Saturday, May 7, 2011

Gold Sucks

It is difficult to argue with gold. To men everywhere, gold is a desirable economic object. It can be used for the manufacture of jewelry and ornaments. It is a corrosion-resistant element, the most malleable and ductile metal, ideal for plated coating on a wide variety of electrical and mechanical products. It is a good thermal and electrical conductor. It is durable and storable, can be easily hidden from partakers and predators, and readily shipped to other places. Gold is very marketable. In fact, gold may be the most marketable commodity around the globe. - Hans F. Sennholz

The Toronto Star thinks gold sucks. No surprise there, but columnist David Olive is such an ass about it. Let's go through his article and make fun of his ignorance.

I still hate gold as an investment. You can’t eat gold, burn it for warmth or transportation fuel, or build with it. 

Can't do that with Bank of Canada notes either... but oh wait, I see:

Gold earns no income — it pays no dividends or interest — and in the meantime is a cash drain in storage and security costs if one takes physical possession of it.

Well I own physical gold and even as a poor student debt-ridden young adult, I don't find storage and security costs to be out of control. After all, it's not like it's sitting in a Swiss Vault with a couple Pikemen standing outside earning $20 an hour. And as far as dividends or interest. Well my gold is my savings, I bought an ounce this time last year. If instead I had left $1,400 in cash (whether under my mattress or in a Tax-Free Savings Account) I would have lost $40 due to inflation. And those are official BoC numbers. Imagine the real amount of inflation, or if I had left $14,000 in cash (goodbye $400).

Olive is right. Gold earns no income. It protects income.

Last year, physical bullion investment jumped 66 per cent, from direct purchases of gold wafers, coins and bullion, and from goldbugs switching from gold futures (mere paper!) to possession of the metal itself.

Mere paper! Like the currency the Bank of Canada prints?!

Late last month, the gold price breached the $1,500 (U.S.) per-ounce-mark for the first time. Sad to say, that’s still about $2,500 below the inflation-adjusted all-time high for the gold price 30 years ago, at the time of the last great piling into gold.

And it's for that reason some people (at least the people I talk too) are hesitant about gold. They fear a repeat of the early 80's when gold and silver fell and stability was returned to our financial system. Here's the difference. In the 80's Volcker raised interest rates, China ended it's experiment in extreme socialism and looked to the USA for support, and Reagan made it easier for businesses to operate (although he did not cut the size of government, as the state's official history suggests).

Any parallels to the modern-day era? Well Bernanke has kept interest rates at 0% and been monetizing the debt (although he calls it “quantitative easing”), the USA owes the world (particularly China) trillions of dollars, and Obama is increasing the size of government in American's everyday lives. And this isn't just costly foreign policy, Obama is taking a gigantic leap down the road to serfdom.

Among the drivers of a spirallingng gold price is fears of rampant inflation, which weakens the buying power of state-issued currency — or “fiat money,” as goldbugs call it.

“Fiat money” is the correct term, you moron.

Yet inflation has been quiescent during the most recent gold panic-buying. Indeed, deflation was the greater worry during that time.

Well if Olive is talking about Canada, then we have some discussion. If he's refusing to acknowledge inflation in the USA, then he really is a moron. As for Canada – yeah, deflation is in the near future, but usually falling prices isn't a cause for worry. It's the BoC's reaction to deflation that scares me. Like our neighbours to the South, Canada's central bank may decide to combat deflation with monetary stimulus (i.e. inflation). Although our money supply hasn't gone haywire, the fact that the quantity of money increases every year is a cause for concern.

Ignore it all you want, David. After all, this system has been in place all your life. How could it end now? As for me – I'm young and have no interest in spending my life as a cash cow for financial elites, a lab rat for social engineers and a mark for political con men. Simply, I refuse to live as a serf.

But goldbugs don’t skip ahead to that logical outcome. They instead embrace havoc that would presumably devalue currencies and inflate the gold price.

I was saving this video for the end, but the term “logical outcome” really gets to me. There's nothing logical about David Olive's position. He is either really this stupid or simply being untruthful and – gasp! – in violation of some CRTC rule that journalists need to be 100% non-biased and pro-truth.

