Skeet shoot time

[oddlots]

In the spirit of honing our marksmanship, here's an anti gold / gold bubble claim from Rick Bookstaber:

http://rick.bookstaber.com/2010/03/gold-bubble.html

Bookstaber's a smart guy and a good writer. (See "A Devil of our Own Design.") The flimsiness of the argument here kind of intrigues me as it sits kind of uneasily with the quality of his other work.

Has anyone here ever seen an anti-gold argument that they found, even in part convincing? I'm always looking but never find it. Maybe we should construct one.

If I were to give my fears a voice it would go something like: as the premiere ironic asset, gold is literally in the sites of every market player that has learned to love the world that state-sponsored support of ever-increasing, system-wide leverage has made. Debt-money cannot run in reverse, deflation cannot be allowed by the world's currency issuing governments and the traders know it. It's like a corrupted emperor (governments) whose house slave (bankers) has got the goods on him: emperor in name only.

Gold in this telling could be either the terminus of the trade, how the bet pays off for the bankers - see, for instance, the notion that CDS contracts referencing gold are cropping up in Jesse's recent post here:
http://jessescrossroadscafe.blogspot...t-default.html - after the "bust out" (see Goodfellas) phase is over with. It could be that gold's beyond any power block's control at this point and thus will act as a shock absorber for the cataclysms to come (and consquently have a bid underneath it for years as the huge global imbalances are slowly unwound: sort of the world's only neutral currency.)

Given the stakes it's not crazy to say that's a hard bet to call.

[c1ue]

Re: Skeet shoot time

The biggest concern I have over gold is what I have expressed regularly: the government can and has regulated it.

Besides the prior confiscation and repricing under FDR, gold also has a confiscatory tax position.

There are thus both precedents and penalties for owning gold; it is simply that the present situation is so bad that this may not matter.

[unlucky]

Re: Skeet shoot time

I would be a bit concerned that gold might be more prone to future volatility because it doesn't earn income.

I know many commentators argue, erroneously in my view, that gold is not a proper investment like stocks or bonds because it doesn't earn income. That is not my point here.

For securities that earn income, you can estimate a desirable price based on estimated future earnings. Your estimate may be very wrong. But at least it provides a second price point that can be compared against the current market price for the security.

That doesn't exist for gold, which means that the price of gold may be dependent on sentiment to an even greater extent than stocks or bonds.

Traditionally, mainstream sentiment towards gold is negative or outright hostile, which may explain why gold has shown relatively low volatility over the past 10 years. But if the predominant sentiment turns positive, it may do so only briefly, leading to a large brief price spike followed by high volatility. That would be my main worry.

[flintlock]

Re: Skeet shoot time

I would be a bit concerned that gold might be more prone to future volatility because it doesn't earn income.

The same argument could be made for many stocks in my portfolio.

[Raz]

Re: Skeet shoot time

...
I know many commentators argue, erroneously in my view, that gold is not a proper investment like stocks or bonds because it doesn't earn income. That is not my point here. ...

...the price of gold may be dependent on sentiment to an even greater extent than stocks or bonds. ...

Gold is not an investment - it's a currency.

When the government attempts to defend its currency by seeking to allow or maintain a real rate of interest for the use of said currency, the price of gold will languish or decline. Such was the case with Mr. Volcker - the last decent central banker we had.
(Before him the title clearly went to William McChesney Martin.) Greenspan and Bernanke are two of the most disgusting bank stooges we have ever seen in these United States. Both have whored themselves to the FIRE interests, the small savers and wage-earners be damned.:mad:

The price of almost every asset is dependent on the sentiment of market participants since it is the urgency of buyers or sellers that determines price, at least in the short to intermediate term.

It is only in the long-term that fundamentals prevail. And right now, in that regard, I would rather bet on gold than the Bernanke Peso.

[Sidewinder]

Re: Skeet shoot time

Gold is not an investment - it's a currency.

When the government attempts to defend it's currency by seeking to allow or maintain a real rate of interest for the use of that currency, the price of gold will languish or decline. Such was the case with Mr. Volcker - the last decent central banker we had.
(Before him the title clearly went to William McChesney Martin.) Greenspan and Bernanke are two of the most digusting bank stooges we have ever seen in these United States. Both have whored themselves to the FIRE interests, the small savers and wage-earners be damned.:mad:

The price of almost every asset is dependent on the sentiment of market participants since it is the urgency of buyers or sellers that determines price, at least in the short to intermediate term.

