diet.  Surprised

I'm not sure I'm addicted, but there is something to be said for a self inflicted capsaicin dose.

I'll bet you didn't know capsaicin is dissolved by milk fat or, ahem, alcohol, and not water????

Pass the habaneros and a 12 pack of Sam Adams Noble Pils or Sierra Nevada Glissade......it's time for another double blind.  Yell

jrf29's picture
jrf29
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Posts: 445
media of exchange

tictac1 wrote:
Seriously though, food and gas make perfect sense, but vodka and cigarettes will only work in a society already addicted to them.

  I agree.  It may not even be possible to tell in advance what the most widely accepted media of exchange will be.  But it is worth noting that whatever the medium of exchange is, it is always a luxury item (even a luxury food item), since the demand for necessities is fixed (you can only eat so much food), but the demand for luxury is unlimited.  I'm going to come back to this in a second.

doug wrote:
As noted above, day to day transactions in a USD collapse situation would probably be done in silver, particularly junk silver as everyone is familiar with the coins and would be less fearful of fakes

I'm not sure that the dynamic for silver coins would be that much different than gold.  Even if we assume that certain silver coins are easily recognizable by the populace, there would still have to be a period of price discovery.  How much is a silver dime really worth?  The paper markets put a number on it today, but if silver were to be used as money, the true value would be much higher.  But how much higher?  This would take time for the market to sort out.

But setting that aside for the moment, to me the most interesting thing was the almost schizophrenic behavior of gold (and silver, and land, etc.) during the collapse in Russia.  Their value temporarily collapsed as well, because as R.US said,

Quote:
Everybody needed money for simple food . . . Gold and jewelry were the first thing to go. Gold was very plentiful on the shelves. Nobody wants to buy it, and everybody is trying to sell it. They sold gold at a fraction (1/4-1/2) of the price in terms of food. But those who had gold were glad to sell at any price for what small food it could buy . . .

Quote:
My family had a silver cutlery weighing about 3kg. This silver was in the family over four generations and has been retained even in times of famine (1930-1933) and WW2 (1941-1945). It was sold in 1988 to purchase a small site of land (a quarter of an acre). I'm glad we have sold before the collapse (1998) otherwise in 1992, the silver would stand less than an annual crop of potatoes from that land

In other words, there was little demand for a luxury good among a population that didn't have enough to eat.  Like a man dying of thirst (or hunger) who will trade a million dollars for a glass of water (or plate of food).

So in Russia, if you sold your gold (or silver) during this two-year crisis period, you would have lost money.

doug wrote:
The Russian experience was a relatively brief transition period . . . We are talking about permanent paradigm shift . . . In the absence of a stable fall-back reserve currency, we look about for another store of value.  The default position, it seems to me, is a form of money with a long term history.  What might that be?

Of course I agree with you, Doug.  Long term.

After the crisis period ended, those who managed to hold onto their gold (or silver, or jewels) made out very handsomly.  But those who had been forced to sell these assets during the two years of the crisis for essentials such as food, clothing, and fuel suffered heavy losses.

Gold (and silver, land, other commodities) might be superior stores of value over long periods of time, and they might be well suited as media of exchange.  But my point is this: no matter how well suited (even perfectly suited) these metals are for use as money, I think Russia gives us some evidence that the transition period during a true crisis could last 2 or more years, and during such a time the value of gold and silver might be lower than one would hope as people scramble for basic necessities such as fuel, clothing and food.

My conclusion is only that holding gold, silver, and other valuable commodities is no substitute for ownership of productive assets that provide a direct source of essential products (productive farmland, woodlots, water, housing, etc.)  That's all I'm saying: that owning gold and silver alone is not enough.

tictac1's picture
tictac1
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Posts: 174
Another possibility

Another issue with Russia...

Normally, hungry people migrate to where food is more plentiful.  This by itself causes massive upheaval, but in the USSR, border crossers were shot on sight, according to my friends in Slovakia.  I don't know when this practice officially stopped, but that makes a pretty big difference to your survival tactics.  You are trapped within a collapsing empire, regardless of your ability to otherwise vacate.

Sounds like owning arable land and knowing how to work it is worth quite a bit...  Being an apartment dweller in a big city in this condition would be a really bad choice, if it is a choice.

For Dogs- "but there is something to be said for a self inflicted capsaicin dose."

Ever tried the aerosol version?  :)

ao's picture
ao
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jrf29 wrote: My conclusion

jrf29 wrote:

My conclusion is only that holding gold, silver, and other valuable commodities is no substitute for ownership of productive assets that provide a direct source of essential products (productive farmland, woodlots, water, housing, etc.)  That's all I'm saying: that owning gold and silver alone is not enough.

Your points were well made and valid except that Russia was, is, and always will be, fundamentally different from the US.  More importantly though, as I've previously stated to Sofistek (and will probably have to repeat), I can't recall a single post ever made on CM where the poster stated explicitly or implicitly that gold and silver alone was enough.  Conversely, to do without PMs completely when one has a significant level of assets strikes me as foolishness.  Furthermore, productive assets are most definitely non-portable and for the most part, illiquid, a distinct liability in certain scenarios.

sofistek's picture
sofistek
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Not Enough

ao wrote:
s I've previously stated to Sofistek (and will probably have to repeat), I can't recall a single post ever made on CM where the poster stated explicitly or implicitly that gold and silver alone was enough.  Conversely, to do without PMs completely when one has a significant level of assets strikes me as foolishness.  Furthermore, productive assets are most definitely non-portable and for the most part, illiquid, a distinct liability in certain scenarios.

