IS THERE EVER REASON TO BUY GOLD?

The Internet attracts all kinds of crazies, doomsayers and hucksters. Sometimes the Internet attracts doomsaying hucksters. Among those are the gold bugs.



Gold bugs shall tell you there is no better time to buy gold. Then they shall tell story after story saying the apocalypse is nigh.

Many of them earn their living brokering gold. The more they can cajole others to buy, the higher the price for gold. The higher the price, the more commission they earn from the same percent.




Buying gold is speculating long on price. It's not investing. 

Investing means buying an income stream. Speculating means betting on price changes.

Anyone who tells you that you can invest in gold either is clueless or is lying. Never is there an income stream from gold.

Since going long gold is speculating, what counts is how much stuff you can buy when you sell gold should you own any. What you want to know is how many gallons of gasoline can you buy in future or how many airline tickets or how many back massages and  so on.

Anyone who has bought gold since the end of Q3 2011 has lost buying power, that is three years running. Gold is a horrible speculation play today. 

Anyone who would have bought gold after Q3 1980 until Q1 2001 would have taken a bath, with the first washing done from Q3 1980 until Q2 1986. After a head fake through Q4 1987, gold buyers continued to lose buying power every year until the end of Q1 2001.

Sure, if someone caught the wave of gold starting Q1 2001 to Q3 2011, that one lucked out. True gold, that is gold priced in gold window dollars, the only authentic inflation deflator, went from a low of $51.94 to a peak of $172.05. Gold grew at a yearly rate of 11.8%, growing a whopping 231.2% from low to peak.

In that time, True S&P 500 fell at a yearly rate of -5.8%, falling a painful -47.7%.

Yet, had someone bought the True S&P 500 at $86.50 at the end of Q1 1994 and rode that until Q3 2000, that lucky one would have enjoyed a yearly growth of 22.3%, double the return of the great gold rush of the 2000s, with the total growth coming in at 251.4%.

In the long bull run between Q3 1974 and Q3 2000, True S&P 500 grew at a yearly rate of 7%, growing a full 484.3%.

In the long gold run from a Q3 1976 to Q3 2011, True Gold grew at less than 1% a year, coming in at a scant 0.5% a year for a total of 19.6%, from $87.11 to $104.18. In the same period, True S&P 500 grew almost 4 times as fast, albeit at 1.8% a year for a total of 95%, from $78.12 to $152.33.

Easily then, compared to gold, even with the crash of 1987 and the following bear that ended in q1 1988 (-32.2% annual decline), and the much longer bear markets of 2000-2002 (-21.7% annual decline) and 2007-2009 (-35.9%), stocks were still a much better deal over the period 1976 to today. 

As I show in LOSING ITS LUSTER. THE SECRET FUTURE OF GOLD REVEALED, gold trades in ratio to true prime rate. Current gold already has priced in what true prime should look like absent interest rate suppression by your friendly Fed Res central bankers.

In S&P 500 VS GOLD, I show the true price of gold and the true price of the S&P 500. As politicians long ago demonetized gold, gold pricing works the same as any other commodity, adhering to the forces of the Law of Prices — the winning bids of purchase and sale in the face of what is on offer set the price — and the Axiom of Profit — the sum of sales set on winning bids must at least equal the cost of production, otherwise the producer goes to ruin.

The days are long past when faced with inflation — too much bank credit circulating beyond trade needs — pushed anyone to ship their gold to other countries with bankers who offered higher interest rates.

The 2000s gold rush has brought out every gold bug who at long last felt vindicated for all of their ranting against financial asset-backed cash vs their favored gold-backed cash. That rush is over and has been three years. All of the doom and gloomers lack facts of reality as you now have them. For if they had them, long ago would they have shut up about gold. 

And if you stopped and then started to think about it, that should be so. Mankind gets ever smarter and more efficient at organizing matter and energy into property that ever more desire. Efficiency with respect to gold mining and possession is much harder to gain.

Likely, no one is going to see another gold run as we have seen for another 25 years. The big run up in gold mostly came with the big credit expansion and bubble. Gold then went higher when uncertainty grew. 

No one on earth is going to see another big run in gold like the run between 2001 and 2011 unless another credit expansion happens at an alike rate of 7.1% a year. Normal true credit growth from low to high runs at 2.5% a year.

The 2000s gold rush has brought out every gold bug who at long last felt vindicated for all of their ranting against financial asset-backed cash vs their favored gold-backed cash. That rush is over and has been three years.