It is only in the long-term that fundamentals prevail. And right now, in that regard, I would rather bet on gold than the Bernanke Peso.

+1 - Just my ˘ 2 SW

[dbooksta]

Re: Skeet shoot time

Has anyone here ever seen an anti-gold argument that they found, even in part convincing? I'm always looking but never find it. Maybe we should construct one.

I have never found a particularly convincing pro-gold argument. So let me provide the counterpoint in this discussion with refutations of the standard gold bug arguments I have heard:

1. Is gold an asset? An asset derives its value from its productive potential. Gold has some useful industrial characteristics, but none of them is unique, and each can be effectively substituted by metals that cost orders of magnitude less -- e.g., copper and lead. So its value as an asset is not a significant component of its current value.

2. Is gold currency? Historically it has served as currency because it is a commodity that is simultaneously rare, compact, difficult to conterfeit, and relatively easy to authenticate. But today it is no more of a currency than any other commodity. In fact you'd have an easier time trading bars of platinum, cans of gasoline, or bottles of whiskey: Unlike gold all of these others have productive uses commensurate with their trade value. Since gold has little intrinsic value it suffers from the same flaws that plague fiat currencies: Namely, its value is limited to the lesser of (a) whatever people agree it's worth, and (b) the cost of production. Granted, it does have the advantage that (b) is quite high, but that doesn't guarantee that (a) will be high.

3. Is gold an investment? Well, its productive value is minimal, and its exchange value is entirely a function of peoples' demand for a rare asset that's expensive to produce. So as an investment it's a lot like moon rocks. If everybody decided that, despite their high cost of procurement and ease of authentication, moon rocks were just a stupid thing to be putting money in, that would be the end of it. Meanwhile, for all we know tomorrow miners could strike a rich vein of gold or find a cheap method of producing it and double the world's supply in a few years.

So when you buy gold you are speculating on both supply and demand factors: I.e., (A) that the cost of production will not decrease significantly, and (B) that people will continue to prefer it to other rare commodities as a store of value.

[Raz]

Re: Skeet shoot time

I have never found a particularly convincing pro-gold argument. So let me provide the counterpoint in this discussion with refutations of the standard gold bug arguments I have heard:

1. Is gold an asset? An asset derives its value from its productive potential. Gold has some useful industrial characteristics, but none of them is unique, and each can be effectively substituted by metals that cost orders of magnitude less -- e.g., copper and lead. So its value as an asset is not a significant component of its current value.

2. Is gold currency? Historically it has served as currency because it is a commodity that is simultaneously rare, compact, difficult to conterfeit, and relatively easy to authenticate. But today it is no more of a currency than any other commodity. In fact you'd have an easier time trading bars of platinum, cans of gasoline, or bottles of whiskey: Unlike gold all of these others have productive uses commensurate with their trade value. Since gold has little intrinsic value it suffers from the same flaws that plague fiat currencies: Namely, its value is limited to the lesser of (a) whatever people agree it's worth, and (b) the cost of production. Granted, it does have the advantage that (b) is quite high, but that doesn't guarantee that (a) will be high.

3. Is gold an investment? Well, its productive value is minimal, and its exchange value is entirely a function of peoples' demand for a rare asset that's expensive to produce. So as an investment it's a lot like moon rocks. If everybody decided that, despite their high cost of procurement and ease of authentication, moon rocks were just a stupid thing to be putting money in, that would be the end of it. Meanwhile, for all we know tomorrow miners could strike a rich vein of gold or find a cheap method of producing it and double the world's supply in a few years.

So when you buy gold you are speculating on both supply and demand factors: I.e., (A) that the cost of production will not decrease significantly, and (B) that people will continue to prefer it to other rare commodities as a store of value.

Interesting points you raised, however, several of them are completely false.

