The price of gold hit a record high. Should you invest?

Category: Gold & Precious Metals, Video

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “Nightline: The Modern Gold Rush”

  1. I’m happy to fade Ben Stein anyday . . .

  2. foosion says:

    Whatever happened to buy low?

    “It’s been soaring” is seldom a good reason to buy anything. On the other hand, “Ben Stein said so” is a terrible reason for doing anything. I suppose it’s possible for a blind squirrel to find an acorn.

  3. X on the MTA says:

    God, I hate gold as an investment. How do people not realize it’s just another fiat currency??

    This is my official sign to GTFO of the way and let the mouth-breathers plunge their money into non-productive assets. I’ve written about it before, and, as usual, I’ll reproduce the relevant bit below…

    Trying to play cat and mouse with the government is swimming against the current, and if you buy gold it’s never going to multiply or create anything useful. A scrap-metal recycler with inventories would benefit in an inflationary environment, all while earning profits from value-creating activities (turning waste into raw materials). A backyard with an apple-tree will give you apples and maybe give your kids a place to play tag or hunt for Easter-eggs. Jewelry you can at least wear. What is a heavy shinny gold bar that’s locked in some vault going to do for you?

    In the end, profits are not always driven by value-creation in the short-term, but it’s generally easier and more sustainable to earn profits by creating value, which is really just another way of saying “making things better.” And isn’t that what this whole “allocation of capital” thing is all about, making the world a (subjectively) better place to live?

    So yeah, if you want to play gold, may I suggest a spread or collar so you don’t lose your shirt?? If I wanted safeguards from inflation, I’d concentrate on things like rental property in large, high-quality office towers or making sure all my lines of credit (and the ones of the companies i buy) are both fixed and long-term. but whatever.

    If we go back to the gold standard, I’m going to have much bigger things to worry about than losing my savings.. i’ll have to find a new place to live! screw living in some reactionary society that doesn’t understand the inherent injustices and instability that an inflexible money supply brings

  4. X on the MTA says:

    ahhh crap. i screwed up the ending italics tag. BR, please fix it? I’m sorry, everyone!

  5. Pure-Water says:

    X on the MTA: How do people not realize it’s just another fiat currency??”

    I’ll give your question a go: Because you can’t create it out of thin air; it’s a tangible asset; and it’s been used as money for 5000 years.

    While you may hate gold because it’s inflexible I totally disagree that it brings inherent injustices and instability. Just the opposite, I’d say the government destroying 98% of the value of the dollar is a true injustice. I’d also argue that causing inflation from a “flexible” money supply that middle-class wages never keep up with is also an injustice. Moreover, the “flexible” money supply which causes inflation also leads people to take on debt because they, rightfully, think they’ll be paying the debt back in cheaper dollars. Finally, the “flexible” money supply has led to our manufacturing jobs heading offshore to cheaper countries because there’s no longer a balance in trade that the gold standard forces. Talk about injustice.

  6. FrancoisT says:

    Gold is an hedge against currency abuses. As such, it is a “investment” like far out of the money puts are.

  7. FrancoisT says:

    Ben Stein??

    WTF??

  8. donna says:

    It’s a great time to buy people’s crap jewelry and recycle it. I have a friend who is doing rather well with the cash for gold scam right now.

    I would say it’s time to sell. But then I’m selling stocks right now to pay for college for my kids.

    Now there’s a scam market… college tuitions are outrageous.

  9. X on the MTA says:

    @Pure-Water:
    You are correct, we can’t create gold out of thin air, but we can definitely dig it out of the ground. Additionally, the use of gold as a currency is simply one of tradition. Yes, gold may have been suitable for coinage in periods of lesser technological development, but it’s hard to argue that gold is a better currency than, say, platinum, or silver, or diamonds. In that sense, it is also a fiat currency.

    I mean, the whole concept of a “store of value” is very complicated and neither side has enough space for discussion in a comments-board, but what if people lose their trust in gold? Salt was once used as a currency, too.

    My objective was not to bash gold buyers, but to point out that if one is hedging against a systemic collapse of the monetary system, there’s better ways to do it. And if you are just hedging against inflation, there’s other ways too (if you can get a fixed-rate loan and buy TIPS, or natural resource deposits, or productive farmland with a water source, or real-estate).

    As far as instability and injustice: a rigid money-supply did not stop periods of inflation and deflation, but it did make money scarce during times of need. A rigid monetary base also means that we are constrained by how fast we can dig-up gold to increase the money supply, which can put us in a deflationary cycle if efficiency or population grows quicker than the MS does, and that carries it’s own sets of problems. For a good argument of the problems of hard money, I would recommend looking at some of the arguments the Populist Party of 1887. Before Fiat money there was still banking panics and inflationary and deflationary cycles, and the change from inflation to deflation usually had ruinous effects for the debtor classes, which, like it or not, is most of us at some point in time.

    Additionally, a deflationary environment in which creditor classes have no incentive to invest because of the natural real return money during deflation limits the supply of credit to new enterprise. But I guess it all depends on whether you think it’s more important to protect the fruits of the past than it is to invest in a better future.