Olive said this goldbug mentality is “presumably” devaluing currencies. This just shows how economically illiterate he is. Our currencies are being devalued because central banks are printing at record speeds. It's a race to the bottom. A rush into precious metals is the logical outcome of a fiat currency (mere paper!) that is losing its purchasing power.

So for the goldbugs to be right and paper-enthusiasts to be wrong, David Olive says this has to happen:

The U.S. economy must for the first time in its 235-year history fail to recover from an economic setback, and cease to be a relentless innovator.

Very real scenario. Unlike most of its 235-year history, the US has ceased to be a relentless innovator (i.e. have a genuine free market) and instead has become a debt-burden nation of consumers. All artificial booms need to meet their bust. The USA has been putting theirs off for at least 30 years, especially in the last 10.

This is unsustainable.

Goldbugs delight in the faltering economies of Europe, post-Great Recession. But the real story here has been Europe’s remarkably placid bailouts of Greece, Iceland, Ireland and most recently Portugal. There has been a minimum of complaint from the wealthier European nations about assuming this unprecedented burden. That suggests a long-term strengthening of the euro. European unity has been tested as never before and found to be solid.

I don't speak for all goldbugs, but I don't delight in people's lives being destroyed by the State. I do, however, delight in the fact that the Euro is probably going to end... But I'll give him this one. I don't follow European current events as well as I should. So I'll just assume David Olive is right – European unity is as solid as a rock. I'll come back in 10 years and see how accurate he was.

One has to assume, also, that Japan, the world’s third-largest economy, will never recover from the recent earthquake and tsunami,

I'll check up on that one too in... let's say, 3 years.

Indeed, in all those powerhouse economies, weaker currencies will greatly boost their export prowess

The fact that David Olive can't recognize cause and effect may hint to why newspapers are a dying breed. “Weaker currencies” is the exact reason people are flocking to precious metals. Gold has historically been money. It's the one currency central banks and governments can't inflate.

Some of the staunchest goldbugs are now cashing in their gold winnings, including George Soros, one of the biggest commodities bettors. Two years ago, at the annual Davos summit, Soros warned that “the ultimate asset bubble is gold.” 

George Soros? The man who called F.A. Hayek a Chicago-school economist? Forget George, look up his old friend Jim Rogers. Or Marc Faber. Or Peter Schiff. These are the kinds of investors that actually see asset bubbles in advance and know how to allocate their portfolios accordingly.

For all the noise it makes, the gold market is small. There are very few suckers to unload your mistake on when the time comes to deploy an exit strategy. Which means the price doesn’t slip, it crashes. That’s how the previous gold mania, in 1980, ended.

So despite being “the ultimate asset bubble” the gold market is small.... all right. Well when conditions in 2011 resemble 1980, then I'll consider selling some gold.

Millions of foreclosed-upon U.S. homebuyers were similarly told that U.S. house prices had never fallen. Until they did, by as much as 90 per cent.

This is just getting ridiculous now.

Yet the thing I most dislike like about gold as an investment is that it sucks capital out of the economy. An investment in gold is money not available

Of course Keynesianism is going to be the logical conclusion of this article. If money isn't “sloshing around” in the “circular flow” economy than “velocity” grinds to a halt and the boom becomes a bust. David Olive needs some basic education about the nature of business cycles and how savings (in gold, silver or fiat currency) is actually good for the economy. The economy being you and me. Not some marco-machine that central planners can influence and bring about prosperity.

A goldbug is not doing his or her bit for fellow citizens.

David Olive, shut up.

“Citizen” is doublespeak for “serf.” I am an individual human being unlike anyone else on the planet. So are you. A predatory state is destroying the prosperity we derive from a peaceful voluntary market. Gold is our safe haven from the central planners in government. Our Bank of Canada currency can't exist without a debt-burden. You tell me which store of value makes more sense.



  1. Dude, I'm with you 100%. This line is the classic:

    "A goldbug is not doing his or her bit for fellow citizens."

    and the Billy Madison insult is great.

  2. as an over-taxed national-debt-ridden individual living in europe i want the rest of the world to know that when David Olive says this "There has been a minimum of complaint from the wealthier European nations about assuming this unprecedented burden" he is talking out of his arse.