JoNova

A science presenter, writer, speaker & former TV host; author of The Skeptic's Handbook (over 200,000 copies distributed & available in 15 languages).



The Skeptics Handbook

Think it has been debunked? See here.

The Skeptics Handbook II

Climate Money Paper


Advertising

micropace


GoldNerds

The nerds have the numbers on precious metals investments on the ASX



Buy gold while it’s in the ground (Plus David and Jo will be in Sydney at the Gold Symposium – Monday)

UPDATED (Already)
 Money is grubby thing, but financial independence means freedom. Freedom to spend time writing what a heart believes instead of what an employer demands. (Freedom to follow the most inexplicable whim — like tossing the 9-5 day to debate details of dendroclimatology with people who detest you). I wouldn’t be able to indulge in the luxury of writing this blog if it weren’t for the gold shares that keep food on the table.
Next Monday David is speaking at The Gold Symposium in Sydney. (I’ll be in the audience.) Who should go? — only people who don’t want to be poor. I want to see both these independent conferences succeed (The AEF too), I want to share the word about both money and science, and I want to help independent spirits meet up. That’s why I’m giving them both a shameless plug before the article. There is a big overlap between gold and skepticism: skeptical of government science often means skeptical of government money too (see We are all Austrians now). For the pure-science readers here, it may all seem thoroughly odd, but while some will paint gold as a fatuous symbol of pointless wealth – and sometimes it is, the flip side is that its real use is an anti-cheating device. It helps fight the endless battle against corruption. It makes it harder for governments to silently take your purchasing power through inflation. There is an independent libertarian streak running through both communities.
David’s speeches on monetary history and our current financial woes have touched a nerve, and received rave reviews in South Africa and Alaska.  The article below covers only a slice of what he’ll talk about, but as you can tell, it’s big-picture stuff. It’s all those questions economists and investors should have been asking from the start. We are at a special point in financial history. If you don’t understand where money comes from, how it’s “made”, and why your wealth can be quietly stolen even as the dollars increase in your account — then you won’t see what’s coming. David has been predicting the price of gold would rise for ten years, but large financial houses have predicted the opposite year after year. He was right.

There is still time to get tickets to join us at the Gold Symposium (Mon and Tues, 22 – 23 October 0212) and The AEF conference: “The Rational Environmentalist” which David is also speaking at, and I’m attending on Saturday (20 October 2012) this weekend.

-   Jo

————————————————————————————————————-

Guest post Dr David Evans

Why Gold?

The reasons for the gold price to increase are intensifying, not going away.

This is the end-game of the world’s deepest and broadest bubble ever, which began in 1982. In a very real and literal sense, modern money is debt — it’s an IOU you can trade for something you value. So the ratio of all the debt in society to GDP measures the amount of money.

The critical debt-to-GDP ratio is normally around 150%. There have been two significant excursions above this value. The first was in the 1920′s, where it reached 196% in 1929 at the onset of the Great Depression (the GDP crashed harder than the money supply, sending the ratio even higher for a while). The other is since 1982, where it reached 230% by 1987 when we also had a stock market crash. Rather than do nothing like the central banks in 1929, the central banks in 1987 made cheap loans widely available, so there was no shortage of money. The bubble powered on, assisted by changes in banking rules to make money manufacture ever easier, and had soared to 375% in the US in 2008 when the GFC hit. It is now around 350% in the US – in Europe it’s even worse, around 450%. It’s global, so there is no unaffected party with which to trade our way out.

Central banks learned from the Great Depression not to let the money supply decrease. But debt/bank-money/credit creation in the private sector faltered in 2008, due to a lack of ability to pay more interest and due to a lack of unencumbered collateral. This pricked the bubble, and it’s been falling (deleveraging) since. Governments stepped in to keep the money supply up, mistaking the bubble conditions of the previous two decades for “normal”. After four years, governments are increasingly losing their ability to borrow, so are having to resort to the last option—printing new base money directly.

This is the post-bubble normal. Whenever it comes to the crunch, governments and their central banks print: QE1, QE2, QE3, LTRO, OTM, etc. Everyone talks about austerity and deflation, but in a democracy there is no option: there are many borrowers and few lenders, too many votes to buy, and powerful corporates have debt which they would prefer to repay in smaller future dollars. Basically, most of the electorate at this stage thinks it would prefer debt-default via inflation.

Yes, governments today don’t literally print money. Nowadays they type in a number into an account at the central bank (technically they must buy something in doing so — this is called “monetization” — so the size of the central bank’s balance sheet is the amount of base money). The root cause of the bubble was over-manufacture of money by central and commercial banks, because these folk have the ability to create money out of nothing. No matter what the safeguards, that power is always eventually abused.

Gold, on the other hand, is the old currency. It evolved in the marketplace as the preferred money over the last 5,000 years, before the rise of big government. It is honest, because you have to earn it before you can spend it — you cannot just print some up when required. Even digging it out of the ground in the first place costs almost much as it’s worth.

