Sell Gold Article Debunked

by Wes Bridel on November 2, 2011

in Stewardship

This is the final gold post in the series on silver and gold.  We continue with the second portion of an article by Fareed Zakaria in which he feels he is doing the public a favor by exposing the follishness of those buying gold today.  After each point, we are providing a rubuttal which will helpfully educate you on the reasons for owning gold and silver…

Zakaria continues….

And yet over the same period prices have surged. So it’s clear that the market is flooded with speculators who see gold as an investment, not as a usable currency or product.

My Response: How is it clear that the market is flooded with speculators?  Please prove your point rather than stating a baseless opinion as fact.  The truth of the matter is that gold makes up a much smaller percentage of financial assets today than it has historically.  The reality of the matter is that hardly anyone owns gold.  And as we covered earlier in this series, the number of contracts held long (net) in the gold and silver futures paper markets are lower than they’ve been in years which proves this point is false.

What’s really changed in the last few years is access. It’s easier to buy gold over the internet than it is stocks or shares. In places like Abu Dhabi and some European cities, you can buy grams of gold at ATM-style dispensers.

My Response: He’s comparing today with a very small window of history.  If he would increase his worldview even a little (just a hundred years, it’s not necessary that he really open his eyes by examining history in terms of thousands of years although if he did do this, he would see that comparing today versus only the last 40 years is incredibly myopic and naive.

All over the world, there’s a new Gold Rush. You switch on the TV and commercials warn you that the end of the world is coming and that you need to put your money in gold. Glenn Beck says that if you haven’t switched your savings to gold, you’re nuts. And Donald Trump is now accepting gold bars instead of wire transfers for luxury condos.

My Response: Financial collapses do not mean the end of the world.  However, if Farid ignores the fact that the empire which controls the world reserve currency has seen a financial collapse every 60-100 years for the past five centuries, then it just might seem like the end of the world to him when this one too ends (which it is due to do according to history.)

This is bizarre. A lot of it is simply scaremongering. The truth is that for two and half decades, between 1980 and the mid 2000s – gold prices actually declined. Unlike many other commodities which actually have an end use – oil, minerals – gold is just a symbol, and as such its price rises have to do more with psychology and emotion than reason. So, when it falls out of fashion, the price could really collapse. The next time you watch Goldfinger or you hear of the antics of a Hugo Chavez or a Donald Trump, be a little wary.

My Response: Why did gold prices decline in 1980?  Don’t you think this should be an important consideration?  Let’s ignore the Government/Bullion bank price manipulation of the last few decades because it really doesn’t matter.  However, he brings up a very important question.  Why did prices begin to fall in 1980?  Rather than just announcing that they did, wouldn’t an intelligent person look into why they did and see if the same scenario exists today?  Prices began to fall in 1980 because Paul Volcker came to power and increased interest rates relentlessly to fight inflation.  This made him incredibly unpopular because it hurt economic growth.  But he had the will power to do it!

Does our Fed Chairman Bernanke have this same will power?  Let’s see, he just promised he would keep interest rates at practically zero for two more years.  Thus there is little to no “cost” to holding gold instead of a US debt security.  Historically, this means gold prices will soar.  So how is this similar to 1980?  As a matter of fact, the intellegencia of today is for the most part very much against raising rates as dramatically as would be necessary to pull back gold prices.  And if the Fed did do this, it would kill economic growth and send us into a deep depression (I’m certainly not saying they should not bite this bullet, I’m simply stating that they won’t.)  And even if they would, we can’t forget the fact that in 1980, the US was the world’s biggest creditor nation.  Today, the US is the world’s biggest debtor nation!  If the US increased interest rates to double digits as it did in the early 1980’s, the interest expense alone would consume the entire US tax revenue.  It is an impossibility for the US to afford this.  So how exactly would the US do this?  And how exactly is our current situation anything remotely like 1980?

Gold isn’t a stock with real earnings. It isn’t a bond with interest payments. It isn’t oil. It won’t help you drive a car; it won’t help you light a fire. Yes, you can wear it, but you can’t eat it. If doomsday really arrives, a can of baked beans might be worth a lot more than a brick of gold.

My Response: True, gold is money.  I guess he is suggesting holding things that are priced in a currency that is being printed at will without constraint which has only been considered to have value of it’s own for 40 years (this value has dropped dramatically over that time), rather than holding the one thing that has always been money.  If he wants to compare a period of time (as he did when he compared 1980 to the mid-2000’s, wouldn’t it be more accurate to consider the entire period of time that the US Dollar has been totally disconnected from the value of anything real (gold).  In that time, the value of the US Dollar has gone from being 1/35th an ounce of gold to being worth 1/1600th an ounce of gold.  In other words, the US Dollar has lost 98% of it’s value against the only real money that has been around for any length of time (other than silver).  I agree with him that it is important to stock up on food.  I highly recommend it.  But in “doomsday” scenario’s like he is mentioning gold and silver always resume their consistent historical place as money.  What’s more “bizarre”, to plan for an event that has ALWAYS REOCCURRED throughout history, or to believe that history will never repeat itself because of the inherent greatness and invincibility of the USA?

This is the 8th post in a series on silver and gold.  You can find all posts from this series at:  1) Gold & Silver on Sale, 2) Reasons to Buy Gold & Silver,  3) Gold & Silver: About to Take Off?,  4)  Why & How to Buy Silver & Gold?,  5) Gold Bubble?,   6) Gold Speculators or Savers?,   7) Gold Article Rebuttal, &  8)  Gold Rebuttal Pt 2.

SocialTwist Tell-a-Friend

{ 0 comments… add one now }

Leave a Comment

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Previous post: Should You Own Gold? A Rebuttal

Next post: Sharing a Dream of the Flood