(1) Gold is the most malleable substance known to mankind. A 1 ounce Gold Eagle can be spun into a wire thread over 5,000 feet long.
It can be hammered and flattened into a sheet that is more than translucent, in fact, almost transparent. Such a thin film will stop ultraviolet radiation. There are numerous industrial, electronic and medical applications for which copper and lead will never be a substitute for gold.

http://geology.com/minerals/gold/uses-of-gold.shtml

(2) Little intrinsic value? :confused: Sand in the Gobi or Sahara Deserts has little intrinsic value, but even manure has intrinsic value as a fertilizer.

(3) As I have repeatedly maintained on iTulip and elsewhere, gold is NOT an investment - it's a currency.
I do agree with EJ and FRED that Crude Oil is the closest thing to "money" in our present world, and while it does meet the standard of fungibility, and more than meets a standard for utility, crude oil fails those of portability and immutability.

Lastly, when you hold Bernanke Bonars are you not speculating? I'm willing to bet everything I own that for the balance of my lifetime no man or company will ever be able to bring the cost and production level of gold down to the cost and production level of Mr. Bernanke's money creating machine. Yes I know: "You can't eat gold!" But neither can you eat paper fiat.

One thing I can say for a certainty: I hope to continue seeing posts like yours; they confirm my carefully considered conclusion that we are not even remotely near the final top in this Gold Bull Market.


"Gold still represents the ultimate form of payment in the world."
Alan Greenspan

"The desire for gold is one of the most universal and deeply rooted commercial instincts of the human race."
Gerald M. Loeb

"No other commodity enjoys as much universal acceptability and marketability as gold."
Hans Sennholz

"Although gold and silver are not by nature money, money is by nature gold and silver."
Karl Marx

"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence."
Charles De Gaulle

"Gold is money, and nothing else."
J. P. Morgan

[dbooksta]

Re: Skeet shoot time

Please help me understand why you think it is wise to buy gold at prices that are many multiples its cost of production in equilibrium with its productive uses? I.e., why buy it at prices that significantly exceed those that would prevail in the absence of "gold bugs" -- i.e., the prices that the market would establish based primarily on costs of production and industrial demand, as one currently sees in base, rare, and other precious metals?

A. You believe it is a stable store of value? If so, why is it a more stable store of value than any other commodity, or durable consumer good?

B. You believe it is a convenient store of value? Why is it more convenient than any other refined rare or precious metal?

C. You believe it is a "currency" -- i.e., a fungible and convenient means of conducting commerce? Where (and when) do you live that this is the case?

D. You believe it has unique properties that endow it with intrinsic value? What are those that justify its value in the hundreds of (current) dollars per ounce? (Yes it is the most malleable metal, but since the development of electroplating and CVD technologies many other metals have been substituted for gold in every functional capacity I am aware of.)

E. Because Greenspan, Loeb, Sennholz, Marx, Morgan, et. al., have endorsed it?

F. Is there some other reason I missed?

Note that an attack on fiat currencies is not an argument for buying gold. My question is why you would buy a commodity that you admit carries a speculative premium instead of any of the other alternatives suggested?

[Raz]

Re: Skeet shoot time

Please help me understand why you think it is wise to buy gold at prices that are many multiples its cost of production in equilibrium with its productive uses? I.e., why buy it at prices that significantly exceed those that would prevail in the absence of "gold bugs" -- i.e., the prices that the market would establish based primarily on costs of production and industrial demand, as one currently sees in base, rare, and other precious metals?

A. You believe it is a stable store of value? If so, why is it a more stable store of value than any other commodity, or durable consumer good?

B. You believe it is a convenient store of value? Why is it more convenient than any other refined rare or precious metal?

C. You believe it is a "currency" -- i.e., a fungible and convenient means of conducting commerce? Where (and when) do you live that this is the case?

D. You believe it has unique properties that endow it with intrinsic value? What are those that justify its value in the hundreds of (current) dollars per ounce? (Yes it is the most malleable metal, but since the development of electroplating and CVD technologies many other metals have been substituted for gold in every functional capacity I am aware of.)

E. Because Greenspan, Loeb, Sennholz, Marx, Morgan, et. al., have endorsed it?

F. Is there some other reason I missed?

Note that an attack on fiat currencies is not an argument for buying gold. My question is why you would buy a commodity that you admit carries a speculative premium instead of any of the other alternatives suggested?