Well, we agree on one thing, gold and silver is not enough.

Some good recent discussion here. Notwithstanding ao's belief that there is plenty of evidence that gold and silver will have widespread use as a means of exchange, post collapse, I haven't actually seen any evidence, though I accept that there is evidence that PMs have had purchasing power at various times throughout civilised history. I think that's possible again, though I doubt it will happen quickly once widespread collapse. The occurs. The Russia example is good but not perfect, as there was a coherent global society in which Russia could recover. That may not be the case as the dominoes fall.

I still think there is a moral element to this. It seems that some people here look to PMs as a means of retaining (or just having) wealth, post collapse. That is, they want to feel that they still have wealth, as measured by something akin to possessions or money, that is greater than most others. If this view prevails, I don't think there is any chance that we'll learn anything from history and a new unequal society will emerge, with haves and have-nots, and power will be bought. No doubt others, including ao, will laugh at that suggestion, as a way of avoiding thinking about it. Given some of the comments here, I'm not too hopeful that humans will start using their much vaunted intelligence once the dust settles on our collapsed civilisation.

But I'm keeping an eye on the debt ceiling situation. I might dip into silver and gold, as a short term measure, if it looks like the US dollar will collapse.

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Travlin
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Think again

[quote=sofistek]

I still think there is a moral element to this. It seems that some people here look to PMs as a means of retaining (or just having) wealth, post collapse.

[/quote]

Sofistek

After working all my life, without an exceptional income, we managed to accumulate some assets by living below our means.  This money is for our retirement, and maybe to pass on to our kids to help them when they have kids.  I am retired now and our life savings can’t be replaced.  To have them destroyed by the gross mismanagement of government is outright theft.   There is nothing immoral about wanting to retain the ability to pay our own way and I resent your implication.

Travlin

ao's picture
ao
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poppycock

sofistek wrote:

I still think there is a moral element to this. It seems that some people here look to PMs as a means of retaining (or just having) wealth, post collapse. That is, they want to feel that they still have wealth, as measured by something akin to possessions or money, that is greater than most others. If this view prevails, I don't think there is any chance that we'll learn anything from history and a new unequal society will emerge, with haves and have-nots, and power will be bought. No doubt others, including ao, will laugh at that suggestion, as a way of avoiding thinking about it. Given some of the comments here, I'm not too hopeful that humans will start using their much vaunted intelligence once the dust settles on our collapsed civilisation.

You never addressed my question in the past about this question of morality.  Specifically what financial behavioir do you deem as moral and what behavior do you deem as immoral?  The sense I get from your post is that you're holding cash and therefore moral whereas those holding PMs are somehow immoral?  You also seem to imply that those who have more wealth than others are immoral?  Please be very precise and specific about your views on financial morality or immorality because the sense I'm getting it that you're spouting absolute poppycock and I'd like to be corrected. 

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tictac1
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I thought we weren't

I thought we weren't supposed to discuss religion, but "morals" are OK?  Where, pray tell, do morals come from?

Anyway, my morals dictate that a good man leaves his children an inheritance, something my father was unable to do.  I have no intention of failing in this, hence PMs.

I also second Travlin's thoughts.

While some may see PMs as a get-rich-quick-after-the-bottom-falls-out ploy, I think most of us are just looking to avoid being stolen from.  Wealth preservation can be used for charity, too, and those unable to provide for themselves are also unable to provide charity.

Fiat money IS theft, plain and simple.  It's PURPOSELY designed as such.  PMs are simply one way to prevent that theft, or minimize it.

I do agree with Sofistek on the fact that Russia had the rest of the world economy as a backstop, which would not be there in the event of a global fiat collapse.  In fact, such a collapse would be a historically unprecedented event, so there's no way to know what might happen.

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Well, well, well....finally.

tictac1 wrote:

In fact, such a collapse would be a historically unprecedented event, so there's no way to know what might happen.

Best argument in the thread for why people should own some amount of silver and gold - consistent with their situation and expectation for how things may unfold.  Of course bearing in mind that it will likely never have a value of zero.

Game,

Set,

Match.

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Yes, Morality. Let's Move On. Thank You.

tictac1 wrote:

I thought we weren't supposed to discuss religion, but "morals" are OK?  Where, pray tell, do morals come from?

Morals can come from love, kindness, empathy, sympathy, logic, and the Golden Rule: "Do unto others as you would wish them to do unto you." Studies have shown that even babies can understand simple concepts such as fairness and kindness.
http://en.wikipedia.org/wiki/Morality_without_religion

Historically, some have used the "morality comes from religion" excuse to dehumanize others for a "lack of morals". And in dehumanizing, have made it easier to persecute others in the name of their own brand of morality.

We all know people who are moral and amoral, and they are of all religious persuasions - and none. Some religions may also promote amoral behavior (as defined by other religions). Therefore, the two CAN be very mutually exclusive.

