Gold Bashers – Just For You!

There is no shortage of negative commentary on gold and silver.  A quick google search will produce such headlines as:

“Gold is the Worst Investment in History”

“Gold – Bad Investment:  3 Reasons Why I Don’t Buy Bullion”

“Seven Reasons to Hate Gold as an Investment”

“Gold Was a Horrible Investment from 1500 to 1965”

“Gold Has Been a Bad Investment for Many Years”

“You Are About to Make a Bad Investment [Gold]”

“Why Investing in Silver is Usually a Bad Idea”

“Buying Silver the Stupidest Move I Ever Made”

The above are representative of the mindset that denigrates gold and silver as investments, insurance against devalued fiat currencies, and as a store of value.

From the above articles, the following are typical objections to gold:

You can’t eat it or buy groceries with it.

Gold pays no interest or dividends.

We mine it, refine it, and store it in a vault.  This is pointless.

Gold is an unproductive asset.

Gold prices are volatile.

Gold has few uses except in jewelry.

It has no real, intrinsic value.

Gold does not keep pace with stocks in the long term.

Gold does well in inflationary times, but we are facing deflation.

Gold does well in deflationary times, but we are facing inflation.

You must store it at a substantial cost.

Gold has to be tested to prove its purity before sale.

Gold is heavy and inconvenient to store.

Gold is only valuable because people believe it is valuable.

Betting on gold is a bearish bet on human productivity and innovation.

There is some truth in the above objections to gold, but as usual, there is more to the story.  I have rephrased and condensed the above objections into the following nine statements.  Consider those objections in red and my commentary:

  • Gold and silver are not money because we can’t purchase groceries, fuel, or other necessities with either gold or silver. We also can’t purchase groceries with hundreds of other paper currencies that are now worthless.  Even if gold or silver are not the primary currency in use, they certainly can be converted into hundreds of currencies and used to purchase groceries.  In short, gold “spends” everywhere.
  • Gold is an unproductive asset. It does not produce income like an investment in a business.  This is correct – it sits in a vault and becomes more valuable every year, on average, as fiat currencies are devalued, which has happened continuously for over 40 years.
  • Gold pays no interest or dividends. Correct, but how much interest is your savings account paying in dollars, euros, yen, or pounds that are obviously worth less each year?
  • Gold must be stored in a vault or safe at considerable expense. This is correct but the expense is small and probably far less than the average annual devaluation that fiat currencies have experienced in the past 40 years.
  • Gold has no intrinsic value. It is only worth what someone else will pay for it.  Many people would disagree and argue that gold has intrinsic value – it is stored monetary energy.  What is the intrinsic value of an Enron stock certificate?  The market will inform you that Enron stock is worth what another person will pay for it.  In practice Enron stock has gone to zero while gold almost certainly will not.
  • Gold has been a poor investment for much of history. Pick the time period that you want and that statement might be partially true.  But the important question is do you think gold will be a poor investment in the upcoming decade where central banks and governments are “printing” currencies as never before?
  • Gold prices have not kept pace with stocks or bonds, on average, for centuries. Gold has done well since 1971 ($42 to $1,200).  I think the decades before 1971 are much less relevant because prior to 1971 the dollar was partially backed by gold.
  • Gold can be confiscated and therefore is a dangerous investment. Digital dollars and euros can be confiscated more easily.
  • Gold is inconvenient to use in international transactions. Can you imagine shipping millions of ounces of gold to various trading partners, instead of instantly transferring digital assets?  There are other ways to create an honest currency partially backed by gold that would function efficiently.  I suspect the financial and political elite would strongly resist a system that restricted their ability to manipulate and strip-mine the financial system.

Not all objections and criticisms of gold are intellectually honest – they slant the narrative to support their bias in favor of the status quo, stocks, bonds, and central bank issued currencies, such as Federal Reserve Notes (dollars).  The dishonesty is understandable since gold is often viewed as an anti-dollar and gold prices sometimes function as a check on the excessive debt creation and currency “printing” of central banks. Of course central banks and governments want no such restrictions on their creation of currencies so they downplay the importance and value of gold in the modern financial world.

