Larry Edelson, publisher of the Real Wealth Report (August 2010), discusses central bank responses to the global economic crisis and how understanding asset price valuation requires that your point of reference is gold, not fiat paper currencies.
The US Dollar was at one time backed by gold, and as such, saw very little fluctuation in terms of asset purchasing power. That, of course, has changed with the advent of fractional reserve lending and we now have to consider prices in nominal and real terms:
At the heart of the matter is the difference between the nominal value of an asset, and its real value.
You see, when the world was on a gold standard, there was never any discussion in the markets of the terms nominal versus real. They were one and the same.
They were defined in terms of the price of gold. One dollar in 1930 would buy you roughly 1/20th of an ounce of gold. In 1933, roughly 1/3rd of an ounce, and in 1971, 1/40th of an ounce of gold.
So even though throughout that entire period there was still some inflation — your dollars bought you less and less gold — you always knew what the real value of your money was.
It’s entirely different today. You have no idea what your money is worth when you simply look at the nominal quoted values of assets. Your money is effectively lost at sea and subject to nothing more than government whims about how much money will be printed, what your leaders’ fiscal policies are, and what other investors around the world think of your money (and your government).
That’s why I consider it absolutely essential — more than ever — that you look at the differences between nominal and real values. When you do, it will open your eyes, and you will see the world in an entirely different way.
Consider, for instance, the Dow Jones Industrials. In nominal terms as I pen this issue, the Dow is down 27.8% from its peak of 14,279.96 in October 2007.
But in real terms, in terms of its gold purchasing power, the Dow is down a full 50%. Even worse, when measured from the dollar’s purchasing power high in 2000 — and gold’s low back then — the Dow’s real performance over the past decade is a stunning loss in real terms of 79.6%.
[emphasis added]
At one time, individuals traded gold and silver directly for goods, until paper currency systems were introduced in the last 200 years. Even then, however, assets were still priced in gold-backed currencies, so one could still value other assets in gold, and for the most part, prices remained stable for decades. It wasn’t until President Roosevelt devalued the US dollar against gold in the 1930’s, and President Nixon took us off the gold standard in 1971, that we began to see pronounced price inflation in goods and services vs. the dollar.
In addition to a significant decline in the value of the Dow Jones versus gold, Larry Edelson points out that other asset classes are also losing value to the precious metal:
(Over the last 10 years)
Edelson argues that, “In real terms, we have witnessed massive deflation that already rivals the deflation of the Great Depression.”
Depending on the point of reference, it is possible to see why some people hold the belief that we did, in fact, have a recovery. They continue to price their assets in terms of dollars, trillions of which were pumped into the system as stimulus, bailouts and tax credits. Because prices “recovered” from their 2009 lows, people assume that they have “stabilized.” However, in real terms vs. gold, prices have actually continued to decline!
Perhaps this is why most people haven’t realized we’re in a depression.
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Edelson argues that, “In real terms, we have witnessed massive deflation that already rivals the deflation of the Great Depression.â€
True….in terms of gold.
But people don’t USE gold in that manner…they earn and spend FRNs….which have seen INFLATION of the same amounts…and why the paper dollar that bought 1/2o of an ounce of gold 100 years ago buys about 1/1200 now.
SO, if you want to be on the deflation side of things (and for long term savings, you sure do ), buy gold.
what gold stocks are you playing that are so easy ???
Buy gold and silver…Whee! This investing stuff is easy!
relatively who cares about gold.
silver is where the uncoupling action is –and it has too many complications to be regulated by the lovely backstage zioist cabal that really runs america….
Gold is what you buy if you have more money, FRNs, than you absolutely have nothing better to do with and you are only looking to protect your asset base. I really can’t imagine a situation where gold is used for everyday purchases in a ‘bartertown’ type of scenario or a black market type of economy. The day that a loaf of bread costs an ounce of gold ….. we are all dead anyway. If a loaf of bread costs an ounce of silver and all you have to offer is a 1 ounce gold coin, then I think that you are going to be ‘screwed’ big time. The individual selling the loaf of bread isn’t going to be able/willing to make change for your 1 oz. gold coin.