I'm sorry that I don't have unlimited time to answer any and every question or objection you can think of.
I'll try this weekend to address the ones that aren't answered here.

"Gold Bugs"? :confused: No, I'm not a "Gold Bug"; almost 30% of my precious metal holdings consists of Platinum, Paladium and Silver.
Funny, though, how no one is ever called a "Real-estate Bug" or a "Stock Bug" or a "Paper Bug".

The answers to your questions/statements that I highlighted in red can be found by reading the documents at the following hyperlinks.

http://www.itulip.com/forums/showthread.php?p=109998

http://www.itulip.com/forums/showthr...21715#poststop

http://fourthcurrency.com/

Before you begin reading, ask yourself this question: why, after almost forty years, during which time they could have easily sold all of it without causing market disruptions, do the Central Banks of the world continue to hold huge reserves of this overpriced, over-hyped barbarous relic?

[dbooksta]

Re: Skeet shoot time

I'm sorry that I don't have unlimited time to answer any and every question or objection you can think of.

My suggestions weren't directed towards you in particular. In fact, after reading through your links it appears that this forum enjoys the attention of many people who believe gold is worth holding at the present. I would welcome anyone's comments that might inform my question.

Before you begin reading, ask yourself this question: why, after almost forty years, during which time they could have easily sold all of it without causing market disruptions, do the Central Banks of the world continue to hold huge reserves of this overpriced, over-hyped barbarous relic?

The largest owners of gold have maintained explicit agreements to limit and coordinate their annual sales of gold in order to minimize the disruption to the market. Given that world stocks of gold bullion were almost entirely held by banks and governments until 1971, and that annual production is only on the order of 1% of global reserves, it is not surprising that those entities still hold a majority of gold bullion, even though most would prefer to sell their stockpiles at the market price if they could.

[charliebrown]

Re: Skeet shoot time

I would rather have my money in crude or gasoline, but that is not practical. Crude is not a good store of value. Saving $100K in crude is now around 1000 barrels. I asked and my wife would not let me keep this in the garage . It is also a hazaradous material.

Now lets think really hard, and believe me I have been. What can we store our money in?

Oil; problems mentioned above.
Firearms; heavily regulated, but maybe ...
Our state is constantly trying to out law tax etc.
If you break the rules you can bet you will have the FBI at your door.
Food; perishes, value density not high enough.
Electronics; depreciate with new technology.
Whiskey; low value density, highly regulated.
Cigarettes; If tax runners start marketing them you're sunk.
Art/Collectibles; Illiquid

Got any ideas?? I have really thought about this and can't think
of anything that can beat PM's.

[unlucky]

Re: Skeet shoot time

Gold is not an investment - it's a currency.

When the government attempts to defend its currency by seeking to allow or maintain a real rate of interest for the use of said currency, the price of gold will languish or decline. Such was the case with Mr. Volcker - the last decent central banker we had.

...

It is only in the long-term that fundamentals prevail. And right now, in that regard, I would rather bet on gold than the Bernanke Peso.

I'm inclined to agree with everything you say here.
But it seems to me that the fundamentals for gold as a currency, are less transparent than the fundamentals for stocks or bonds (which are very clearly over-valued right now). The fundamentals for gold depend on how many dollars are being printed, how many are being promised, how much liquidity support is forth-coming, how many back room deals are being made. The issue of currency credibility is the most manipulated issue in the world, in my view.

What this means, I think, is that when credibility is finally brought into question in the mainstream, the currency markets and the gold market will be subject to violent volatility. Hedge funds and speculators will pile in and out of gold, based on government promises versus government revulsion . It will be a rough ride, and for those of us who are perennially long, it will be a difficult time.

This is the only aspect of gold investment that I worry about.

[medved]

Re: Skeet shoot time

I have never found a particularly convincing pro-gold argument. So let me provide the counterpoint in this discussion with refutations of the standard gold bug arguments I have heard:

[.. deleted ..]

An asset derives its value from its productive potential.

This is incorrect. What kind of productive potential can you assign to a Rembrandt painting ? How about the original manuscript of "Das Kapital"?

If you think these items have no value (no productive potential, right?), try to get a quote on one of them at the market price. You will be really surprised…

Gold’s value can be described very simple, it is a luxury item for the rich (and, sometimes, poor) people. Luxury items have very high value, and they preserve it much better than consumables/productive assets.

