The person I was corresponding with wanted to make clear that he is very pro-gold generally but sees it as primarily a hedging tool, versus a speculative vehicle. He made a couple of points against AU, and below is my response to them.
Five Reasons Why Gold and Silver Are Mediocre Investments :
1) No financing / leverage
2) No tax benefits
3) No renters
4) Subject to confiscation
5) Subject to manipulation – Central banks around the world want to push the value of gold down and make their paper “fiat” money more valuable
My response:
I did notice that you let him make his point. I was pleased to hear that. You‘re a gracious host.
A couple of points.
You are definitely right. Gold/silver are wealth preservers not creators. The value of gold has been about the same for 5000 years. In Jesus' time you could buy a nice tunic and a pair of sandals with an ounce. In 1900 you could take a $20 gold piece, an ounce, and buy a pretty good suit and a decent pair of shoes. Today with gold at 900 to 1000 or so the same holds true.
In the period between about 1830 to 1910 the price of gold varied by less than 50 cents because the dollar was attached to gold. This allowed for real savings and real investment. We actually existed in a mildly deflationary economy yet saw this country blossom. But that is beside the point.
What I'm trying to say is that it's not that gold goes up or down in value generally-it's that the value of paper currencies vary relative to gold. This turns the whole economic reality we live in on it's head and is a challenging worldview to embrace. When the "price" of gold goes up, what we are actually witness to is the eroding of the dollar. This is why central banks hate-as Mr. Woods alluded to in your interview-gold.
As for confiscation, property has been confiscated throughout history by governments. According to the Supreme Court in Keogh it’s even legal in this country now. You can hide gold. You can't hide an apartment building. At least very tough.
No tax benis- not totally true but generally true. You can put metals into an IRA and Roth IRA but there are serious limits on contributions.
No leverage- true but that’s the point. I will say that if I were doing a real estate deal and someone offered me 10% less than what I could sell it for in paper terms I would probably do the gold deal. And there are many who would do likewise. Plus using gold to secure a loan is very easy. That’s where this whole banking thing got started after all.
No renters- true- unless you loan it out which is possible.
As for manipulation- Gold can be manipulated in the short term. Central banks can dump gold onto the market in an effort to keep the price of gold down. But gold is a finite resource. Fiat money is not. Eventually the gold runs out in the coffers and then the fiat currency inflates at ridiculous rates. Interestingly this makes your point about loading up on debt-if however the Fed can truly and solidly manipulate the “price” of gold, it works against your point.
Regardless gold is the least manipulatable investment there is in my opinion. That’s why it is a wealth storer not a wealth creator. Almost everything else is subject to the immediate whims of central banks. Real Estate, stocks, bonds, etc. Though metals are not immune to central banks gold was around at the same value before the central banks and will be after they are gone.
I look at it this way. When I look at my brokerage account or bank account I see paper. That paper can help me buy other things that paper can buy, and at this point that is nearly everything. But I also know that this paper wealth can evaporate and that until I convert that paper wealth into gold or silver the chips are still on the economic table, I haven’t “cashed out” yet. Gold is the wealth end game, and if the world economy is relatively stable not always the best place to start.
Please forgive the long response. I got rolling. Too much coffee this morning.
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