Betting on price is speculating and not investing. Speculating is merely betting on prices either rising or falling.
Investing is buying assets organized for earnings flow in effort to gain profit and being paid from that profit. When someone buys a bond for the yield payments, that is investing. When someone buys a stock that pays a dividend, that is investing.
When someone buys ovens, tables, chairs, a dough making machine and ingredients, and then opens up a pizzeria, that one is investing. There is no guarantee that one will sell enough pizza to cover ongoing expenses much less earn a profit from which to get paid.
Buying gold means the speculator has gone long gold. The long speculator in gold believes the price of gold shall rise in the future high enough that should the speculator seek to sell his or her property in gold, the speculator shall gain a profit.
Many gold speculators, even the knuckleheads wrongly who call themselves gold investors, believe in what they call the "Gold to Silver Ratio." As I explained in OK CORNELIUS, SAM THE SNOWMAN SAYS EVERYONE WISHES FOR SILVER AND GOLD, NOT SILVER OR GOLD. The Gold-to-Silver ratio is the amount of silver in ounces one ounce of gold will buy. However, when gold speculators talk of the Gold-to-Silver ratio, they mean the amount of silver in ounces it takes to sell for cash to buy one ounce of gold. Saying either way means the same thing.
True believers in the Gold-to-Silver believe so because at one time gold and silver were coined by weight and fineness into money. In fact, coined metal by weight and fineness is the only way to define money.
Anyway, in the U.S.A. by acts of various Congresses, these Congresses defined ratios of silver-to-gold. The 2nd Congress defined the value between gold and silver as 15 units of pure silver to 1 unit of pure gold with the Coinage Act of 1792. With the Coinage Act of 1834, the 23rd Congress defined the silver-to-gold weight ratio at 16:1.
By the Coinage Act of 1873, the 43rd Congress stopped buying silver at a statutory price and stopped producing a silver dollar. The effect of both demonetized silver rendering silver no longer as money.
With Executive Order 6102, the President Roosevelt decreed money illegal, which stopped all gold coining and ordered the confiscation and destruction of all gold coins. Since then, Americans have traded almost exclusively with legal tender cash and bank credits known as checkable deposits.
Now that you know the salient background intel, which gave rise to the belief in the Gold-to-Silver ratio, we can discover for ourselves if one exists. Here is the graph I shared before on Bizarro Theater.
As you can see, the Silver-Needed-to-Buy-Gold ratio over the last 30 years hit an all-time low at the start of April 2011. After hitting a peak at the start of February 1991, the number of ounces of silver needed to buy an ounce of gold has fallen, -6.4% a year from the peak to the low hit at the start of April 2011.
Right now, using true prices, it takes 5.9 ounces of silver to buy an ounce of gold. Recently, the number of ounces of silver needed is growing at the yearly rate of 11.7% having grown over the last 15 months 34.3%. So speculators who trade between silver and gold take that as a signal to sell silver and buy gold.
While the Internet yields to us much good, the Internet also lets deceivers weave their deception easier than ever before. One kind Internet deceiver prevalent today is the gold doomsayer. The gold doomsayer is a contemporary Aaron who tries to corrupt the many into becoming gold idol worshipers.
In these works, which you can read right here on Bizarro Theater: "BUY GOLD" ADVICE IS AARON BULL*S$T IDOL WORSHIP, IS THERE EVER REASON TO BUY GOLD? and LOSING ITS LUSTER. THE SECRET FUTURE OF GOLD REVEALED, I have shown you the folly of worshiping Aaron's gold idol. In the era of exclusive legal tender bank cash, there are two kinds of states that prove favorable for going long gold:
- A big rise in the prime rate of interest undertaken to quell borrowing of bank credit
- A big inflation, which is always a big rise in bank credit, such as the Greenspan-Bernanke Inflation, the biggest credit bubble in the history of mankind [ see: THE BUBBLE ALAN GREENSPAN COULDN'T SEE WITH ROUTINE DATA COLLECTED BY HIS ONE-TIME EMPLOYER, THE FEDERAL RESERVE and THE CONSUMER PRICE INDEX NEVER HAS MEASURED INFLATION, EVER. CLAIMING SO HAS BEEN A EPIC CON JOB. ]
First, let's look at a chunk of carbon relative to gold.
The faint line seen in the graph is a trend line. The trend slopes downward to the right. That tells us Aussie Coal and Gold have a relationship over the last 30 years. Over the last 30 years, it has taken less and less coal to buy an ounce of gold. The trend is clear, gold has become less important relative to coal over the last 30 years.
Everywhere along that trendline, from a point on the trend line, had a long speculator sold gold and bought coal, holding coal to a bottom, that speculator who have profited by dumping gold and buying coal.
And now let's look at the relationship between heating oil and gold over the last 30 years.
What about other energy commodities?
How has gold fared against lowly metals?
Had gold dominated rubber from the rubber tree?
Now, it is true, had any long gold speculator bought at lows below the trend line and held until peaks above the trend line, such a gold speculator would have earned profits. However, it takes true genius to reckon exactly the timing of markets.
The long run trend above is clear. Over the last 30 years, gold has become little more than a commodity with its price decided by winning bidders in purchases and sales primarily for commercial purposes (jewelry) and industrial purposes (plating).
In Part 2, I shall reveal the graphs for more commodities and the one many might be curious about, how much of the S&P 500 does it take to buy gold?