[unlucky]

Re: Skeet shoot time

I wouldn't rate myself a "gold-bug" but I do own gold currently and perhaps I can answer some of your questions below.

Please help me understand why you think it is wise to buy gold at prices that are many multiples its cost of production in equilibrium with its productive uses?

For its value as a currency, as an alternative to government currency. Its value in this role has no relation with "productive uses", in the same way that paper dollars are not valued in terms of their use as paper. It also has no relation with "cost of production", because gold production is very small compared with the quantity already in use as "reserve currency" (e.g. by central banks). Granted, if production volumes suddenly surged to large percentage of existing holdings, this would change. But there's no sign of that happening.

A. You believe it is a stable store of value? If so, why is it a more stable store of value than any other commodity, or durable consumer good?

The fact that it is a relatively stable store of value, is an empirical fact. I believe the exchange rate is one ounce of gold = one high quality suit of clothing for a man. Valid from Roman times through to the present.

Granted, gold has exhibited significant price volatility especially during wars and times of high/hyper inflation. In comparison, other forms of currency have shown a steady and reliable ability to lose their value completely. Currencies are not valued in the same way as productive assets.

B. You believe it is a convenient store of value? Why is it more convenient than any other refined rare or precious metal?

As you mention, other metals have greater productive use and therefore their value depends primarliy on demand for the productive form, and on technology, rather than their ability to store value. There may be people who use iron ore as a store of value. But the price of iron ore is determined mostly by its use as a factor in steel production, and therefore on world demand for goods that use steel. And if someone invents a steel substitute that doesn't use iron, your "store of value" will be defunct.

The fact that productive use of gold is relatively unimportant, paradoxically enhances its usefulness as a store of value. Its ability to store value depends only on a global unspoken and un-legislated convention, something that is very difficult to break and has lasted for thousands of years. It is not dependent on demand for consumer goods, and will not be affected by techological change.

It's also worth noting that the primary so-called productive use of gold is for jewelery. But what is jewelery, other than an outward display of wealth and status? So it turns out that jewelery is just another way of affirming the ability of gold to act as a store of value. If gold lost its validity as a stre of value, there would be no demand for gold jewelery.

C. You believe it is a "currency" -- i.e., a fungible and convenient means of conducting commerce? Where (and when) do you live that this is the case?

No - you are referring to "money" rather than "currency". Gold is only used as "money" in extremis. Firstly because it is too valuable. Secondly because of lack of familiarity. (Some would also mention the difficulty of verification, but I doubt that gold would be more difficult to verify than a credit card if people really wanted to do it).

D. You believe it has unique properties that endow it with intrinsic value? What are those that justify its value in the hundreds of (current) dollars per ounce? (Yes it is the most malleable metal, but since the development of electroplating and CVD technologies many other metals have been substituted for gold in every functional capacity I am aware of.)

Its unique property is not metallurgical but social as mentioned above - the convention that it is currency. For example, during the Napoleonic wars Britain had to provide aid to its allies in the form of gold. They wouldn't accept British currency because if Britain lost the war its currency would have no value. They also wouldn't readily accept payment in coal, iron ore, or grain, because these commodities are perishable, bulky, or dependent for their value on unpredictable demands for productive forms. That gold is currency is a global convention that has withstood the test of time. It won't be broken anytime soon.

E. Because Greenspan, Loeb, Sennholz, Marx, Morgan, et. al., have endorsed it?

Their endorsements simply reflect convention.

F. Is there some other reason I missed?
Note that an attack on fiat currencies is not an argument for buying gold. My question is why you would buy a commodity that you admit carries a speculative premium instead of any of the other alternatives suggested?

I think a lot of folks find it hard to accept that gold has value as a currency because "that is the convention". But think about other conventions - even the trivial convention that when we meet a new person on business, we shake their hand. Such conventions are long lasting and - most importantly - not subject to government fiat. The convention that gold is currency has proved even more universal and long-lasting, because whenever people start to doubt it governments intervene and destroy the alternatives.

The convention that gold is currency is global, it is well-established, and even as we speak governments are actively intervening to prove once again its historical truth.