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The gold price (in dollars) is taking a much deserved rest, giving
gold haters cause to pat themselves on the back. Many CFAs and CFPs really
don’t understand why anyone would trade government paper for shiny
yellow metal.
Charles Sizemore, CFA, wrote
back in June, “Gold today is as risky as tech stock in 1999 and Miami
condos in 2005, and the arguments supporting its rise are every bit as
flimsy.”
Sizemore goes on to say that gold is not an investment and that anyone
buying gold is only speculating, engaging in the “greater fool”
theory.
Gold is an anti-investment for sure, but far from a speculation
depending upon a person’s reasons for buying. Those hoping for a quick
run up in their GLD shares to generate more paper dollars in the short term
are speculating. Those squirreling away a Krugerrand
on occasion to hold as hyperinflation insurance are not speculating at all.
Just the opposite. Gold is the perfect money because it is, generally
marketable, divisible, has a high value per unit weight, fairly stable in
value, durable, recognizable, and homogeneous.
The greater fools are those that don’t stash some yellow metal
away.
Sizemore goes on to claim that gold is not a store of value.
“But if your stated purpose in buying gold is its role as a store of
value, even volatility to the upside should be unsettling,” he writes.
“You can’t just create ‘value’ out of thin
air.”
I couldn’t have said it better myself. That’s the reason
to own gold. Mises’s Regression Theorem tells
us that people accept paper dollars based upon a time when dollars were
backed by gold, the last thread being cut 40 years ago. The dollar has lost
80% of its value just since in the last four decades. Government creates more
and more paper and digital money that is worth less and less. Eventually the
demand for the government’s money will fall to zero.
Sizemore then claims everyone is on the buy side of the gold trade
because its price is posted on the front page of Yahoo Finance and there are
all sorts of businesses looking to buy gold.
The DJIA and the S&P are also listed on the front page of Yahoo
Finance and Sizemore isn’t predicting a collapse in the stock market.
And since when is it the sign of a bubble when entrepreneurs pop up to buy
product at 40 cents on the dollar?
Sizemore concludes that the airing of Atlas Shrugged Part I and the Utah
Legislature’s passage of a bill making gold legal tender are “two
anecdotal signs that tell me the end of the gold boom is nigh.”
“Gold doesn’t have any intrinsic value,” Larry M.
Elkin, president of the Palisades Hudson Financial Group in Scarsdale, N.Y. told
The New York Times.
“It’s this era’s wampum. At one point you could buy
Manhattan for beads.”
What especially annoys Mr. Elkin about owning gold is how irrational
it is. While gold just sits there, blue-chip stocks represent the production
of a going concern.
Driving through Nevada gold mining country, Las Vegas Sun reporter J.
Patrick Coolican, writes,
The mine is a thing to behold, a giant pit 2,000 by 2,800 feet, a
monument to the genius of human innovation, as well as folly. People like to
look at gold, I guess, although there are better things to look at. And they
like to hoard it — excuse me — invest in it, when they get
scared.
As a friend says, when the aliens come down, they’ll be baffled
by the whole gold thing.
Aliens will be baffled by the whole government paper money thing.
Douglas French
Mises.org
Douglas French is president
of the Mises Institute and author of Early Speculative Bubbles &
Increases in the Money Supply. See his tribute to Murray Rothbard.
Article originally published
on www.Mises.org. By authorization of the
author
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