Assuming you still believe that gold is a poor choice for whatever reason, ask yourself why:

  • China has aggressively purchased massive quantities of gold (with devaluing dollars) during the past seven years and has allowed no exports of gold from China. Why is gold so important to the Chinese government and the Chinese people?
  • Russia has aggressively purchased gold almost every month for many years. Why is gold so important to the Russian government?
  • Central banks have purchased gold during the past four years. From the World Gold Council. “This was the 17th consecutive quarter that central banks have been net purchasers of gold as they continue to seek diversification from the U.S. dollar.”  Why would central banks purchase gold (not the Fed) if gold were useless and merely a relic of the past?  Why is gold so important to central banks, not including the Federal Reserve?
  • If the PhD economists who run central banks were doing a competent job regulating, managing, and stabilizing global currencies, why is the financial world in such a mess, why are interest rates near or below zero, why were bank bail-outs required, why will bail-ins be needed, and what will happen when the bond, currency, and derivatives bubbles collapse?

Gold

Gold may be an unproductive asset but I think it is necessary insurance to protect assets from further devaluation of purchasing power and the inevitable crashes that are built into our fiat currency systems.

WHEN governments spend less than their revenues, when non-productive debt has been largely extinguished, when purchasing power is relatively stable, when bond yields regress to their historical means, and “printing money” is ancient history, then gold may not be a good place for your savings.  Until then, you can trust your government, your central bankers, OR your gold.

 

Gary Christenson

The Deviant Investor

 

21 thoughts on “Gold Bashers – Just For You!

  1. How do you reconcile your view that the govt will back your currency with a hard asset like gold while simultaneously trying to defraud you? You cannot simultaneously think of govt as good and evil. I go with always evil and plan accordingly :-).

    The fact is that a hard currency is a chimera that gold bugs have been searching for when the real solution has been there all along. Keep your wealth out of the grubby hands of govt by buying gold.

    Silver is no longer a store of wealth as it has become an industrial metal. A primary property of anything that must be a store of wealth, is that it must be otherwise useless. Silver is no longer useless, it is infact very valuable. Whole industries will collapse if it becomes too expensive. Which puts it in the class of other rare earths, platinum, pallidium etc. Only gold is in a separate class, and the fact is that only one metal is required to act as a Store of Wealth, there is no need for another. It is also very widely distributed not unlike Silver. Silver could have remained a store of value, if it had not become so bloody useful, killed its prospects.

    When the crisis happens a huge amount of wealth transfer must take place as dollars get demolished, much of that wealth will transfer to gold, and that is precisely why Central Banks hold Gold. They don’t hold silver because they know it is an industrial metal and cannot absorb the wealth transfer. So that they can make themselves solvent after the crisis using gold. I would think Bitcoin will also gain some of this wealth, as it is another useless rare item.

    Lots of people are worried that Govt will confiscate it. But they can only try to confiscate. It is for you to have and for them to search :-). Obtain them out of the system, keep them out of the system in secure locations only you know. They will not confiscate silver, but then silver will not get the share of wealth either. Only the rich can buy during crisis. Poor can only sell, and they will sell silver, causing its price to drop. While rich will buy and cause the price of gold to rise.


  2. If ever I wake up at night from a bad dream of the economy crashing, bringing my fiat currency and stock certificates down to the ground with them, my attention then goes to the metals deeply burried in my secret place. And with a smile I again drift away into the sweet repose of peaceful sleep. THERE JUST AINT NOTHING LIKE IT !


  3. That $20.00 bill 1930’s won’t get you much today, but that 20 dollar
    double eagle gold coin from the same time period will still get you a couple of nice suits. It’s not much trouble to buy fiat currency with gold. Plus gold & silver is just so nice to look at & hold.


  4. The one major bit of hard evidence that the gold (and silver) bashers seem to discount as irrelevant is the 30, 40, 50 centuries of written history. I stated “written”. It is most probable that the confidence factor in gold and silver was already in place prior to some scribe recording their usage in a slab of mud or on a sheet of papyrus.