Really, let's NOT bring in religion into this. Thank you.

Poet

[Moderator's note: Poet and the others are correct: religion cannot come in for reasons stated in the forum rules.  But there is no problem with morality, or even general spirituality if properly discussed.]

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Hmmm, I guess you are

Hmmm, I guess you are unaware of the source for the "golden rule".  And morals are actually the source of information for DEFINING the qualities you mention, not the other way around, i.e. by what standard do you judge what is "love" or "kindness"?

We can discuss morals and spirituality without religion?!?  Actually, that's quite impossible.  I would be happy to take the time to logically lay out my case, but out of respect for the moderator, I will allow you your ignorance.  I do not mean that offensively.

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let's be consistent

Poet wrote:

tictac1 wrote:

I thought we weren't supposed to discuss religion, but "morals" are OK?  Where, pray tell, do morals come from?

Morals can come from love, kindness, empathy, sympathy, logic, and the Golden Rule: "Do unto others as you would wish them to do unto you." Studies have shown that even babies can understand simple concepts such as fairness and kindness.
http://en.wikipedia.org/wiki/Morality_without_religion

Historically, some have used the "morality comes from religion" excuse to dehumanize others for a "lack of morals". And in dehumanizing, have made it easier to persecute others in the name of their own brand of morality.

We all know people who are moral and amoral, and they are of all religious persuasions - and none. Some religions may also promote amoral behavior (as defined by other religions). Therefore, the two CAN be very mutually exclusive.

Really, let's NOT bring in religion into this. Thank you.

Poet

[Moderator's note: Poet and the others are correct: religion cannot come in for reasons stated in the forum rules.  But there is no problem with morality, or even general spirituality if properly discussed.]

Moderator:

The Golden Rule is a fundamental precept of almost every major religion in the world.  So is it appropriate to discuss it when religion is banned?

Poet,

By discussing the Golden Rule, you wind up doing the very thing that you requested others not to do.  So who sets the standards for morals?  Who establishes what is moral and what isn't moral?

Historically, those who have divested morals from religion have often wound up dehumanizing and persecuting far more humans than those who have associated morals with religion.  The two biggest killers in history, Stalin and Mao, are classical examples of that mindset.

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Gold Bugs And Silver Bears

ao wrote:

By discussing the Golden Rule, you wind up doing the very thing that you requested others not to do.  So who sets the standards for morals?  Who establishes what is moral and what isn't moral?

Historically, those who have divested morals from religion have often wound up dehumanizing and persecuting far more humans than those who have associated morals with religion.  The two biggest killers in history, Stalin and Mao, are classical examples of that mindset.

Ao

The very fact that one person will argue that morality is nothing without religion, while another person will argue that morality and religion can be mutually exclusive and that some religions are amoral... Leads me to conclude that any further discussion here (within this forum) is best discontinued. The process and result would likely be long, drawn-out, acrimonious and extremely counter-productive.

So how about them gold bugs and silver bears, eh? Which team are you rooting for?

Poet

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Let's stay on topic

Let's keep this thread on topic.  If the debate about the nature of morality has legs, it should go to a separate thread.  Post a link to the new thread if you want to.

If anybody has questions or wants to discuss how I differentiate between religion and other related but permissible subjects, I'll be more than happy to, but not at the expense of derailing this thread.  Click on the email button to send me an email and I'll get back to you promptly.

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body of literature

There is an entire body of literature out there that discusses and debates whether morality is possible in the absence of a god.  I don't think our meager attempts to discuss it here are worthwhile.  With no disrespect to the intelligence of this community, the subject has pretty much been discussed to death.  Here's a list of publications on the subject if you're really interested.

http://www.infidels.org/library/modern/nontheism/atheism/ground-morality.html

As to the bug vs. bear debate, I pick the bugs.  They'll be thriving when the bears are all dead.

Doug

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Doug wrote: There is an

Doug wrote:

There is an entire body of literature out there that discusses and debates whether morality is possible in the absence of a god.  I don't think our meager attempts to discuss it here are worthwhile.  With no disrespect to the intelligence of this community, the subject has pretty much been discussed to death.  Here's a list of publications on the subject if you're really interested.

http://www.infidels.org/library/modern/nontheism/atheism/ground-morality.html

As to the bug vs. bear debate, I pick the bugs.  They'll be thriving when the bears are all dead.

Doug

Nice link Doug.  Should provide some interesting reading.  Every cloud has a silver lining and presents a golden opportunity for learning.;-)

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Sofistekated Contrarian Buy/Sell Indicator System

Poet wrote:

So how about them gold bugs and silver bears, eh? Which team are you rooting for?

I'm for reasonable and rational PM ownership for reasons including those so aptly stated by Travlin.  Based on my proprietary Sofistekated Contrarian Buy/Sell Indicator System, if Sofistek is bearish, I'm wildly bullish.  Following the corollary 3 day knock-down rule, if gold and silver are taken down further tomorrow (which seems probable at this juncture), I'm increasing my allocation to PMs beyond its present level.  As soon as I hear of him buying, I'm selling.;-)

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Back on topic

So anyway...:)

I have read that military pilots since WW2 carry gold coins with them in their emergency/SERE/survival gear.

Can anyone confirm/deny this?

