Gold being a traditional financial preparedness tool in the face of economic meltdowns, I thought the article below would be of interest to many here.

If I really thought that end times were upon us -- economic or otherwise -- I'd be far more inclined to "invest" in useful, tradeable items such as guns and ammo.

If you get in on gold on the ground floor as it starts to shoot up in a crisis then you can make some money, if you sell at the right time. But I'll never forget the runup in the price of gold in 1979-80. My grandfather bought a pile of Krugerrands and then never saw a return on that investment before he died 15 years later.

http://online.wsj.com/article/SB10001424...personalfinance

Why I Don't Trust Gold

MAY 27, 2010

Warren Buffett put it well. "Gold gets dug out of the ground in Africa, or someplace," he said. "Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

I know we generally don't talk about the shiny stuff, but I think it's important to discuss a bit because things are getting rather out of hand now with gold IMHO.

I'm not anti-gold, but I think the vast majority of people who buy gold now will regret the decision. The pros know what they're getting into--and when to get out. The amateurs generally don't.

The fundamentals don't support the very high prices we have seen. Basically, it's fear and greed that have driven the price of gold into the latest bubble. Fear of a total collapse of fiat currencies, fear of hyperinflation, fear of investing your money in stocks or real estate, etc. And greed--"Look at how the price keeps going up and up!" It's the same greedy mentality that drove many people to buy homes in the past 10 years and either flip them or else use them as ATM machines.

Or just look at TV. When you see so many commercials about buying gold coins or how to "Turn your gold into cash!" or how often it's mentioned on CNBC, you know you're looking at a bubble. Remember, less than 10 years ago, gold was selling for only $200-something an ounce. Assuming the world doesn't end (I think that's a pretty safe bet), watch the price of gold eventually tank as people chase after the next bubble that comes along--could be oil again, or stocks, or TIPS, or anything besides gold.

Like I said, I'm not anti-gold. I think there is a legitimate place for gold in people's financial portfolios, but going hog wild in buying it now will likely lead to sorrow IMHO. Buy a little bit of the shiny stuff if it'll help you sleep at night, but don't cash out your 401(K) and go all in on Krugerrands.

More on gold:

http://online.wsj.com/article/SB10001424...personalFinance

...even at today's prices, the bullion that the U.S. government holds in places like Fort Knox is still only worth enough to back 15% of the U.S. monetary base. That is near a record low.

At the peak of the gold mania in 1979-80, gold prices rose so far that the backing exceeded 100%. How far would gold rise if that happened again? To around $6,300 an ounce, Mr. Grice says.

Buffet is dead-on, as he often is. Since antiquity gold has been seen as valuable, but until the space age that value has just been guarding the hole. Gold has many interesting properties for a technically advanced culture. First, it's non-reactive. It will never oxidize. Ever. Gold is eternal. Which wouldn't be a big deal if it wasn't also an incredible conductor of electricity. Couple that with gold's ability to be hammered out to about 1 molecule of thickness, and you've got a metal for the Space Age.

Still, in our culture the value of gold is still stuck in the Dark Ages, just based on our fixation with the "Bling" aspect of it. Which is ironic, since it never had any true value until the where it started to be decoupled from currency.

The reason gold is only worth "$1200" per ounce is because the bullion banks (primarily Goldman Sachs & JP Morgan) consistently beat it down to maintain the illusion of a strong dollar. The dollar is strong, when measured against the Euro. But it's not so much that the dollar is strong as that the Euro is failing.
Gold is not a currency substitute, gold is money; the Federal Reserve Note is currency -- big difference. The US Treasury can't print gold.

Note that world-wide, many Central Banks (The Federal Reserve, Bank of England, et al) hold gold as an asset. Currency is considered a liability. "liabilities are backed by the assets" would seem to indicate that currency is only valid if it's backed by something. Since we're no longer on a gold standard, what is backing the dollar? Debt?

If you would like to read the other side of the argument, go to GATA (Gold Anti-trust Action Committee). Do a search at GATA on the term "naked short", good reading.




$.02

Gold is a commodity, which is pretty compact, portable and easily storageable and in uncertain times when the virtual words of the promise 'I promise to pay to bearer on demand' cannot be met, makes for a reasonable wealth preservation system against inflation, when the government central bank begins to monetise its debts i.e. when it defaults on its debts. I would not see gold as an investment but in more uncertain times folks will see it as a basis for a monetary system for maintaining wealth rather than the paper or virtual promisery notes. Perhaps the return of the Gold standard might be the eventual outcome of the international currency bust, the end of the China financial bubble and the collapse of the derivatives and hedge fund market along with the failure once more of the banking system, which this time cannot be bailed out for a second time.

http://www.youtube.com/watch?v=U2pOsvEwQi8

I agree. When hard times come around, there is always some complex analysis about why gold is not up. However, hard times are not supposed to be that complicated. The value of guns and ammo always goes up during hard times. That's nice, simple and easy for everybody to understand.

