The other side of gold

“Assume that even in this depressed economy, you can afford to blindly stockpile gold like many other people are doing. But have you considered realistically what the end game is for gold itself?

When the economy crashes what happens to your gold?

But this is what you’ve prepared for, and tied up thousands of your hard-earned dollars to buy gold. When the hard crash hits, the proverbial rubber meets the road.

Realistically

If you find a store which still has food on the shelves, how will you use gold to buy food and perhaps even water? Bring a hacksaw with you to saw off a piece? Have you considered why any merchant will take gold? What will he do with it? He won’t take it because he can’t do anything with it than you can. Even a pawn shop won’t take an item they cannot sell or has no demand. This is a universal rule of buying and selling. Do you expect a grocery store owner to re-package your gold, put a price tag on it and sit it on the shelf beside a loaf of bread? People will steal the bread, and leave the gold behind when the crash happens.”

Read the whole piece here: The other side of gold no one talks about

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24 Responses to The other side of gold

  1. Gary Tooze says:

    Let’s put it this way…
    The colored paper you have in your wallet – in 2000 years of history – has ALWAYS gone to zero. It has a 100% failure rate. You hold Gold because Gold is money – NOT a currency that will, inevitably, fail.
    Aristotle put forth 7 definitions of what makes ‘money’ and Gold is nothing special except that it has those characteristics more than any other element on the periodic table. It is fungible, rare etc. and has no counter-part risk. The super-rich hold three things; land, fine art and gold because in a deflation OR a hyperinflation they are protected.
    The old ‘You can’t eat Gold’ diatribe is usually said by someone who doesn’t understand the monetary system…. and is a limited paper-bug thinker.
    100 years ago an ounce of Gold bought 180 loaves of bread and a dollar bought 10 loaves of bread (bread was $.10 a loaf) Today an ounce of Gold buys 850 loaves of bread while a dollar buys…. about 1/2 a loaf of bread.
    Wall Street and financial planners have a bias against gold – usually because they don’t make a commission on it, hence your ‘Financial experts’ including Warren Buffet TOTALLY missed the Gold trade the past ten years when it went up 500%.

  2. dazzo says:

    Disclaimer…..I am NOT a gold bug in any sense of the word

    Who the heck is Ted Twietmeyer? A quick search on Google shows he espouses such ideas as the Moon landings being hoaxes…………OMG Danielle!

    I think I can officially say that this blog has “jumped the shark”.

    PS ………..the way the US is spending/borrowing its way into oblivion you could make the case that US bonds will one day be useful as toilet paper and nothing more.

  3. FredB says:

    “Instead of buying gold, everyone will be focused on buying food, drinking water and shelter wherever they can find it and will need to use the current currency to do it.”

    What was the “current currency” of the Weimar Republic? What did that buy?

    Why would anyone in the Mad Max fantasy world of this article trade any real good for “current currency”? What is the intrinsic value of (one assumes) a paper/electronic “current currency”? In a Mad Max world where nothing works, nothing works.

    Did you notice that the Iranians who can’t trade in dollars and whose “current currency”, the rial, is destroyed are trading oil for gold?

    Do you remember when Zimbabwe hyperinflated their currency? They eventually made the U.S. dollar their currency, but before that there were small gold miners trading their gold dust for food directly without the need for a currency intermediary. I find the idea that currency determines the value of gold to be the author’s fundamental error from which all other foolishness follows.

    People will find a way to succeed and survive. Of course, those determined to fail will also succeed in their own way.

  4. Tim says:

    Danielle!!!!

    I read your stuff regularly and usually it makes good sense.
    What on earth made you put up this garbage.

    Disappointed.

  5. OMG Dazzo! who cares who Ted is, I am endorsing the practical thinking expressed not the person. I have said these same things many times about how water, food and energy are the true stores of value. The obsession of men with superfluous shiny metal is as old as the Bible.

  6. John C says:

    Allow me to parse this idiotic work of fiction.

    “When the economy crashes what happens to your gold?

”

    Gold would go down in value. But the question is specious because it assumes the entire global economy will completely collapse. That’s almost like asking, “If a giant meteor that’s big enough to destroy all life hits the earth, how much will your gold be worth?”

    “But this is what you’ve prepared for, and tied up thousands of your hard-earned dollars to buy gold.”