If it's true, it would mean that the military believes gold is more universally accepted than the US dollar, which since about the same time has been the baseline fiat.  I think it would say something about the usefulness of gold in an emergency.

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Gold And Other Useful Things, Not Only Gold

tictac1 wrote:

So anyway...:)

I have read that military pilots since WW2 carry gold coins with them in their emergency/SERE/survival gear.

Can anyone confirm/deny this?

If it's true, it would mean that the military believes gold is more universally accepted than the US dollar, which since about the same time has been the baseline fiat.  I think it would say something about the usefulness of gold in an emergency.

Tictac1

Whether that is still true or not... Just remember that gold coins are not the ONLY thing in their survival kits, and we should keep that in mind.

Besides, it's more likely there are American dollars in the kit - not just ONE gold coin. Dollars are still widely recognized and accepted worldwide and have an advantage: There can be multiple bills of multiple denominations in a kit, which you may need to grease multiple palms or buy multiple items.

What happens after you bribe the village headman for help and he gets you to the next town? At the next down, there may be a border guard who needs help looking the other way...

Poet

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Plural not singular

Coins, not coin.

Turns out, yes, some kits did contain gold coins.

http://www.donrearic.com/ww2kits.htm

http://www.flyingeaglegold.com/international-gold.php

http://www.cruzis-coins.com/sovs/sov.html

You can even buy a kit-

http://www.snyderstreasures.com/pages/spy.htm  (scroll about halfway down)

It seems that various militaries have felt that gold is indeed liquid. 

The rest of the contents of the survival kits are moot for this thread.

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Another example of gold coin(s) in military kits

Forwarded over by Chris Powell of GATA.org:

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One Day...

Adam wrote:

Forwarded over by Chris Powell of GATA.org:

Okay. Nice to know if I ever get to be in a fighter jet or bomber one day... :)

Poet

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 How I learned to stop

How I learned to stop worrying, and embrace peak everything...

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you're spot on Tictac1, in

you're spot on Tictac1, in fact, most survival kits in the Mil/Aero contain: food, water, firearms, ammo, medical, survival tools and communications to name a few -- sound familiar?

BR,

Skytop

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we'll meet again

plato1965 wrote:

How I learned to stop worrying, and embrace peak everything...

Love it!  One of my favorite movies of all time.   I think one of the funniest things is that Slim Pickens thought he was playing a serious role, LOL. 

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Chewing gum

:-)

The nine packs of chewing gum in Slim Pickens' survival kit was a humorous reference to heavy (and ultimately successful) lobbying by the Wrigley corporation during WWII to include a pack of Wrigley's chewing gum in survivial kits.  Wrigley's advertisements during the war recommended 5 sticks of gum per day for all war workers and servicemen, and claimed that their gum was stimulating and increased concentration while reducing fatigue.

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Chewing Gum Better Than Cigarettes!

jrf29 wrote:

:-)

The nine packs of chewing gum in Slim Pickens' survival kit was a humorous reference to heavy (and ultimately successful) lobbying by the Wrigley corporation during WWII to include a pack of Wrigley's chewing gum in survivial kits.  Wrigley's advertisements during the war recommended 5 sticks of gum per day for all war workers and servicemen, and claimed that their gum was stimulating and increased concentration while reducing fatigue.

Certainly, chewing gum is healthier than the 9 cigarettes that were included in the rations! I agree that gum can be stimulating - that extra little burst of sugar. :)

Poet

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Travlin, I don't think the

Travlin,

I don't think the phrase "paying one's own way", is likely to be heard much post collapse. It is more likely to be about contribution to your community and/or self-sufficiency.

Hey, I can understand why those nearing or at retirement (I'm less than 10 years away) would want to hope that what they've worked towards all of their working lives will still have some validity. I guess I'm not too different from you, in terms of what I tried to achieve, though I probably wasn't as frugal as you, though we did live below our means. But I now have no expectation of a conventional retirement though I still cling, barely, to the hope that beyond all the carnage that collapse will wreak some kind of better way of living will emerge. If it's to be sustainable, I think equality and fairness will be a key feature of a future community and, maybe, society. All I'm saying is that hanging on to some idea of wealth beyond what others have doesn't sound like equality is at the forefront of thought. However, I really don't think it matters in the period up to and through collapse since PMs will probably need to be a very long term holding if it is to realise the dreams of many here. It has worth, I think, only as a short term investment; those who want to get through the collapse need to prepare for the journey and a very long term investment isn't going to help with that.

Tony

Travlin wrote:

sofistek wrote:

I still think there is a moral element to this. It seems that some people here look to PMs as a means of retaining (or just having) wealth, post collapse.

Sofistek

After working all my life, without an exceptional income, we managed to accumulate some assets by living below our means.  This money is for our retirement, and maybe to pass on to our kids to help them when they have kids.  I am retired now and our life savings can’t be replaced.  To have them destroyed by the gross mismanagement of government is outright theft.   There is nothing immoral about wanting to retain the ability to pay our own way and I resent your implication.

Travlin

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Money and government

Travlin,

I don't know why you connect money and government since we have no government money and its a fact government has nothing to do with creating money.