‘Trash’ silver coins, US minted, pre 1965 dimes, quarters, and half dollars are still your best value, lowest premium, high recognition, greater acceptance in a barter/black market type of situation.
Silver is currently very undervalued compared to gold. You will see your greater percentage appreciation in silver as opposed to gold in the near term.
As Mr. Zlager correctly states, above; “silver is where the uncoupling action is”.
I agree that Silver is where a better opportunity is to be had, especially for the average individual.Â
MadMarkie, I also agree that junk silver is the best price in town, and that overall it has the best attributes: divisibility, recognition, price, and just for shits and giggles, it has some cultural value.
In the last year I’ve unfortunately had to sell off all of my silver and I just hope the price can float for a few more months. I don’t think I’ll be so lucky, but one can hope.
I would disagree with that opinion Mad Markie, gold, aside from it’s obvious monitary aspect in tshtf is also an asset class prone to bubbles. As the 1970’s price explosion demonstrated, and like it or not the current system is still functioning and may for many years to come. Under a warped fiat money system we can expect gold to once again explode upward, as the stocks and housing markets did recently.
If this does happen, and It no doubt will unless they monitize the gold, there will be a point where you would be glad to have have allocated 30 or 40% of your wealth to it. The way to make real money is to follow the trend on its long course, buying in when no one holds it and (selling) when everyone is buying it. Typically a 10 to 20 year cycle for any asset class.
The problem for us gold holders is when do we sell and how much to we sell? If gold went to $10 000 an ounce I’m sure any invester who bought in at $500 or less would begin to bail out. I would, probably before that figure.
This doesn’t sit well with my survivalist beliefs but I have to be a realist. If gold enters a bubble it would be foolish to hold it all the way up and then all the way down.
Here’s another great article worth the read.
http://dumpdc.wordpress.com/
@wooba – “If gold went to $10 000 an ounce I’m sure any invester who bought in at $500 or less would begin to bail out. I would, probably before that figure.”
I would think it would actually be more a question of why you purchased gold/silver in the first place? If you purchased it to preserve your wealth and retain as much purchasing power as possible, then you wouldn’t sell it. But if you bought it as a speculative investment, then you’d more than likely sell it when it hits $10,000. My question would be, why would you want to trade a perfectly good ounce of gold for 10,000 pieces of toilet paper that each would have the purchasing power of less than a penny? Do you really think anyone is going to accept them in trade for something of real value? I’m thinking maybe a more worthwhile transaction may be trading an ounce of gold for a good sized parcel of land. It must always be kept in mind that the price of gold isn’t going up, the value of the currency used to purchase it (the $) is going down. An ounce of gold purchases about the same today as it did during Rome’s heyday.
What is about to happen over the next few months will bring tears to your eyes. Everything that you don’t need will become cheap, while everything you do need will become incredibly expensive.
It’s gonna get a whole lot worse before it even begins to get worse, so be sure you have your beans, bullets and band aids stored away before you think about gold/silver…but if you have a few bucks left over I would vote for junk US silver coins – your best bet!
I recommend a diversification of silver holdings (based somewhat on my own – of course I would like to have way more than I do, but who wouldn’t?):
1. Junk silver, prefer the 90% silver coinage to the 40% Kennedy half dollars, preferably dimes, quarters and half dollars (dollar coins carry more of a numismatic premium, but I actually like feeling the weight of them in my hand).
2. 99.9% silver 1 oz. bullion, bars and coins (low premiums, but NOT currency so technically have no monetary value outside their intrinsic value, also less recognizable to the public)
3. Then if you have any FRNs left I would purchase some 5/10 oz bars and if you have lots of storage space and still lots of $ left then consider 100 oz bricks. By that point though you’re probably better off with 1 oz. gold coins anyway.
I would purchase in that order (1-2-3), with something like 50/40/10 mix of the above, constituting total silver value.
As for selling my silver/gold if/when gold gets to $10,000 oz., the only question I need to answer before I make that decision is what does $10,000 buy at that time?
MogamboGuru, I have been a fan for over a year. Love your articles. Keep screaming your message.