I'll go further to say that ammo will be so valuable in REALLY bad times that the government would probably seek to confiscate private ownership of ammo if there is a dangerous shortage. Don't laugh. Recall that, in 1933, FDR confiscated private ownership of gold because of a so-called national banking emergency.

i never understood why the guys on the shortwave programs,and other places,worked so hard to sell you their gold for "worthless' paper money.same with silver,if i had bags of coins that i could trade,like the guy said,for bottles of water why would push so hard with tales of upcoming woe to sell them for paper money?
i have my investments in fish hooks and Coleman fuel-------

Goods exchanged for a single Viceroy Tulip Bulb,

Two lasts of wheat 448ƒ
Four lasts of rye 558ƒ
Four fat oxen 480ƒ
Eight fat swine 240ƒ
Twelve fat sheep 120ƒ
Two hogsheads of wine 70ƒ
Four tuns of beer 32ƒ
Two tons of butter 192ƒ
1,000 lb. of cheese 120ƒ
A complete bed 100ƒ
A suit of clothes 80ƒ
A silver drinking cup 60ƒ
Total 2500ƒ


Some folks were left desperately poor after failing to get out of the tulip market during the great tulip market crash of February 1637.

The Tulip Crash.

Humans are silly creatures.


Thanks for that info, AFLM.

Shortwave? Wow, people still listen to shortwave in this country? Don't get wrong, I love listening to radio. I'm just a little surprised.

Arney---Yup..almost every night and on a old Hallicrafters S38 that i recapped over the winter.picking up these stations with a bit of static sort of adds to the "shortwave" experience!

It would appear to be something of a poser as to why someone who spends a considerable portion of their waking hours ranting about how gold is 'real money' and that "fiat paper" will soon be worthless would trade gold they own for the fiat money that will surely, by their reckoning, have no value.

Either the guy selling the gold is exceptionally generous and self-sacrificing; or he knows something not immediately apparent.

Reminds me of the old "Miss Cleo" telephone psychic who claimed she could tell you the lottery numbers. The immediate question that came up was: If she knows the numbers why wouldn't she use that knowledge to win the lottery herself? Telling someone means that the prize will be divided. Seems odd that she would go against her own interests.

Gold is a commodity, a commodity with a lot of glittering romanticism and psychology behind it, but still a commodity. Not that much different from pork bellies or iron. As a commodity it is subject to cyclical forces, market manipulations, and irrational exuberance.

Yes, it you time it right and get lucky you can make some money. But it is not a sure thing. The fact remains that if you bought gold in 1980 you didn't break even until some time between 2005 and 2007. When exactly depends on the exact price paid, how much the deal gigs you for sales, and if you include inflation in your calculation.

Fact being that if I had invested thousands in gold in 1980 and just broke even in 2007 I would be selling it also just to get the non-performing investment off my books so I could buy something with an up side.

Hahaha! I remember her! I always wondered why she was willing to give out winning Lotto numbers for the price of a toll call. Wonder if she's based out of Nigerial?

The value of gold is just a shared illusion. Unlike a bushel of wheat, you can't eat it. Unlike a rifle you can't hunt with it. You can't power your tractor with it. If SHTF I'd rather have a basement full of freeze dried food, stabilized fuel and ammo than gold bars.

Not restricted to just gold, but anything really, is distinguishing the difference between a "bull run" in something and a bubble. I guess the fact that there are many of us saying that it's a bubble may mean that it's not truly a bubble yet, like a "mania". If it were, even I would be saying, "Yes, I know gold is high, but I think there's convincing arguments that it will keep going higher--much higher. I really, truly, honestly think that this time things are different, so I really need to buy more gold at whatever price I can get it for."

And I don't pretend to be an economic sage. I bought a house in 2007, just before the subprime bubble burst. I thought the chances of a major downturn seemed remote to nil at the time, just like everyone in the final stages of a mania, whether in real estate or tulip bulbs. How wrong I was!

I buy silver and gold as a hedge against inflation not as a survival tactic.

In a truly desperate situation no one will care about shiny pieces of metal, the only currency will be food, water, ammo and for a short time, fuel.

One clue to imminent bursting of bubbles is to check the 'reverse magazine cover consensus'. Check out the magazine racks. If the majority of the glossy covers are talking about any boom, particularly if they use any version of the term 'sure thing', it is time to run away from whatever is being celebrated.

This has been reliable predictor. It worked before the internet bubble, the Enron failure, Milken's junk bond failure, the Y2K sag, and the housing bubble. Pretty much the timing of every bubble bursting has been predictable if you pay attention to the MSM and read the signs.

There is also the 'late night pitch' index. Generally any business offered as an investment or way to make money late at night is a clue that that market sector is about to suffer a setback.

All this comes down to one concept: If everyone is running in one direction it usually pays in the long run to get ready to move in the opposite direction. If you wish to 'ride the wave' and invest in a rapidly growing market keep an eye on the glossy mags, late night pitches, and all the other MSM sources and know that in the language of the clues is that up-is-down. As soon as the balance shift strongly positive it is read as a red flag. A sign that the boom is weakening and the trend may reverse and go into free-fall. It is a strong sign that it is time seriously consider bailing out.

When the communists in Russia were sending agents abroad after the revolution, they found they had no easy way of moving money to their western agents, but plenty of jewellry from arrested capitalists. So female agents simply wore the jewellry openly and no one gave a second look. Arriving with bags of notes would have attracted attention.
I imagine geting your krugerands put on a chain would be cheap and unlike decorative jewellry, not lose 75% of it's value the moment you stepped out of the shop.
The Sock