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questions

sofistek wrote:

All I'm saying is that hanging on to some idea of wealth beyond what others have doesn't sound like equality is at the forefront of thought. However, I really don't think it matters in the period up to and through collapse since PMs will probably need to be a very long term holding if it is to realise the dreams of many here. It has worth, I think, only as a short term investment; those who want to get through the collapse need to prepare for the journey and a very long term investment isn't going to help with that.

sofistek,

I have two questions.

1) Does "hanging on to some idea of wealth beyond what others have" imply that they should distribute the wealth that they hold above and beyond others to those others?  If not, in your mind, how are they to dispose of said wealth?

2) You're saying the PMs will need to be a very long term holding if they are "to realise the dreams of many here" but then you say you think they have worth "only as a short term investment".  These two statements seem contradictory.  Could you please clarify?

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Answers

ao wrote:

1) Does "hanging on to some idea of wealth beyond what others have" imply that they should distribute the wealth that they hold above and beyond others to those others?  If not, in your mind, how are they to dispose of said wealth?

2) You're saying the PMs will need to be a very long term holding if they are "to realise the dreams of many here" but then you say you think they have worth "only as a short term investment".  These two statements seem contradictory.  Could you please clarify?

1. No, but that's an idea. Your question seems to be along the lines of, "I've managed to accumulate more wealth than I need to physically prepare for tumultuous times and to change my lifestyle to one more in tune with nature's limits but I'd like to think I'll still have that wealth for as long as possible - how can I hold on to that dream?" I'm afraid that's not a question that particularly interests me.

2. From my previous posts, you might deduce that my focus is on preparations. I recognise that preparations take time and that not everyone can make those preparations at the same pace or can change their lifestyles at the same pace. We certainly have uncertainty of money, at the moment - there is no guarantee that, even if you have it, you'll have it over the short term; another financial collapse is entirely possible and banks, or other savings holders, may go out of business without your being able to get at all of your money. So, in the short term, gold may offer a way to retain some of your wealth in order to liquidate it as your preparations progress.

Of course, short term is a gamble, like any investment and you'd have to be prepared to take a hit. Dealing prices may not be what you see in the commodities section of the financial press, if you're a small investor, so buying and selling over a short period could lose you money even as gold continues to rise (i.e. you could pay more than the spot price to buy and sell for less than the spot price).

I'm still considering gold and silver as a short term move, with all the uncertainty at the moment.

Tony

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sofistek wrote: Your

sofistek wrote:

Your question seems to be along the lines of, "I've managed to accumulate more wealth than I need to physically prepare for tumultuous times and to change my lifestyle to one more in tune with nature's limits but I'd like to think I'll still have that wealth for as long as possible - how can I hold on to that dream?" I'm afraid that's not a question that particularly interests me.

Actually, my question was more along the lines of "Does "hanging on to some idea of wealth beyond what others have" imply that they should distribute the wealth that they hold above and beyond others to those others?  If not, in your mind, how are they to dispose of said wealth?"

sofistek wrote:

I'm still considering gold and silver as a short term move, with all the uncertainty at the moment.

So what would cause you to pull the trigger?

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ao wrote:Actually, my

ao wrote:
Actually, my question was more along the lines of "Does "hanging on to some idea of wealth beyond what others have" imply that they should distribute the wealth that they hold above and beyond others to those others?  If not, in your mind, how are they to dispose of said wealth?"

Any such implication is not of much interest to me, at the moment. If you have excess, perhaps you could distribute it to members of your family who might find it useful in preparations. After than, friends.

ao wrote:
sofistek wrote:
I'm still considering gold and silver as a short term move, with all the uncertainty at the moment.

So what would cause you to pull the trigger?

Actually, I've pulled the trigger. I don't think a US default will be quite as bad, overall, as the Obamas and Boehners of this world are trying to make out (but it will be terrible for some). However, I simply don't know, and nor does anyone else. So I've opted to keep some cash and some silver and gold on hand, for the short term, in case the banking system goes into a tail spin. It's not much because, even with some gold and silver, I don't know if I'll be able to liquidate any of it if the banking system is in turmoil.

By the way, having bought, the price now has to rise by 10%-20% for me to get my money back (due to differences in buy/sell rates).

I don't think Chris goes into any of these side questions, which is a shame.

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sofistek wrote: By the way,

sofistek wrote:

By the way, having bought, the price now has to rise by 10%-20% for me to get my money back (due to differences in buy/sell rates).

Ouch!  I'm curious as to why you bought now, at a historic peak in gold prices?  Why didn't you at least wait until the debt ceiling is raised?

These "side questions" (including bid/ask spreads) were discussed at length probably 2 years ago, IIRC, on this forum.  I know because I was in the process of finishing up writing a white paper on gold for family, friends, and acquaintances at the time.  I posted some basic tips on when to buy gold.  Following that advice would've saved you a chunk of change.  Now that you have it, at least make sure you have your exit strategy in place.