**GiveMeAForkingBreak** 10,000 pieces of US toilet paper can buy a small block of land or a lot of food or a lifetimes supply of solar panels. That is the purpose of paper money or gold money. My post suggests that if a manic bubble occurs it would be natural to convert some gold into other useful assets.
Everyone that buys must either sell or pass it on to their children, etc. I have 30% or better of my wealth in gold, 30% in silver now too and plan to use a lot of it to fund my retirement. If you don’t have a sell rule, a price when you will cash some of that out you will be like the numpties across America now sitting in homes with upside down mortgages, berrating themselves for not selling out at the top.
I know of people from the Gold is Money forum who owned their homes outright but sold 6 years ago and put the proceeds into precious metals. Now they can buy their homes back for half the price and their PM’s have doubled in value.
Think about it…
**GiveMeAForkingBreak** 10,000 pieces of US toilet paper can buy a small block of land or a lot of food or a lifetimes supply of solar panels. That is the purpose of paper money or gold money. My post suggests that if a manic bubble occurs it would be natural to convert some gold into other useful assets.
Everyone that buys must either sell or pass it on to their children, etc. I have 30% or better of my wealth in gold, 30% in silver now too and plan to use a lot of it to fund my retirement. If you don’t have a sell rule, a price when you will cash some of that out you will be like the numpties across America now sitting in homes with upside down mortgages, berrating themselves for not selling out at the top.
I know of people from the Gold is Money forum who owned their homes outright but sold 6 years ago and put the proceeds into precious metals. Now they can buy their homes back for half the price and their PM’s have doubled in value.
Think about it…
Comments…..
How about this..consider gold or silver a currency..simple as that..if you think dollars are going up, trade your metals in for dollars, if you think dollars are going down..then load up on metals..the same applies for yen or euros or any other currency, however, in this case, the dollar going down is about as close to a sure thing as you will ever get.
One theory I have read and considered interesting is to load up on metals now while you can trade in paper currencies for them on the cheap..when SHTF and the dollar/euro ect. collapses most other things will be cheap..like land, houses, used cars, art, or antiques ect.. that is when you do some trading.. of course before you should ever consider this, get your basic needs met..food, shelter, energy, medical care and protection for what you have..
then, good deals will make themselves apparent to you..
After the collapse of the USSR, those who had saved rubles were broke and had to sell their family jewels, houses ect to survive.. those who had wealth that had survived ( in dollars or euros) were able to come along and scoop these things up for pennies on the dollar. It should work much the same way here. Except that this time there are not going to be any trustworthy paper currencies to hide your wealth in as you await the time to act. Thus, gold or silver look like a good parking place since their purchasing power will either change little or perhaps it may increase somewhat. When you study history, you see that the times we are in are not so unique.. If we learn what those people who came before us did to prosper, we can modify the details a bit to enable us to do the same. Figure out what the wealthy families of germany such as the Farbin, or Koch or other industrialists did.. They came out of the German hyperinflation richer than when it began.. Figure out how a bunch of poor soviets became billionares overnight.. You have to give up on being nice..become ruthless in business, become as generous as a pawn broker, and as charitable as a spider..its the way the world has always worked.. If you are feeling guilty, leave a nice donation in your will… however, if you want to pass on what you have to your children and grandchildren, that makes more sense..nobody is going to help them but you, and you have an investment in your own genetic spawn.. That is basic biology
”
**GiveMeAForkingBreak** 10,000 pieces of US toilet paper can buy a small block of land or a lot of food or a lifetimes supply of solar panels. That is the purpose of paper money or gold money. My post suggests that if a manic bubble occurs it would be natural to convert some gold into other useful assets.
Everyone that buys must either sell or pass it on to their children, etc. I have 30% or better of my wealth in gold, 30% in silver now too and plan to use a lot of it to fund my retirement. If you don’t have a sell rule, a price when you will cash some of that out you will be like the numpties across America now sitting in homes with upside down mortgages, berrating themselves for not selling out at the top.
I know of people from the Gold is Money forum who owned their homes outright but sold 6 years ago and put the proceeds into precious metals. Now they can buy their homes back for half the price and their PM’s have doubled in value.
Think about it…”
Â
-I’m not agree with you Mr. wooba.
Your comment is not full of information. then why you are this???