    No it’s not. Again, another specious assumption. Those who purchase gold as “insurance” do so to hedge against currency risk, not total economic collapse. When Weimar Germany experienced its hyper inflation in the early 1920s, the economy continued to function and rebounded quite quickly after the hyper inflation completely destroyed the mark. Anyone in marks lost all of their savings, but people with hard assets still had something of real value. It got re-priced in the new marks, but the real value remained, and would always remain no matter what currency it is valued in.

    “When the hard crash hits, …] 

If the world economy crashes how will gold be valued? “

    This entire section of the article is bunk. People have used gold coin for trade for thousands of years. Transacting in promises to pay backed by government fiat actually has less of a track record. No, a merchant will likely not accept a sawed-off piece of a bar of gold. But that’s just more obfuscation by the author. Transacting in gold coin could, and would, happen again under the right conditions. I’m not suggesting this WILL happen, but if the government issued currency is viewed as trash, then the people will need to transact with something. If necessary, people will likely be able to trade their bullion for circulating coin. Local paper currencies would also spring up, but if you think that gold coin would have no place in the market, you don’t know history. If you assume we would all need to barter, then that means everything has gone completely to hell and there are no merchants anyway, only banditry, theft and perhaps some black markets. If the government issued currency is not trash then the entire scenario is moot.

    “Gold value has always been tied to a popular currency like dollars, like it or not. 

If no one can express gold value in dollars/per ounce, how can the value be declared?”

    Again (sigh) the author is completely wrong and upside-down. Historically, currencies are expressed as a fixed amount of gold, not the other way around. Fiat currencies are mainly just a unit of account, a denominator. The value of gold is tied to real values that are largely, but not exclusively, derived from scarcity and the amount of energy needed to mine it. Theoretically, one can use anything as a currency and as store of value, but gold is the best “thing” we have, and it’s largely why it has such a long track record as such.

    “It’s one thing to shoot a paper target on a target range while learning to use a firearm, and quite another to kill a human being up close. And just how many people will you need to kill? Will that ever end?”

    If you have to kill other people just to survive, then you have much larger problems than your currency. Moot point.

    “Here are the logical, real reasons the value of gold will drop like a rock when the crash hits:

 Like any precious metal, gold must be changed into whatever the new currency is to actually use it or you will starve. Even the Romans used coins. Will gold/currency conversion work for you or against you after the new currency comes out, when you enter a bank to change your gold into the new currency?”

    Oh, so the entire economy has collapsed into a Mad Max nightmare, but the local branches of my friendly bank are all fully functional? And again, the author does not understand how gold is actually valued in real terms.

    The rest of the article is just more, ignorant, fear-mongering drivel. So, no, if the Mad Max, End of Days, Apocalyptic, 666, Rapture-inducing, Mayan Calendar, Nabiru conjunction, total societal collapse occurs, gold will not save you. But if your currency collapses or gets devalued to hell, you’d be better off with some gold. I will say, that anyone who believes their gold will completely protect them is wrong. The government could easily tax your gold to death, or even confiscate it physically. But when the new currency is issued, whatever it may be, the real value of your gold will remain.

  7. Tim says:

    But gold is not “superfluous”. Its not a shiny metal that is kept because its pretty.

    It has functioned as a store of value and a medium of exchange for thousands of years, as has silver and many other commodities at one time or other. What separates gold and silver is they are the most efficient forms of money (portable, durable, divisible, acceptable) and have been chosen by the market as money time and again.

    There is always a need for money, no matter how bad the situation. You always require to exchange what you have for what you need. Even if all you have is your labour, you need to exchange it for something else in order to eat, for that you need money.

    There is no period in history that I am aware of where barter functioned totally alone without a commonly recognized medium of exchange. Barter is fundamentally inefficient.

    Fiat currencies are potentially even better but unfortunately, they are always subject to debasement and cant be trusted in the long term as a store of value – they always crash or have done so up to press and almost certainly will again, only the timing is uncertain – to ignore this is to ignore history.

  8. Tim says:

    Now that I think about it, there was one system where barter sufficed for all needs.

    It was called slavery.

  9. dazzo says:

    The amount of time and energy you seem to be willing to expend to dump on gold seems rather curious to say the least. Your readers have long ago figured out that for you and your clients gold is simply not part of your investment strategy and I for one am OK with that. Why are your opinions on the matter more credible though than those of John Hussman, Marc Faber, Michael Shedlock or Doug Casey?
    The blog post you link to paints gold enthusiasts as silly caricatures who think they can chop off bits of their gold bars to use at the grocery store. While you can probably find a few who do actually think like that (there’s always outliers in any crowd) I don’t think that people like I’ve referenced above would see things quite that way. As far as me taking a shot at good old Ted, well if his critical thinking skills are sorely lacking in one area, then I will take anything else he says with a big grain of salt.