BTW, did you notice today's news showing NZ's inflation just hit a 21 year high of 5.3%? 

http://tvnz.co.nz/business-news/perfect-storm-causing-high-vege-prices-growers-4325899 

It reminds me of this discussion we had.

sofistek wrote:

ao wrote:
And sorry but I sincerely doubt that your cash is outpacing inflation
You can doubt it all you like, it doesn't bother me. Most of my cash is on term deposit, getting between 4% and 5% interest. Inflation, here in New Zealand, is about 4.5%. Up until the last month, I was getting 5%-5.5%. That's fine with me. I don't mind if it falls a little below inflation, that's life. I've got more important things to worry about, unless inflation starts ratcheting up to double figures. Also, interest rates are expected to rise before too long, as the official economy is apparently doing quite well over here. Yes, the figures are probably wrong (though not as wrong as the US figures) but I'm doing OK.

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WHERE you buy or sell makes

WHERE you buy or sell makes a huge difference.  Buy low/sell high for PMs means seeking out the lowest premiums when buying, then selling to private parties, usually.  IMO, eBay is an excellent resource to see the ACTUAL "street value" of your metals.  It's what real people are willing to pay, and you can get an average very easily.  There have been times in the past couple years where one could walk down to the coin shop, buy a Krug and eBay it immediately, making a small profit.  You have to be smart about HOW you are doing your transactions.

Sofistek, i wouldn't worry about recouping your 10-20%.  If the rate continues at the same pace it has been for 10 years, you should be good after a year or so, or until the next emotional wave...:)

ao is right on, never buy when the headlines are fear-laden, buy when the mantra is "everything is going to be just fine"...  Currently, if I was looking for metal, I'd wait til they make a debt ceiling deal (which they will), then buy on that dip.  If you want to get out, wait till the next flop-n-twitch about the housing market, debt level, insert panic here.  The good thing is, you are assured of this pattern by the fact that fiat IS in fact doomed, but it won't go down without plenty of soothing propaganda from those in power. 

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Gold not at historical highs in some countries

ao wrote:
Ouch!  I'm curious as to why you bought now, at a historic peak in gold prices?  Why didn't you at least wait until the debt ceiling is raised?

I'd already mentioned the uncertainty. You don't know what's going to happen with the debt ceiling, and neither do I. I don't know what effect a failure to raise the ceiling will have. I don't know what effect a short term agreement will have. I don't know what effect increasing the US debt even more will have. Don't worry, I haven't bought much, just enough that, assuming I could sell it a little later, I'd be able to pay property taxes and buy essentials, for a while, if the banking situation deteriorates so much that I can't get at the rest of my savings. I may dip in a bit more after the debt ceiling decision - again for the short term.

By the way, gold is not at an historic peak in my country. It's still lower than its peak in March 2009.

ao wrote:
Following that advice would've saved you a chunk of change.  Now that you have it, at least make sure you have your exit strategy in place.

Hindsight is a wonderful thing. But I think you're not reading me properly. My "exit strategy", as you call it, is self-sufficiency, or as close as I can get. I'm not bothered about monetary returns and even losing something on investments doesn't bother me (though, of course, losing 100% of my savings would be pretty difficult to take). In a BAU world, an investment exit strategy might make sense, but we're not living in that world any more. In any case, isn't Chris talking about PMs as a long term strategy? If we're talking many years, and the screaming fundamentals are right, I don't think any need worry about losing on PMs - provided they can realise their nominal value.

ao wrote:
BTW, did you notice today's news showing NZ's inflation just hit a 21 year high of 5.3%?

That news is a few days old but, yes, I noticed. There was a one off hit, in October, of a rise in sales tax (we call it GST), which added 1.5% to prices instantly. That is, the real (official) underlying inflation rate is 3.8%. If our leaders had been honest enough to put the tax on income, instead of spending, then the inflation rate would have been lower.

I can still get term deposit rates of almost 6%, though that would be committing my money longer than I'm prepared to do. The expectation now is of a base rate rise of 0.5%, next review, so it's likely that I'd be able to put my money in a term deposit that is higher than the current inflation rate, soon, and certainly higher than the underlying inflation rate (which I can do now).

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Thanks for the advice,

Thanks for the advice, tictac. You're absolutely right, in a BAU world. But I think that there is so much uncertainty, and that markets are often acting so irrationally, that it's hard to know if normally good advice is good advice at any particular time. Were at the limits, in so many areas, that events can be chaotic.

But don't worry, my investment is small, at less than NZD$9000. If I lose a few thousand, which I don't expect, it's not the end of the world.

Seling on eBay, or similar is good. I don't mind doing that, and you're probably right. However, for a first dip into this strange new world, I wanted to have absolute confidence that what I was buying was the real thing. My next purchase, if there is one, may be elsewhere.

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sofistek wrote: ao

sofistek wrote:

ao wrote:
Ouch!  I'm curious as to why you bought now, at a historic peak in gold prices?  Why didn't you at least wait until the debt ceiling is raised?

I'd already mentioned the uncertainty. You don't know what's going to happen with the debt ceiling, and neither do I. I don't know what effect a failure to raise the ceiling will have. I don't know what effect a short term agreement will have. I don't know what effect increasing the US debt even more will have. Don't worry, I haven't bought much, just enough that, assuming I could sell it a little later, I'd be able to pay property taxes and buy essentials, for a while, if the banking situation deteriorates so much that I can't get at the rest of my savings. I may dip in a bit more after the debt ceiling decision - again for the short term.