    Belief systems require that any and all contrary evidence to the belief must be soundly rejected, discounted and ridiculed. Some famous guy (perhaps Mark Twain) stated something to the effect, “It ain’t what you know that gets you in trouble, but what you know that just ain’t so.”


  5. I wonder who came out better in the Weimar Republic of 1923? Those who had gold or those who had paper not worth the ink printed on them? How soon we forget, but then, it did take place in 1923.


    • And it can’t happen here, we have the reserve currency, we have the biggest military, and the “lone gunman” did it. Etc. Things will balance but we want gold and silver, not paper.
      The Deviant Investor


  6. As for those who say gold and silver are poor investments, think of this for just one moment. My dear grandmother retired in 1963 on a pension of about 300 dollars per month. Had her pension been denominated in gold rather than dollars, she would have received about 8 ounces of gold per month (gold was $35.00 per ounce then). 8 ounces of gold per month now, would make a nice retirement for most folks. Second thought: A typical union factory worker in 1971, made about $4.00 per hour. A most excellent wage back then. Had that worker put two week’s wages into a shoe box, ($100.00) in cash and another week’s wages into 3 gold coins (3 ounces at $35.00) and retrieved that shoe box today, he would have lost about 90% of the buying power in cash but his gold would have tripled his buying power today ($30.00 per hour @ 40 hours = $1200; 3 onces of gold @ $1100 per ounce=$3300). Just sayin’.


  7. “We also can’t purchase groceries with hundreds of other paper currencies that are now worthless.”

    Congratulations, you just equated gold with hundreds of currencies that are now worthless.

    “This is correct – it sits in a vault and becomes more valuable every year, on average, as fiat currencies are devalued, which has happened continuously for over 40 years.”

    This is bullshit. It doesn’t become “more valuable” while sitting in a vault – where would the additional value come from?! I guess you mean that fiat currencies are devalued faster than gold loses value due to storage costs. If that were true, all the gold storage businesses would have gone bankrupt by now – because they foolishly accept to be paid in fiat currencies for their service, instead of in gold and are obviously too stupid to charge less than they would lose by currency devaluation.

    “how much interest is your savings account paying in dollars, euros, yen, or pounds that are obviously worth less each year?”

    Do you keep your capital in banknotes under a mattress? I don’t. I invest it. So, over the long term, it appreciates more than the currency depreciates via inflation and certainly more than gold which just loses value due to the storage costs.

    “This is correct but the expense is small and probably far less than the average annual devaluation that fiat currencies have experienced in the past 40 years.”

    Probably?! Have you ever run a gold storage business? Did you charge your customers less than the inflation rate? If you have, you’d be bankrupt by now.

    “Many people would disagree and argue that gold has intrinsic value – it is stored monetary energy.”

    This is pure bullshit.

    “What is the intrinsic value of an Enron stock certificate?”

    Same as the intrinsic value of Bre-X. However, if we exclude companies that were scams, a stock certificate is a share of what the company owns and produces (including labor force). A profitable business produces value. Gold produces nothing.

    “But the important question is do you think gold will be a poor investment in the upcoming decade where central banks and governments are “printing” currencies as never before?”

    I don’t know. Why do you presume that you do? People like you have been wrong for half a century already – why do you think that you are right about the near future?

    “Gold has done well since 1971 ($42 to $1,200).”

    Microsoft stock has done considerably better than that.

    “China has aggressively purchased massive quantities of gold”

    Gold imports to China have dropped by 67% this year.

    “Russia has aggressively purchased gold almost every month for many years.”

    And the Russian economy is in a rather sorry state, too. Are you sure this is the example you want to look up to?

    “Central banks have purchased gold during the past four years”

    Central banks have been selling gold while it was going up. Now it is going down and they are buying it. Perhaps they are not very good market timers?

    Congratulation. There are several good reasons to own gold – but you failed to mention even a single one of them! Instead. All you managed to come up with were bullshit arguments.


