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June 08, 2013


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Great article, just great.

Gold does not compete with other investments like stocks. Instead, gold competes with cash and has always outperformed cash over the long run. Given that investing in the stock market right now is extremely risky, gold is a much better option.

Find common ground and buy gold mining stocks! They are extremely volitile though, but provide exposure to gold and invests in a company.

The key phrase from this article that I have always said of gold is that "it is not an investment"

Investments pay you money. Gold just sits there.

You may think gold is a smart thing to buy. You may be right. That doesn't make it an investment.

Valid arguments about gold cannot use the word investment.

So Gold is better than cash. We all should have some cash in our asset allocation. Does that mean we should convert all our cash to gold?
We don't have any gold at the moment.

@Retire By 40,

Cash in an asset allocation is not there as an investment option. I don't necessarily subscribe to the view that there should be any cash in an investment allocation but if it's there it's for liquidity. Gold would not be a good substitute for liquidity.

You buy physical gold so you can trade it for food, firearms, or a ticket out of the country if things ever hit the fan.

That's it.

It's insurance. Everyone should own some.

I'm not a gold bug by any stretch, but this article cherry picks selected data that doesn't make a coherent story. The author uses 1979 and 1980, at the height of what was clearly even at the time a gold bubble to show a lack of return. It's like picking March of 2000 for the Nasdaq and arguing that you shouldn't consider stocks an investment because we've never made it back there. He also uses a 200 year timeframe even though for the first 100 years of that the dollar was largely stable as it was fixed to gold.

Looking at gold since Bretton Woods dissolved in 1971 and the CPI since the Fed was created in 1913 tells a very different story. A dollar held since 1913 would buy you 4 cents worth of things today. An ounce of gold bought in 1971 would have returned substantially in real terms.

The dollar will not hold its value in the future, and it cannot given the amount of debt the U.S. will have to inflate away. There isn't a conspiracy here, but it's basically in no one's best interest (save for pensioners and consumers that like imports) for the dollar to hold its value. The Fed explicitly targets reducing its value, Congress loves it when it gets its free lunch via inflation, and those two forces combined guarantee the dollar will keep losing value year after year.

The article does correctly point out that gold has and will continue to fluctuate wildly, but I'd be interested to hear an argument that an ounce of gold will buy many fewer dollars 10 years from now.


If things hit the fan such that you really badly need food, firearms, and a ticket out of the country, please do tell me who in their right mind is going to trade those things to you for a worthless lump of yellow rock that they cannot do anything useful with?

There are some decent arguments for owning gold and some bad arguments for owning it. The "hit the fan" argument is about as bad as it gets.


You are guilty of cherry picking as well. You want to pick 1971 so you can start gold at $35 an ounce at the latest point possible. But the price of gold had been fixed by the gold standard at $35 an ounce since its inception. Inflation still happened in the wake of the gold standard. You can easily google US inflation and pull up a graph that will show wild fluctuations in the price of goods even as we were on the gold standard. So the gold standard did not stop inflation, and yet the price of gold in dollars was fixed. That kept gold at an artificially low price while everything else inflated. When the Gold standard came off Gold sky rocketed and overshot it's fair value and headed up to $800 an ounce and then dropped back into the $300 range.

To say gold was truly worth $35 an ounce in 1971 and then use that to suggest that gold beats inflation is not remotely accurate. You cheated in the same way you accused the authors of the article of cheating.

Over time Gold is likely to approximately keep up with inflation as are most hard assets. But some assets get you a return, such as real estate or stocks. And they also appreciate with inflation.

Why people want to use gold as a store of value when they could use something that will appreciate with inflation and give a return while you wait is a constant mystery to me. I guess there is just something magical about the allure of a yellow rock. I have not rubbed on one and gazed deeply into my reflection while holding a bar of it so perhaps I have just failed to appreciate its magical powers yet.

The funny thing is that having coins made of actual gold doesn’t completely prevent hyperinflation, either, because historically, governments have dealt with tough times by deliberately debasing the currency—typically, they’d require all taxes to be paid with old coins, would melt them down, and would make all payments in new coins with only 80% or 90% the amount of rare metal in them. The result could be massive inflation due to the government “printing” money arbitrarily over time. (Striking it, more accurately.) (Byzantine Empire, I'm looking at YOU!)

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