The Gold Delusion

There are two primary topics of argument when it comes to gold these days: gold as an investment and gold as the basis for currency.

I have considered these issues and can see merit in the arguments made by supporters. However, at the core of both arguments you will always find the argument that “gold is always worth something” or that gold has intrinsic value. This is a fallacy that everyone needs to recognize. To understand this, we have to go back to the beginning and understand how we came to the point of equating gold and money.

The gold specie standard was not designed, but rather arose out of a general acceptance that gold was useful as a universal currency. When commodities compete for the role of money, the one that over time loses the least value, takes on the role. The use of gold as money dates back thousands of years and the first known gold coins were minted in the kingdom of Lydia in Asia Minor around 610 BC.

wikipedia entry

At the time when gold was first coined as money, gold had no intrinsic value. It was not a practical metal to use for tools or weaponry. In essence, gold was a useless metal. It was however pretty. Those in power and with ample resources have excess to waste on things they like, no matter how impractical or useless (much like today’s elite.)

At this time, if someone wanted or needed something, they traded a good or service. However, carrying around 10 goats and 30 chickens if you need to go to the market was a challenge. Additionally, debating whether 10 goats equaled 5 cows or 7 was another difficulty of the barter system. People realized the need for something recognized among all the people to represent the item of trade.

When the idea of making a coin came up, they had to decide on what metal to make it from. Do they make it from a hard metal, one that would rust or degrade over time, or whose metal would be better used in an ax or hoe? Or use a metal that is soft, won’t deteriorate and has no practical use? Thus the gold coin was born. So what was its place in society? Well, much like today, it comes down to control by the elite.

As stated, the only “intrinsic value” gold had at the time, was for ornamentation or jewelry to the most powerful. Society makes a currency out of gold. Who has the most currency? The elite. The society work away at daily life, but ultimately, the majority of the money gets filtered up into the coffers of the kings.

Flash forward two and a half centuries and gold finally starts to have some intrinsic value. As we enter the age where electricity and electronic devices take advantage of the elemental nature of metals, gold can serve some purpose, although at a societal level, still small.

Metals are a resource. At any given time, a country or individual can discover a source of metal or as technology advances, derive the metal from other elements. Science and alchemy grow closer together each day. So why would it be a good idea, to peg a paper currency to a resource that can be manipulated or undermined by another country, corporation or mad scientist?

Why are there people who support the idea of a gold backed currency? Well, to put it simply, fear. I was one of them. I supported the idea for a short while. I didn’t like the idea that there was nothing real about our currency (US dollars.) That, combined with the fact that the government removed the gold standard from the dollar made me highly suspicious. In the end, it wasn’t really that I was so bothered by the lack of a tangible backing of the dollar, it was that the dollar itself was getting weaker. “Exactly!” you say, “Because it isn’t backed by something like gold!” No. It is weaker because of faulty manipulation by the Federal Reserve, foreign nations and to a lesser extent, counterfeiters. Would supporters be calling for a return to the gold standard if the dollar was rock solid and the future looked bright? No.

The problems with the fiat dollar need to be fixed at the system level, not as a concept. It doesn’t matter if we have a gold standard or not, the acceptance of a paper currency all comes down to faith that the person taking it will be able to get something in return later on.

We hear the term SHTF all the time. In such a situation, many claim you will need gold or silver because paper money will be useless. Not necessarily true. And this is where I discuss the investment aspect of Gold.

***NOTICE*** I am not a financial advisor. Any information or suggestions related to investing are my own opinion and I am not responsible for anyone’s fiscal behavior or actions.

The use of any currency, fiat or metal coinage, in a SHTF situation presumes that society will remain somewhat intact or will recover. To that extent, having all, most or even half of ones investments in gold or silver is foolish.

In a SHTF situation, practical tools and resources will be the currency. If society does start to recover, tools and resources will get an individual ahead far more than any precious metal. Once society starts to stabilize, the elite will then be in a position to indulge in impractical things like gold for jewelry, and then having a small amount may be useful. Chances are that in such a recovery, the practical nature of fold for electronics will be negligible if existing at all.

My personal philosophy on precious metals investing is, never more than 20% of a portfolio should be devoted to such things, and always in tangible form, never certificates.

However, one shouldn’t even be considering this aspect, until the true necessities of immediate survival are covered. This would include enough cash savings to live on for at least 6 months, a life insurance policy, a 30 day supply of food and water, and some basic survival items. Once you have all of these, investing in retirement, stocks or commodities is not an issue.

The market for gold is artificial because of fear. A fear, although somewhat justified, that is orchestrated by the elite, who benefit the most from the whole ordeal and cannot lose.