    • Mr. Gold Basher:
      Thanks for helping to make my case. Your comments are similar to the criticisms I noted in the article, and examination of your comments should confirm, as I suggested, not all criticisms are intellectually honest. I could refute every comment you made, but why bother?

      I do encourage readers to examine what you said, think about your comments, sort out the distortions, and hopefully come away with a clearer and stronger understanding for the case for gold.
      Again, thanks for the assist with the gold story.
      The Deviant Investor


      • ” I could refute every comment you made, but why bother?”

        Because you cannot?

        I am not bashing gold, BTW. As I wrote, there are good reasons to keep some of it in your portfolio. Hell, I own significant amount of the stuff myself.

        What I am bashing is you – the gold buggers, the crazies, your idiotic arguments devoted of any common sense that you have been repeating half a century already, despite being consistently wrong. Gold will go to the moon because money printing, wars, China buying, India buying, JP Morgan derivatives, Russia whatever, gold dinner, dollar hyperinflation, blah-blah-blah. According to you and the likes of you, gold must be going up in price every day and when it doesn’t, it’s because of manipulation.

        Nonsense. Your idiocy has cost many people who didn’t know any better an unimaginable amount of money.

        Gold is not an investment. You can’t invest in gold – just like you can’t invest in dollars or bitcoin. Investing is buying a long-term cash flow that is ultimately delivered to the investors. No cash flow – no investing.

        Gold is a reasonably good store of value. It does lose value all the time – due to storage and insurance costs and due to capital gains taxes – but it’s not as bad as the alternatives (like dollars under your mattress). So, if storing value for a long time is what you need – gold is a reasonably good alternative. Of course, why would you want to just store value instead of investing your capital and making money is a question everybody should answer for themselves. Perhaps you plan to go in hibernation and want your value to be still there when you wake up, without you doing anything about it meanwhile.

        Gold is a good temporary safe haven if you are in a negative real interest rate environment. If your stock and bond markets are so overvalued, that you can reasonably expect only negative returns from them for the foreseeable future (like 10 years), or if your government is corrupt and keeps stealing what you make, then buying gold and burying it in your backyard is a reasonable solution until the environment changes. Why do you think the poor Indians are buying gold? Because they have no better alternative!

        Gold is a good portfolio diversifier. A balanced portfolio with some small pecent (like 5%) of gold would have less volatility over the long term, because the gold price often moves contrary to other assets.

        Gold is also an insurance against catastrophes which are unlikely to happen, like a total economic collapse, war, etc. Not because you’ll be able to buy food with it in a Mad Max environment (you won’t), but because it will hold value (for you or for your descendants, if you do not survive the emergency) until the emergency is resolved and life normalizes.

        Gold is an expenditure, like a life insurance. You don’t hold gold hoping that it will rise to the moon and will make you rich. If it goes to the moon, so will the price of everything else and you will be no richer than before. You hold it for the reasons I have outlined before and HOPE that it never goes to the moon, because of all the economic implications that would have.



        • Dear Vess,
          I won’t say that gold is the be all and end all of wealth preservation, nothing is. But you are right, it is insurance. I sleep better at night.

          But no one here has mentioned one very important attribute of owning gold or silver that any paper or electronic investment doesn’t.

          With the ownership of gold there is no counter party risk. Unless you have the certificates or direct registration of stocks, which most people don’t have.



    • Other ideas aside gold is compact fire and weatherproof easy to hide. And there are always crazies like me who would trade fiat money for metal. Silver has industrial uses and most electronics have gold plated parts. There will always be a market for them.


  8. I have found that those who denigrate the utility and wisdom of holding gold and silver as financial insurance are invariably both utterly ignorant of financial and monetary history, and completely beholden to the current monetary and financial status-quo power structure. As such, their naysaying braying means little or nothing.


  9. Yeah I keep hearing this anti gold and silver garbage. My favorite is it doesn’t pay dividends. I don’t care. My dividend is actually having something to spend later when this fiat junk goes down the tube. These must be the typical suit andtie people in those big buildings who have lots of paper wealth and think that is actually a good thing. They have no clue.


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