shininggold

STAFF NEWS & ANALYSIS
As Central Banks Dim, Gold Brightens
By Daily Bell Staff - February 18, 2016

Why Buying Gold Won't Save You from the Zombie Apocalypse … Despite any advice you might have heard to the contrary, gold bullion is far from a good investment, even if the world is coming to an end. The idea of having a hedge against the end of the world and the collapse of our financial institutions might be alluring. But actually, buying and storing significant amounts of gold bullion won't do you any good in that unlikely event, despite any advice you might have heard to the contrary. – Fool.com

Of course the above excerpt is brought to us by the Motley Fool, one of the bigger mainstream investment web destinations. The description is entirely predictable and could have found a home at Bloomberg, CNN or even CNBC. Gold is always to be portrayed as a Keynesian "barbaric relic."

In fact, we learn later in the description that there are specific assets you should own "in the event of an apocalypse." Gold is not one of them.

The featured expert, John Maxfield, has a thing or two to say about gold.

"Here's how I think about gold, and this is how I would recommend that investors think about gold, or anyone who's thinking about buying gold for any type of investing purposes. As a general rule, investing in gold is a bad idea, and here's why.

"When you invest, your biggest ally is compound returns, because that grows the size of your returns without you doing anything on an annual basis, and pretty soon, your small returns of 1% or 2% a year turn into 50%, 60% a year on your original basis. But in order to tap into compound returns, you've got to be invested into an income-earning asset. And the problem with gold is it doesn't own any assets."

Maxfield does grant that gold is a "hedge against anarchy" but says if society is really collapsing, you probably want to stock up on medicine and antibiotics rather than gold.

Ironically, another anti-gold epicenter – Reuters – provides us with a rebuttal to the Fool. In a post just today entitled, "Central banks and Chinese buyers helping to spur gold demand," Reuters is uncharacteristically upbeat about the yellow metal's prospects going forward.

Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said …

China remained the world's biggest consumer of gold last year, ahead of India, with economic headwinds influencing purchasing, the WGC said in its annual "Gold Demand Trends" report. The WGC's members include the world's leading gold mining companies. Chinese demand for gold coins surged 25 percent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency.

It's not just physical gold. Miners are up and silver is up, too. Oddly enough, it is central banks that have been leading the charge toward gold.

Reuters: "Central banks have been buying gold to diversify their reserves away from the U.S. dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013."

Turmoil in the markets, falling oil prices and a potential global recession have all contributed to a positive precious metals outlook, according to WGC.

Well …

We agree about gold – we can see and sense the resurgence of the price against the dollar – but we disagree that the world is going back into a recession.

In fact, we think the world is in a kind of greater depression and that the golden bull goes all the way back to the early 2000s after the dotcom bust.

But let's go back even farther.

Central bank business cycles are manufactured ones and if you really want to make sense of where we are today, you have to start after World War II when the global economy was "reset."

The paraphernalia of the modern world was created after World War II, including the IMF, the World Bank and the United Nations. The Bank for International Settlements was rejiggered as well.

The later 1940s were a time of gathering energy and then the '50s and the '60s were explosively "prosperous" in the US and even the West. There were many books written about the "miracle" of the US economy and the superior model of US capitalism itself.

We've called this period in the US – and the West – "dreamtime."

That's because a good deal of the prosperity was due to money printing and other kinds of financial manipulation. In 1971, when France attempted to take delivery of the gold it was owed, the US promptly went off the gold standard and Nixon created the petrodollar.

The 1970s reverberated with the monetary sins of the previous decade. Keynesians discovered "stagflation," which wasn't supposed to exist. And as price inflation rose, so did middle-class anxiety.

Enter Paul Volcker, David Rockefeller's right-hand man. Early in the 1980s, Volcker did what most thought was impossible. He raised rates near 20 percent and froze the dollar in its tracks. Banks foundered and another Great Depression loomed. But instead, the economy recovered.

Post-Volcker, the next great Paper Bull arose. Wall Street shone and securitization boomed. For another 20 years, through 2000, the Paper Bull roared. But that was the end of it.