So gold is a worthy investment, but more important to the elite. Silver would be a common mans precious metal, because it has more practical uses. As for a basis for currency, now more than ever, it would be a bad if not catastrophic decision. However, if we don’t fix the systemic issues with the Federal Reserve, we may just face such a catastrophic end.

reply to post by Wolf321

In the end, it wasn’t really that I was so bothered by the lack of a tangible backing of the dollar, it was that the dollar itself was getting weaker. “Exactly!” you say, “Because it isn’t backed by something like gold!” No. It is weaker because of faulty manipulation by the Federal Reserve, foreign nations and to a lesser extent, counterfeiters.

Exactly!

You should have a read of this thread I made a few weeks ago: Fiat Money vs Sound Money

It all comes down to who controls the quantity of a currency, not what it is backed by or pegged to.

Well put, I agree.

If everything were to fall apart, tools and weapons would be of the most value.

And relevant skills.

Barter was not the first form of money, credit was. People traded their goats and later in the harvest they were paid back in grain. This form of money existed for thousands of years before metals were in common use as another form of money. Credit is the most useful form of money during peacetime, Mesopotamia flourished on an expansive credit money system. Rome was one of the big users of metallic coins because you can pay your soldiers directly and they can spend their money without the need for trust of credit that fails at times of war.

The gold standard or gold as currency is past and we are not going back. Gold is certainly not an 'investment' either.

Yet, we have a debt crisis, the US exports only 75% of the goods and services that it imports. Greece takes twice as much goods and services than it trades in return. The credit system has now expanded to the point where we settle our balance of trade using each others debts. Sovereign states all the way down to individuals are now loosing their savings as we increase debt/credit beyond what the underlying trade of goods and services can handle.

We are going to use something that has no economic function, no use, no 'value' to measure of the balance of trade instead of the debt/currency system to store our excess work for later in life. It sure is great to have food, seeds and guns stockpiled but when you are a producer like an oil rich country or an individual like a doctor you are going to want to store your large excess for later. There is only so much seed, food and ammo that a doctor can use as a store of value over time, and hoarding useful things slows the economy.

An exporting country or 'rich' person really really wants to store the extra work they have done in something that does not slow the economy but instead as it is hoarded _becomes_ valuable to those who want to save and saving for later is a benefit to the economy, your retirement funds included.

There is only one item in this world that sits at this focal point, it's salience in store of value over time. The kicker is that this item must increase in purchasing power about twenty times or more from today's 'price or value' to settle the debt/currency crisis. This will only happen once then it will go back to being an extremely stable store of value for saving over time only. This is where we are heading, it's so simple it defies.

Very well stated. The thing that gets me is the very common term you hear when it comes to economics, namely 'buy low, sell high'. I am flabbergasted at the amount of people who flock to gold at a point in recent history where gold has never been higher. But then I see commercials upon commercials telling us to flock to gold 'because it can only go higher'.

There is a commercial that is selling gold clad coin 'proofs' which essentially can not be used as currency. It is a remake of an indian nickel IIRC. The coin was to be introduced at a cost of only $49.95, but for 7 days only they are selling them at $9.95 because they can not guarantee the fluctuating price of gold. I calculated how much the gold in that coin is worth and it came out to something like 74 cents... $0.74. They want to sell it for $50, and are introducing it for $10... the damned coin isnt even worth three quarters of a dollar even at todays high gold prices? I believe it was clad in something like 14mg of .9999 gold (THATS FOUR NINES!). I calculated it at $1500 an ounce.

IMHO I think gold is artificially high, and the smart, the wealthy, and the elite have bought tons of gold a few years ago when it was cheaper. When you buy gold at $1500 an ounce it means someone is willing to sell it at that price, probably the people that were buying it at $500 an ounce years ago. The gold market will crash soon, at which point I will be buying up all the gold I can. The only way gold can be valuable is to buy it low in a few years, and sell it back to the sheeple at 3x the cost after another crisis is manufactured.

100% agree, I see gold being of value 10,20,30 years after SHTF I see before things go back to "normal" gold will have no value other then a door stop. The bigest problem is you need to make it through SHTF post world before your hords of gold will be worth anything.

reply to post by camaro68ss


In a serious SHTF situation, long before gold comes back into use as a currency and after bartering has become too difficult, it is likely currency will likely be community or area based. At that point, it will either be printed or coined and of less useful materials.

As I stated before, everyone has to agree on the value of any item being used as currency. So post SHTF, long distant communication, consultation or agreements will be unlikely if not impossible. Currency will be local.

I am glad they have communities around who have in place or experimented with local currencies. They would probably be the first to reestablish such a system after the bartering phase.

I wish I could find a way to turn lead and copper into gold.
that was very easy.
then silver and platinum.
I would tell every one about it.

I would do this to topple all the rich.

so far I can only turn lead in to a lead gold mix.
70% lead to 20% gold 10%?.
crazy yes.

but would this give the power back to the people?
if we have a big Disaster.
after its all over the RICH still have tens thousands of tons of Gold.
so they stay at the top.
when they made it all crash in the first place.