By the way, gold is not at an historic peak in my country. It's still lower than its peak in March 2009.

ao wrote:
Following that advice would've saved you a chunk of change.  Now that you have it, at least make sure you have your exit strategy in place.
Hindsight is a wonderful thing. But I think you're not reading me properly. My "exit strategy", as you call it, is self-sufficiency, or as close as I can get. I'm not bothered about monetary returns and even losing something on investments doesn't bother me (though, of course, losing 100% of my savings would be pretty difficult to take). In a BAU world, an investment exit strategy might make sense, but we're not living in that world any more. In any case, isn't Chris talking about PMs as a long term strategy? If we're talking many years, and the screaming fundamentals are right, I don't think any need worry about losing on PMs - provided they can realise their nominal value.

ao wrote:
BTW, did you notice today's news showing NZ's inflation just hit a 21 year high of 5.3%?
That news is a few days old but, yes, I noticed. There was a one off hit, in October, of a rise in sales tax (we call it GST), which added 1.5% to prices instantly. That is, the real (official) underlying inflation rate is 3.8%. If our leaders had been honest enough to put the tax on income, instead of spending, then the inflation rate would have been lower.

I can still get term deposit rates of almost 6%, though that would be committing my money longer than I'm prepared to do. The expectation now is of a base rate rise of 0.5%, next review, so it's likely that I'd be able to put my money in a term deposit that is higher than the current inflation rate, soon, and certainly higher than the underlying inflation rate (which I can do now).

So you bought gold because of uncertainty (which is a good reason) but you bought it on an uptrend with the expectation that there would be no future corrections occurring that would offer a better buying opportunity?  This expectation defies the historical behavior of gold.  When you rationalize a faulty investment decision, unfortunately you're extremely likely to repeat the faulty behavior.  While you're unlikely to lose money on your gold in the long term, faulty entrance and exit points will diminish your returns and if you're using those returns to fund preparations, your ability to fund your preparedness is obviously diminished. 

Previously, you questioned the liquidity of gold when TSHTF but now you're saying you'd use it to pay your property taxes and buy essentials?  What happened to the liquidity under duress issue?

And you still think that your cash investments will outpace inflation?  Why would you bother with gold then?  Why not wait until they are no longer outpacing inflation and then buy gold?

I'm just amazed at your ability to rationalize your decisions.  It's preternatural.

tictac1's picture
tictac1
Status: Silver Member (Offline)
Joined: Sep 25 2009
Posts: 174
I can certainly understand

I can certainly understand apprehension about buying metals.  If you weren't raised around it, it can defintely seem off-putting, and of course there is the concern about getting ripped off.  Fortunately, it's easy to spot fakes using only a micrometer and an accurate scale, though I've never personally come across one.

You're right, the AU price spiked up pretty good in 2009, but the trend has been up for the last 10 years, same as the US.  Even if you were crazy enough to buy at that spike, in another year we'll be seeing steady support at that level, assuming the music doesn't stop before then.  There's no way dollar price will continue to climb, while AU price gradually descends.  If our fiat crashes, so does yours.  Sorry about that, BTW.  There is no nation on earth right now that is doing anything fundamentally different, economically speaking, and there is no nation on earth willing to give up the power that fiat money holds for its government.  Heck, I don't think there is even a group of people willing to forgoe debt capitalism (in its many forms) save perhaps the Amish or Mennonites.  We ALL want instant gratification.

I don't believe in chaos, nor coincidence, nor do I believe human nature changes.  This limits the amount of pie-in-the-sky scenarios I will entertain.  While details are certainly volatile, I believe there are certain "big picture" concepts that remain unchanging, and you can demonstrate that empirically through the study of history.

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ao
Status: Diamond Member (Offline)
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Posts: 2220
tictac1 wrote: I don't

tictac1 wrote:

I don't believe in chaos, nor coincidence, nor do I believe human nature changes.  This limits the amount of pie-in-the-sky scenarios I will entertain.  While details are certainly volatile, I believe there are certain "big picture" concepts that remain unchanging, and you can demonstrate that empirically through the study of history.

Exactly!

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sofistek
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 644
ao wrote:So you bought gold

ao wrote:
So you bought gold because of uncertainty (which is a good reason) but you bought it on an uptrend with the expectation that there would be no future corrections occurring that would offer a better buying opportunity?

No. The only expectation I have is that gold and silver would have some value, if I can't get at my savings, in the short term. I bought a small amount simply to have that value. I may buy a similar amount later, when the latest crisis has toned down to a simmer and there is more certainty about the short term (one way or the other).

ao wrote:
While you're unlikely to lose money on your gold in the long term, faulty entrance and exit points will diminish your returns and if you're using those returns to fund preparations, your ability to fund your preparedness is obviously diminished.

Indeed. But I already knew that. As I've said, no-one (not even you or Chris) knows how the future will play out. No-one can make the best decisions about "investments" all the time, least of all now. It's easy to criticise any decision but all investment decisions are gambles, so I'm gambling but that's all that can be done anyway.

ao wrote:
Previously, you questioned the liquidity of gold when TSHTF but now you're saying you'd use it to pay your property taxes and buy essentials?  What happened to the liquidity under duress issue?