The dotcom crash definitively crumpled the Paper Bull. Gold began an unstoppable rise that culminated at the end of the decade near US$2,000.

Of course, most believed we were in "another" recession by then, post-2008. But really it was just a continuation of what was begun in 2001.

Everything else is just a manipulation.

Bernanke screwed rates down to a point where he created a faux recovery in the mid-2000s. But it didn't last because it couldn't.

The great gold plunge was likely a manipulated one, further confusing people's perceptions of what was really going on.

Today, people speak confusedly about a "recession" and the "recovery" of gold.

In truth, the "recession" began in the early-2000s and is more of a "greater depression."

The "recovery" of gold well may be simply the reassertion of reality.

Gold will return to where it should be against the dollar – at US$2,000 or more. Some say the dollar should be trading against gold at US$5,000.

From our perspective, this makes what's going on now a good deal clearer – along with the inevitable results.

There have been two great Paper Bull runs in the 20th century. And now in the 21st, the Golden Bull dominates.

In fact, this is the reason for so much unease in the financial community. The Golden Bull is rampant and they know it.

Conclusion: The Golden Bull probably will not be turned aside again. Make your plans accordingly.

Posted in STAFF NEWS & ANALYSIS
  • Praetor

    The Gold Bull. Ya! The dead old relic lives! Motley crew at the Motley fools. I wonder how much gold it will take to buy the Motley Fools when the fiat is no more. One ounce for a Motley Fool, even Fool. need bread!!!

  • NietzschesNephew

    I mean, I think the overall analysis is correct, but the current trend is too short, the plunge protection team and their swarm of quasi-AI algorithms unleashed by microwave arrays will hammer gold down shortly. I know this artificial de-valuation of gold cant last forever, but this article seems premature, gold might have more weak moments before it lifts up. imo.

    • Bruce C.

      I hope your right. I’ve got an annuity that’s paying out soon and I want to convert.

  • Guy Christopher

    Thanks, DB, for the post and pointing the way to the rebuttal of Motley Fool’s just-in-time-to-bash-gold propaganda. The advantage you have with gold and silver is reinforced by thousands of years of monetary history. The disadvantage you have with paper money, paper bonds, paper everything is also reinforced by history. I stopped reading Motley a long time ago, along with many other MSM sources, except when I have to, when it comes to finance. As far as today’s rally goes, I expect pull backs, but I also expect the new cycle in the gold bull may be underway. Gold hit bottom Dec. 16 at $1049.

    As far as a zombie herd of walking dead taking over, I think we have had that going the past couple of decades. The end of any one government is not the same as the end of the world. In the meantime, here’s my advice: https://www.moneymetals.com/news/2014/11/19/the-secret-advantage-you-have-with-gold-and-silver-000632

  • wrusssr

    On target, IMO. Gold rising. Stocks falling. May or may not be the start. If it is, hang onto your hats. Silver will mimic gold.

  • Marcus

    The motley fool turned prestitute years ago I would never take any advice from those traders

  • Arnold 1

    Boy, I wish I would have kept a big chunk of the gold I had in the ’80s when we were speculating “it’s never going to hit $800.”

  • Tom Dee

    JPMorgan has increased it already huge physical silver holding long with massive increased in it shorting of paper metals. At some point the balloon will break. It is clear the banks see things different tha. Situation normal

  • autonomous

    “Lay not up for yourselves treasures on earth, where moths and rust corrupt and thieves break in and steal…”

    Where to protect one’s wealth? Nowhere. Property can be stolen, anything paper–stocks, bonds, cash–is only as good as who signs it, and is already hyper inflated. Gold does not rust, but must be stored and protected. Invest in yourself? Maybe the most fragile investment–the environment, already toxic, is sure to become more-so. Yet, if one survives, what ever knowledge and skill one has will be the most valuable asset; if one does not survive, the body will decompose at no cost, and no barn or feed required.
    How about the rest of the quote? There are any number of priests, preachers and holy men who will give you an earthly address in which to store you heavenly wealth.
    I’ve been told that to be heavenly minded is to be of no earthly good. There have been no rich men who have come to a different end. I choose life beyond here. Can anyone offer better?

