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« U.S. Bancorp Options: 75% Profit in One Week | Main | Bank of America Heading South »
Thursday
Aug132009

What You Have in Common with King Nebuchadnezzar

King Nebuchadnezzar.JPG



In this mornings mail bag we have this article from Jeff Clark, Editor, Casey’s Gold & Resource Report

There’s no reason to invest in gold,” said the finance editor of a major newspaper interviewing me. “If gold goes up because of inflation, then so does everything else, so why buy it? It’s not really a good investment.”

She was serious. Yes, she is a finance writer. And yes, it’s a newspaper you’ve heard of.

I was so dumbfounded that I must have sounded like an infant struggling to form its first words when I attempted to counter this inane line of thinking. Tell me you’re a deflationist, tell me the Fed will rescue us, tell me foreigners will keep buying our debt – but don’t tell me that gold serves no purpose!

I tried to point out the exploding monetary base, the soaring debt, the failing economy – but it was readily apparent her mind was made up. The interview was over and she hung up.

It may sound vengeful, but I’m tempted to keep a list of people whom I could remind someday of their negative comments about gold. I’d put “Betsy” at the top. I probably would chicken out in the end, but right now it’s a wonderful reminder of why we’re not in a bull market mania yet. Besides, I think the odds are stacked in my favor that she’ll someday be buying insanely inflated gold stocks from me. I’ll have to thank her then.

But I can address Betsy’s misunderstanding now, because part of what she said is correct: gold is not an investment. Gold’s primary purpose is to preserve your purchasing power. Whether it be roaring inflation, or dollar debasement, or economic upheaval, or out-of-control government spending, it has been the absolute best form of protection throughout the history of mankind. And I can prove it.

Let’s trace what an ounce of gold or silver – true money – has been able to purchase at various periods in history, and how it compares to today.

1979: Gold’s average price that year was $306.68. This bought an average-priced full size bed.

►30 years later, $950 would still buy you a full size bed.

1963: A gallon of gasoline in America sold for 31 cents. This meant that 3 silver dimes could buy a gallon of gasoline. The total weight of silver in 3 silver dimes is .217 of an ounce.

►Today, 3 silver dimes would buy a gallon of gasoline anywhere in the U.S.

600 AD: In the Middle East, a chicken at the time of Mohammad would cost a family one silver Dirham (3 grams).

►Today, 1,400 years later, a chicken in the Middle East would still cost a family one silver Dirham.

Time of Christ: Under the Roman Empire, an ounce of gold purchased a Roman citizen his toga (suit), a leather belt, and a pair of sandals.

►Today, one ounce of gold will still buy a man a suit, a leather belt, and a pair of shoes. 

400 BC: Some scholars report that during the reign of King Nebuchadnezzar, an ounce of gold bought 350 loaves of bread.

►Today, an ounce of gold still buys about 350 loaves ($950 divided by 350 = $2.73/loaf).

1000 BC: King Solomon was known to have purchased many horses for his army. Historical records show he bought them in Egypt for 150 shekels of silver each. 150 shekels was about 55 troy ounces of silver.

►Today, you can still buy a riding horse for 55 troy ounces of silver ($800).

Betsy, gold has characteristics no other matter on earth has...

Gold cannot be…
Printed (ask a miner how long it takes to find it and dig it up)
Counterfeited (you can try, but a scale will catch it every time)
Deflated or inflated (it can’t be reproduced)

Gold cannot be destroyed by…
Fire (it takes 1945.4 degrees F to melt it)
Water (won’t rust or tarnish)
Time (a gold coin remains recognizable after a thousand years)

Gold doesn’t need…
Feeding (like cattle)
Fertilizer (like corn)
Maintenance (like printing presses)

Gold has no…
Time limit (most gold mined is still in existence)
Counterparty risk (remember Bear Stearns?)
Shelf life (it never expires)

Gold as metal is…
Malleable (spreads instead of crushes)
Ductile (stretches without breaking)
Beautiful (just ask an Indian bride)

Gold as money is…
Liquid (easily convertible to cash)
Portable (you can hold $50,000 in one hand)
Private (no mandatory reporting here)

Gold is internationally accepted, lasts for thousands of years, and best of all, they aren’t making any more of it.

Now, Betsy, are you sure there’s no reason to buy gold?

As the editors at Casey Research have been saying over and over again: Buy Gold, buy silver, buy sound gold-related investments. Our current favorite has been gaining so steadily – even in times when the Dow and S&P were tanking – that we call it “48 Karat Gold.” Click here to learn more.

Your thoughts are of course most welcome.

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Reader Comments (3)

I agree with her. Gold is not an investment. Many people have no idea what an investment is. An investment is an amount of wealth that produces constant cash flow. If gold produces constant cash flow, then it IS an investment. Obviously this is not the case since it can be in a downtrend for years(like before 2002). What you are doing with gold is speculating, and speculation can be done with everything, not necessary gold. A McDonalds business is more likely an investment, because it produces constant cash flow, but gold ? hmm, sorry, it isn't.
BTW, you guys think gold is going to break above 1000 now? hmmm, i would first bet on another low into 550-600 area.

August 14, 2009 | Unregistered CommenterDi

I am wondering what would qualify as an investment? Stocks,bonds, real estate, IRA's, do not fit the definition any more than gold.

August 14, 2009 | Unregistered Commenterwarren schneider

Di,

Thanks for your input its good to have people who think differently from us and take the time to write in and say as much. You are also correct in that gold it was in a bear market for 20 odd years. However the dollars you are going get from Macs cafe are about to be severely diluted by the continuous creation of paper money. Soon will need a heap of dollars to buy a burger, but you know our stance anyway.

We will gladly take your bet that gold will go to the $600 area before it goes to a $1000/oz, what do you suggest the wager should be?

August 14, 2009 | Unregistered CommenterGold Prices

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