    Finally, remember that no matter how much money they print, the Fed can’t erode real hard assets (which seems to be your main argument for gold), which include our capital stock as well as gold. Creating inflation may erode the value of credit instruments, but the wealth pf the country is not only held in dollars, but also in the good we have produced, whether they be foodstuffs, cars, houses, factories or highways.

  10. Pure-Water says:

    @X on the MTA: Yes you dig gold out of the ground but historically the gold supply only goes up by 1.5 to 1.9% per year. Compare that to the Fed who doubled our money supply in a matter of weeks. You can’t compare the two.

    It’s easy to argue that gold is a better form of money than diamonds (silver is money too, so I won’t argue that). Gold has specific attributes that have made it money over thousands of years. Per Aristotle, the reasons are gold is: divisible, durable, consistent, convenient and has an intrinsic value. I’d add that it’s also hard to find. That’s why salt and sea shells don’t work as money, not because of any inherent trust people have in gold.

    There’s absolutely no easier way to hedge against an economic collapse than to own gold, for the average person. You’re clearly very resourceful and have other ideas, but most people don’t live and breath this stuff like you do and gold is an easy way to be prepared for the worst, just in case it comes.

    I’m in no way saying the gold standard is perfect, there is no perfect system. However, I personally think it’s infinitely better than the out-of-control system we have now. No comparison when you look at the damage the Fed and Congress has done to the middle-class. I agree there will still be problems with a gold standard but they’re a lot easier to deal with than mind-boggling problems we are getting now.

    Finally, you’re totally wrong that a deflationary environment will reduce investment. Just the opposite will happen. Mild deflation encourages people to save and not spend, the exact opposite of the inflationary system we have today. Know how a country and it’s people get wealthy? By spending less than you earn, not by spending every last dollar you make plus whatever you can borrow. If you don’t believe that, pray tell why the US went from an agrarian society to the great economic power in the history of the world from 1800-1900, all while prices dropped 50% over the course of the century.

  11. Alex says:

    “Gold is an hedge against currency abuses. As such, it is a “investment” like far out of the money puts are.”

    My feelings exactly. Its sad to see so many well educated people basically acting as tools of governments peddling their little paper money scams.

    But frankly, I am happy to see such wrong-headedness. I will be cashing out when no on has the temerity to say these things anymore. In the meantime, gold just keeps going up, going on six years for me now.

    And during that time, how have almost all “earning” assets been doing? lol…

  12. oldbluejeans says:

    Some investors pan gold ( pun intended ) because they don’t understand it. Inflation hedge? Sure. But we are now faced with deflation in a highly leveraged environment. The Japanese faced deflation when the average savings rate for the Japnese people at the outset was 8%, so they could fund their sovereign debt internally.

    We however have no such luxury. Deflation results, or causes if you like, high unemployment, stagnating wage growth and those things inevitably result in defaults. Yes, the borrower can default, then the bank gets the hit. But then the government / Fed buys the junk. Then the taxpayer gets the hit. In our case it is clear that the “buck stops at the Fed”. Or maybe we could say: “The buck dies at the hand of the Fed”.

    Gold is a hedge against inflation as well as the financial instability that results from mis-guided attempts to cure deflation. And this is a global problem. If a few of the PIIGs default, German and French banks will also take a big hit ( think the Asian contagion from 1997 ). These things spread, we shouldn’t be so naive to believe we in the US are immune. As to TIPS or natural resources, they would be fine as hedges IF the Treasury can make good on the TIPS and there remains enough demand for the natural resources. What happens to demand for copper in a world of defaults and weak demand?

    Oh yes, Ben Stein had a NYT article re Jan Hatzius’s predictions about the housing bust, I think from 2007. As I recall, Stein said there wouldn’t be any problems with housing or finance, and added “as if the Fed would allow this to happen.” Perhaps he should have said: “as if the Fed could prevent this.”

    Yes, there will be a time to sell gold. But it isn’t here yet.

  13. X on the MTA says:

    @Pure-Water
    If you every have time to go through a brick of a book, try Secrets of the Temple. Based on this short discussion, I think you might enjoy it. It’s sold as a history of the federal reserve, but it really is so much more. It’s a history of central banking, yes, but also a history of the American people and economy and monetary system. The guy gets down to the Freudian connection between money and feces. I know, I know, it sounds ridiculous, but it’s actually a completely fascinating read.

  14. [...] just did Nightline yesterday, and by sheer coincidence, I am doing Brian Williams (NBC) tonite at 6:30 — each [...]

  15. Mike C says:

    I’m happy to fade Ben Stein anyday . . .

    Amen to that. His comments alone should be enough to go out and buy gold tomorrow. Richard Russell or Stein? I think I’ll stick with Russell who says the Stage 3 parabolic move is yet to come.

    Barry, question for you as you are media savvy and understand how this works. How in the hell does a guy like Stein still get appearances as an authority on economic/investment matters?

    I mean it is a triviality to go back and see just how badly he f*cked up. I recall his piece on how minimal an impact subprime would have and he was POUNDING THE TABLE on bank and financial stocks all the way down. How can he not be totally discredited? Luskin in another one who still shows up in popular media. Is it just their social networks that allow them a voice?