    • http://willingness-to-listen.blogspot.co.uk/ binra

      Put your heart not in the changing world, for it gone as soon as it comes and nothing abides there but changes even as it is grasped.
      Perhaps another quote may illuminate; ” to those who hath, more shall be given, but to those who hath not, more shall be taken away – even that which they hath”
      If your grasp is in fear of loss, you have not, and will lose even that which seemed yours. If you rest in appreciation of what you have and are, then that appreciation appreciates.
      You will lose yourself if you seek to save yourself, but if you yield that grasp of self-image to a truly relational honesty of being, then you are saved from self-illusion by the presence and function of Life as movement rather than life in concept.
      The quick and the dead are the intuitively awake and the conceptually blinded.
      If you ask the concept mind to guide and answer the movement or stirring of your question, then you get the past in place of presence and stumble accordingly. If you ask your being, then allow your being to illuminate answer in its own terms, you will not only cultivate true receptivity, but will open perspective upon whatever seemed to have been blocking or conflicting your purpose and so will be freely able to move in a way that serves your true desire.
      The forms of any of such self-honesty are not the point excepting they are part of what aligns or serves the themes you are exploring or drawn to in your life, and so what you do is part of being a truer or clearer ‘version’ of who you really are – which feels very good – even if at times feeling the dissonance is a step in gaining perspective on it.
      Anyone who truly incarnates becomes a presence in the world that serves awakening from false investment. This has nothing to do with money as such, but everything to do with energy and attention in identity.
      Riches that burden with fear of loss or self inflated persona are not what they seem, so the thing is to be in right relation with whatever is in your life. If you choose what is truly here rather than identifying in concept, then there is no beginning or end but only ever shifting and unfolding perspective. “Behold I make all things new!”
      You can listen ‘without’ – but to discern from all that is here to accept or use, you have to feel within. I call this choosing life – and such life is beyond definition – but not beyond recognizing and sharing in the moment at hand.
      Don’t stuff living insight into conceptual bottles – or you’ve left your gold standard to gain an evaporation of disconnected derivatives.

  • tom

    There is something to The Fool’s point of view. Gold may be a wonderful investment as a hedge against paper money and stocks becoming worthless. But that would lead to the downfall of civilization, and with it the rule of law (such as it is). What good will it do you to have gold ingots, when the slightest suspicion that you have them will bring down on your head violent robbers who won’t hesitate to kill you for your valuables? Gold and silver coins make slightly more sense, but it should be remarked that back in the Dark Ages and the medieval period, though gold and silver were routinely used as a store of value and for trade, you had to be able to protect your gold and silver. The arm that wore the gold arm rings had to be muscular, and hold a wicked-looking edged weapon.

    • Bruce C.

      One doesn’t have to spend gold/silver directly to buy things. If fiat currency is still being used the gold/silver can simply buy/be-exchanged-for fiat. In fact, the best use – for gold at least – is to store one’s wealth until the dust settles and then perhaps to convert it into the new currency when things renew. Chances are you’ll be in better shape having gold/silver to re-establish yourself than the old fiat notes.

      • http://DennisLeeWilson.com Dennis Wilson

        …and Sam Colt provided an alternative to the muscular arm holding a wicked-looking edged weapon.

    • nailheadtom

      You probably read Thomas Hobbes in high school and read or watched William Golding’s ridiculous “Lord of the Flies”. Without Big Daddy Government to protect us the world be overrun with looters, killers and rapists. That’s what Big Daddy Government wants you to believe so he can take your wealth and use a portion of it to pay hired thugs to keep things under control. Since Big Daddy Government is a fairly recent development, how did the human race manage to survive for several millennia without its services? There’s really nothing to stop the mal hechors from kicking your door down right now and making off with both your new HDTV and your stamp collection. BDG will just show up after the fact and point out the obvious.

    • justaguy

      That arm that holds the gold ring still holds a wicked looking weapon. It is usually black, has a 30 round magazine and it’s bite is worse than it’s bark. After all, how do we gold and silver owners keep the plunderer at bay without our weapons? Was the same then as it is now. The calendar changes but the wisdom does not.
      “The prudent man sees danger and takes refuge, while the simple minded do nothing and are punished for it.”
      Proverbs 22:3

  • Bruce C.