  10. FredB says:

    This is why we have markets. When you are ready to sell all your gold there will be someone to buy it at a mutually agreed price.

    If you want to know the true value of gold in extreme circumstances look up the stories of people escaping the holocaust by bribing guards or buying safe passage with gold coins they had sewn into their clothing.

  11. Gary Tooze says:

    Okay Danielle – we enjoy your opinions – that is why we are here, BUT again you have missed the boat just as you missed the Gold/Silver trade the past decade. Either you have a shocking bias against Gold – you are usually afraid to say the dreaded G-word when you speak publicly – or you are clueless as to the history of money. I suggest you read Mike Maloney. Ron Paul or Jim Sinclair. You’ve been part-and-parcel to this phoney-baloney debt economy and appeared to have finally turned the corner – then you post pure rubbish like this.
    Why is it those who bash gold foresee some sort of MadMax scenario? It’s like their crutch for dismissing earth’s reserve currency. You know Danielle – you can’t eat or drink your RSP statements or your equities either? but no matter where you live IN THE WORLD – you can swap Gold for food, water – ANYTHING! Please try to understand Gold – and whan I say Gold – I mean M-O-N-E-Y…

  12. Gary Tooze says:

    “The obsession of men with superfluous shiny metal is as old as the Bible.”
    Box sexist and ignorant, IMO.

  13. Attila Balazs says:

    C’mon folks, let’s chill out!
    I think it is worth considering that pretty much all paper money systems have ended in failure. The examples are:
    China’s Southern Song Dynasty (1127-1279), China’s Jin Dynasty (1115-1234), China’s Yuan Dynasty (1271-1368) and the early period of the Ming Dynasty (1368-1644, voluntary return to commodity money), Massachusetts and then other British colonies in the early 18th century, France (1716-1720), North America (1775-1781), France (1790-1803), Britain (1797-1821, voluntary return to gold), the United States (1861-1879, voluntary return to gold), Germany (1914-1923). In addition, the 20th century, which was the century most hostile to gold money and most under the spell of big state ideologies, saw 29 hyperinflations!
    Also one more very important fact: some years ago I had several old banknotes with a ‘one billion’ written on them and during the Second World War, my parents were able to buy food only for jewelry and GOLD.

  14. Gary Tooze says:

    An apt and insightful Rand quote from over 50 years ago:
    “Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: ‘Account overdrawn.’

  15. michael says:

    The Treasure of the Sierra Madre….some things never change. Gold is still more emotion than function. Bugs may want to watch the movie.

    “Howard: Say, answer me this one, will you? Why is gold worth some twenty bucks an ounce?
    Dobbs: I don’t know. Because it’s scarce.
    Howard: A thousand men, say, go searchin’ for gold. After six months, one of them’s lucky: one out of a thousand. His find represents not only his own labor, but that of nine hundred and ninety-nine others to boot. That’s six thousand months, five hundred years, scramblin’ over a mountain, goin’ hungry and thirsty. An ounce of gold, mister, is worth what it is because of the human labor that went into the findin’ and the gettin’ of it.
    Dobbs: I never thought of it just like that.
    Howard: Well, there’s no other explanation, mister. Gold itself ain’t good for nothing except making jewelry with and gold teeth.”

    Well we don’t use it for teeth anymore and less and less for jewelry. So why do people get so emotional about this element.

    First of all the dogma perpetuated by stakeholders and parroted by the clueless that gold is MONEY is simply idiotic.
    What it is, is a store of value just like Platinum or Paladium or Rhodium or
    Diamonds or Copper or Tin and is worth exactly what the market is willing to pay for it in Fiat currency, and after commissions on any particular day.
    There surely was a time in history when Gold was used as a currency but so was Salt and before that sea shells. As with Gold today, people were bought and sold, abused and butchered over salt and sea shells.

    As soon as Gold was stamped into the very first coin it became Fiat. Only the government of the day could stamp it and put a value on it and they could also shave a tiny bit off, make it slightly smaller, mix in a bit more copper or lead but it still was traded as it was gold with a set value.

    How do you know the shiny metal you have in your SDbox is real Gold. Who told you it was real? Can you believe them? Some say there is no Gold in Fort Knox. It has all been leased out. This must be so they say because no one is allowed to see it or to audit it and if they were I’m sure they would say it is just Tungsten wrapped in the shiny metal and that unless every single bar was cut in half any audit would be a fraud anyway.