Fair comment, except that I questioned the validity of gold post collapse, not short term. Very short term, I may find that I can't use my PMs to pay anything. But I don't expect total collapse for a few years yet (even though I expect continual deterioration that will feel like collapse to some people), so I would still expect to be able to sell my gold/silver for something that I can use to pay property taxes. Remember that I've also taken some cash out that will keep me going for a few months, even if I can't cash my gold and silver.

ao wrote:
And you still think that your cash investments will outpace inflation?

No. You continue to misunderstand what I've said. I have no solid expectations about anything, except a continued deterioration in societal institutions and the way the economy works. All I've said, with regard to cash investments, is that, so far, I've received returns that have outpaced official inflation. I don't expect that to continue, nor do I expect it not to. I do the best I can in the safest way I can as I continue to prepare. My only expectation is that I probably won't get full value for my cash before it becomes unavailable. I also expect that I'll never retire in the conventional sense.

ao wrote:
Why would you bother with gold then?  Why not wait until they are no longer outpacing inflation and then buy gold?

Hopefully, this is becoming clear to you now. All I'm trying to do is prepare and become as self sufficient as possible. I see very short term uncertainty and I'm trying to do something to reduce the likelihood that I can't continue my preparations in the short term (over the next year or so). Perhaps I'm a victim of all of the gold/silver advertising here. I don't know if buying some gold and silver will help but I can't think of much else to do other than panic buying of everything that I think I could possibly need. However, there are other factors, which aren't part of this thread, which make me unwilling, for now, to spend nearly all my savings in one go. That may well be a more sensible strategy later on, but not now.

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sofistek
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 644
tictac1 wrote:I don't

tictac1 wrote:
I don't believe in chaos, nor coincidence, nor do I believe human nature changes.  This limits the amount of pie-in-the-sky scenarios I will entertain.  While details are certainly volatile, I believe there are certain "big picture" concepts that remain unchanging, and you can demonstrate that empirically through the study of history.

Chaos(increasing entropy) is the norm, in the natural world. Societal chaos? Who knows? Some areas of the world could be described as chaotic, and some have been for quite some time. We've lived in a bubble, in the developed world, so probably haven't got the personal or family experience to be able consider a total collapse. I've got no idea how that collapse, or the on-going process of collapsing, will affect people, especially as the numbers thrown on the scrap heap grows. I'm tending to the view of a longer collapse period but the steps down could engulf anyone much more quickly and how people react to the annihilation of their dreams and aspirations is an important, but unknown, factor. I actually am prepared to entertain almost any collapse scenario but I tend to favour some over others.

I'm not sure what you mean by human nature not changing. You're right, of course, but what does that mean? We've had all sorts of situations in all sorts of societies in the past, many of which we'd all find horrific right now. So I'm not sure what you mean by letting history be your guide. All it really shows is that total collapse of a civilisation typically takes many decades or centuries, and that it's a case of gradual deterioration, with more stable periods for some parts of the declining civilisation. None of that means that some more distressing scenarios are not possible in a non-uniform way.

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robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
Brief pullback in gold....

Apparently I blinked and missed the 2 millisecond debt ceiling agreement drop in gold at the open. I would prefer not to buy into strength, but I'm beginning to wonder whether the August doldrums in metals is going to materialize this year. I'm also seeing a noticeable uptick in the common man's interest in gold i.e. friends that are aware I follow "that Martenson guy" are asking for more information on the 3E's and websites selling gold. Perhaps it was optimistic expecting a retrenchment to the 1600 level. Do others still feel it's worth waiting until mid-August for a swoon, or does the quickly evolving change in public sentiment suggest I should be backing up the truck about now? Thanks-

tictac1's picture
tictac1
Status: Silver Member (Offline)
Joined: Sep 25 2009
Posts: 174
Personally, i subscribe to

Personally, i subscribe to the dollar-averaging approach, it certainly makes more sense for me.  Apparently, the debt deal didn't do much for people's fears, otherwise you should have seen a bigger, longer-lasting drop...:)

My opinion, worth price charged- don't back up a truck just yet.  And I too am getting a "preparedness" vibe from most people i talk to, without me ever bringing up the subject.  Call it the collective unconscious.

As for the comments on chaos as it applies to thermodynamics and societies, I cannot answer without dipping into philosophy/religion, so I will not answer.  I will say that one of the best societies that exemplifies what you're talking about, modern day, is Somalia.  Somalia is not the result of "chance reigning supreme", but a CF of predictable proportions, given the "inputs to the system", to use thermo terms.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 2763
today's action

This is beginning to look like those long predicted days of hundred dollar moves in gold may not be far off.  People must be scrambling for safe havens.

Doug

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Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 2763
Interesting analysis (with lovely charts) of gold vs. bubble

http://www.zerohedge.com/news/gold-bubble-14-charts-facts-and-data-suggest-not

Quote:

Conclusion

As a percentage of assets, gold ownership remains negligible vis-à-vis assets such as equities and bonds. Ownership of gold is likely to be less than 2% of global investable assets. This is in marked contrast to the end of gold’s last bull market when gold and gold stocks accounted for over 20% of global assets.

Gold remains badly analysed, under-owned and under-appreciated. This will change in the coming months and years when the importance of gold as an investment and currency diversification and as a store of wealth is appreciated again.

Actual analysis is quite detailed supported by data.  Seems timely in light of recent moves.

Doug

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