    I don’t have a problem with the Motley Fool’s article as it is written because it repeatedly emphasizes gold as an INVESTMENT, which they define as a vehicle which produces INCOME. Nobody has ever claimed that gold produces an income, but that doesn’t mean it’s not a valuable financial asset. One should think of it instead as INSURANCE, as in insuring the same or greater purchasing power in the future. Mathematically, one could argue that an “income producing asset” is the same as a “purchasing power insuring asset” because income is supposed to compensate for the decrease in the purchasing power of the investment’s asset over time. Under ordinary circumstances in which the income expressed as a percentage of the investment assets’ value is at least equal to the rate of price inflation that may be true, but what if the rate of price inflation exceeds the rate of income? It is that “SHTF” scenario that the insurance of purchasing power becomes so relevant.

  • Heywood Jablome

    The fact that gold and silver are nobody elses liability, would seem to dictate that some measure of each should be squirreled away for the possibility of extreme turbulence and collapse of fiat currencies. The investments which accrue the kind of returns over time, alluded to in this article are worthless because they are dependent on the ability of the holder to collect in some form, and the payer to pay, in something that matters at that particular point in the economic chronology. This is where someone elses liability becomes so important, if they cannot pay, all the investment paper in the world will not change that fact, whereas gold and silver coinage, does not have this particular downside. As regards the protection, if you are not armed and determined to protect your assets and your family, then you will be overwhelmed in the event of some type of societal collapse. The meek will not inherit the earth in this scenario…..

    • gingercake5

      The trouble with any form of currency in a crisis situation (say all dollar bills are worthless now) is that the worth of the “currency” will be determined at the time of the transaction. Say I offer one ounce of silver (now worth $1000) and expect to get three shopping carts worth of food, and the grocer says “no way.” Then someone confiscates my ounce of silver and gives me nothing for it. We’ll be able to barter in small increments, maybe. I think anything will be able to work as barter, as needs arise. Maybe a pair of shoes for some rice. And a lot of people won’t have anything to trade after a while.

      • Bruce C.

        The “problem” is if you happen to have a bunch of US dollars (or any other fiat/paper currency) what is the best way to protect the wealth that they represent now? If you do nothing and there is hyper inflation then you lose that wealth. On the other hand, there could be deflation in which dollars, say, could buy more and, ironically, they would be scarce especially if the effort to reduce cash in circulation continues. Either way, however, gold/silver are historically excellent stores of value that give you the most options and flexibility. Barter can work too but it’s not as flexible (that’s the elegance of money).

  • nailheadtom

    “Central banks have been buying gold to diversify their reserves away from the U.S. dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013.”

    If gold is such a bad investment why did central banks buy 1,297.200 pounds (The equivalent in weight of 4 1/2 rail tank cars full of crude oil) of the stuff last year? No country is on the gold standard any longer so monetarily it’s inconsequential. The reason the banks purchased it, rather than shares in Kroger or General Motors or Coca-Cola, is that they themselves have no faith in fiat money and know that circumstances will at some point in the future make pieces of paper with pictures of dead traitors to the UK on them worth less than old copies of the National Geographic.

  • Silverado

    Not a peep here about India and their religious love of gold (while China’s love for gold is cultural)? The Motley Fool for the nay on gold and Reuters for the yay?? Are you guys kidding? If you want to know why gold is the ultimate asset and how you make money with gold why not go to a real (one of the few) gold expert?? Stewart Thomson of Graceland Updates is your man. He puts out a newsletter daily and can be read for free every Tuesday here…in fact here’s his column from last Tuesday:
    http://www.321gold.com/editorials/thomson_s/thomson_s_020916.html
    From his website at http://www.gracelandupdates.com
    “First you learn to apply the professional tactics of the bank owners…to your GOLD investments. Because gold is the world’s lowest risk investment. Gold has the lowest risk and perhaps the most reward.”
    I bet you have NEVER heard that about gold before. Anyway, check him out!!

loading

Subscribe to get our free daily intelligence sent straight to your inbox

x