    I heard an analyst recenty say that it really doesn’t matter if there is any Gold in Fort Knox as long as they say it is then that is all you need to know. Based on today’s economic system he has a point.

    So if gold is money then so is every thing else that you can weigh and store, except every ounce of Gold that has ever been dug up still exists. Can you say the same for Oil, Nat Gas, Clean Water, Aerable Land, Clean Air.

    Got Knowledge!!!!

  16. FredB says:

    Girls can do that.

  17. John C says:

    “First of all the dogma perpetuated by stakeholders and parroted by the clueless that gold is MONEY is simply idiotic.”

    You can try to distort reality all you want, but the fact is, gold is money and has been for thousands of years. It’s not because I wish it to be; it’s historical fact. People who look only at transactions that occur in the consumer economy are only looking at a small part of the picture.

    “There surely was a time in history when Gold was used as a currency but so was Salt and before that sea shells.”

    You are confusing currency with money. Almost anything can be used as currency (cigarettes, stones, manure) but real money must have currency and it must be a store of value. Our currency today is not real money because it is not a true store of value. Today, we trade debt as currency. But that’s not the same thing as real money. Gold, whether you like it or not, is an excellent store of value for many reasons.

    “As soon as Gold was stamped into the very first coin it became Fiat.”

    No. Fiat refers to government decreeing that the currency it issues is legal tender. Gold has value whether governments use it for currency or not. Try that with your Bank of Canada notes.

    Yes, governments have debased their gold currencies. Currency debasement is the normal course of action for governments because its a way of extracting wealth from the people. In short, inflation is a tax. But you can devalue paper currencies much more easily than you can gold-backed money. In fact, in order to devalue a gold-backed currency, you have to increase the price of gold. And no matter what happens to a paper currency, gold always has real value.

    “How do you know the shiny metal you have in your is real Gold. Who told you it was real?”

    Yes, ultimately the value of any currency is based on trust. But look at what people naturally turn to when confidence in paper currencies fail. And just because there are scams in the gold market does not nullify it. There are scams everywhere, every day. If you discovered that the bottle of drinking water you bought contained poison in it, would you stop drinking altogether?

    “So if gold is money then so is every thing else that you can weigh and store, […]”

    Uhhh… sorry, no. You should learn a bit about gold and why it has thousands of years of use as real money behind it. Also, you might want to ask the central bankers whey hold gold, but not copper, or oil, or natural gas.

  18. JW says:

    One thing I have noticed lately is that gold (price) is behaving more like a risky asset verse a safety asset. Langley, BC

  19. Robert C says:

    Danielle, thank you for posting this, although there are strong reactions from both sides of this posting, the one thing that is important is to gather facts from both sides of the issue. The more information we have, the better we are prepared to make the best decisions for our own investments. Each investor has their own risk level and only they can decide for themselves what works best for them. For some it is to invest in heavily gold and other precious metals, for some a little investment and others total avoidance. I always like to hear both sides so I can make a better informed decision.
    But that is my personal decision based on how I interpret the information presented, not how someone else wants to interpret it for me, for some they saw this as garbage and pardon the pun for some it was gold. I find the information valuable for my own decision making.

  20. John C says:

    The nominal gold price has been volatile ever since the US dropped its dollar-gold peg in 1971. The amount of gold bullion in the world is actually quite small. The amount of new gold mined every year is also very small. Thus, the gold market, even as it has been expanded via paper instruments, is tiny compared to equity, credit and currency markets. This alone makes it more volatile than what might seem warranted. Right now, market and currency uncertainty is the meme, so gold will react accordingly. However, in real terms, the value of gold has been fairly steady historically.

  21. Roberta says:

    In a collapse will some people buy food with gold? If food is available for sale, yes, as has occurred in other collapses in history. One recent example:
    http://www.youtube.com/watch?v=7ubJp6rmUYM

    You can give the store owner a silver or gold coin, and they can keep a record of how much food you have taken and let you know when your account is empty – then you give them another coin. Another way would be to whittle off a little gold or silver with a knife (onto a scale) to pay for the food you are taking today.

    Another survival method is to own land that will grow food, in a region where it will not be taken by criminals – good luck with that plan.

    Another method is to have a years worth of freeze dried food in #10 metal cans stored. It will last 25 years.
    http://www.mtnhse.com/mm5/merchant.mvc?Screen=CTGY&Store_Code=M&Category_Code=MHCDL

    Isn’t it great to live in a world where we even need to think about such things? NOT!

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