Some people say gold is in a bubble. After all, it’s been going up at 20% pa for 10 years now. However for each of the last 11 years the major financial houses have been predicting the gold price will decrease by 10% over the upcoming year, while still not being able to spot all the real bubbles happening at the time. Uh huh. By chance alone you would expect them to get half their gold predictions right, which suggests there might be vested interests at work. (Banks create paper currency, bank money. Gold is a competitor.)

Gold basically goes up forever against paper currency, simply because paper debases much faster than gold. Due to mining, the amount of above-ground gold increases by about 1.7% each year. Western paper currencies debased at 10 – 25% from 1982 to 2007, and at 5 – 15% pa since then. The differential in debasement rate puts an underlying ~10%+ per year under the gold price as expressed in paper currency, and on top of that there is a catch up for the 1980 – 2001 gold price falls, and a fear of the inflationary collapse of paper currency to factor in. (There have been hundreds of paper currencies over the years, and all except the current crop have failed in default or inflation, usually after one to two generations. The current paper currencies technically stopped using gold as their base currency in 1971, when Nixon closed the gold window, so are now 41 years old.)

Today, globally, there is around 210 trillion USD of debt, but only 150 trillion USD of assets. The banking crisis won’t end until that asset figure climbs above the debts, which gives the central banks another huge incentive to print. The value of all the gold ever mined is just under 10 trillion USD, so obviously if gold ever re-enters the money system in any meaningful way its value has to climb prodigiously.

Gold is literally useless (at least, at the prices that follow from it’s use as a medium of exchange), so it does no harm to the real economy if it goes up or down in value. One day the central banks may even encourage its value to soar, while simultaneously selling their gold to the public, in order to soak up their newly printed money they are dropping into society like confetti (so as to prevent inflation from climbing as high as it otherwise would due to their printing).

Why Gold in the Ground?

If you own physical gold you have a security problem. It costs money to store, and there are trust issues. According to industry expert Jeff Christian of CPM Group, the London “physical market” is leveraged up by a factor of 100: for every ounce of physical gold in London, there are 100 owners out there with a piece of paper to say they own it. It’s a fractional reserve system with a historically unsustainable reserve fraction.

Another way to own gold is to own shares in resource companies that have gold in their mining leases. By buying their shares you own a fraction of the company, and a share of their rights to the gold in the ground. It’s like a long dated option on the gold, because the company has the option of digging it up. It also has decreasing time value, because the company must spend money on exploration or mining to keep the leases alive, and will chew up money in administration. This applies to both mining companies producing gold right now, and to exploration companies that have just have a resource.

This is a convenient way to own gold. Buying and selling shares on the stock exchange is easy and instant, you get a secure paper trail, and you can borrow money against your assets. The gold itself is not completely secure because of company and country risk, but you can mitigate this by diversifying within the sector across several companies and you can choose companies with deposits in countries you prefer.

The big advantage of gold in the ground is the leverage. You can own a lot more gold this way. Most of the cost of producing gold is in the mining, typically $1,200 per ounce (including ongoing capex and administration), so the cost while in the ground is necessarily a lot lower. For gold with a good solid Australian mining operation, you typically pay $150 – $200 per resource ounce, while for gold in an undeveloped deposit you might pay $20 per ounce.

For example, $10,000 buys you about six ounces of gold over the counter, then you have to store it—and if the gold price doubles you make 100%. But by buying the mining company whose gold is $150 per ounce in the ground, you own about 60 ounces of gold—and if the price of gold doubles you might make around 500% (if the price doubled from $1,600 and total mining costs were $1,200, the profit margin moves from $400 to $2,000).

The world’s investors have been fearing deflation since the GFC. This is logical, because without government printing the bubble of debt would collapse as it did in the 1930s. As a result, investors have bid up the prices of deflationary plays, but inflationary plays like gold companies are unpopular. Right now, gold stocks globally are historically cheap compared to the price of gold.

As people increasingly realize that governments will print and that inflation is the real danger, the situation will reverse—the price of inflationary plays like gold will be bid up and the deflation plays will suffer. Predicting when the herd will move is tricky, but very profitable when you get it right.

Cheap Gold on the Australian Stock Exchange (ASX)

There is wide variation in the cost of gold-in-the-ground. The market is somewhat inefficient in this respect, because most gold mining companies are smallish and not well analyzed, but also because investors have been more concerned with cashflow since the GFC, focusing on the value of production rather than on the value of their gold assets.

In 2007 my wife (Jo Nova) and I found it difficult to get in-ground costs for more than a few companies, and impossible to get in-ground costs across the sector. We wanted this information for our own investing, so we started collecting it. We soon found that gathering the basic share structure, financial, resource, and mining information on the 240+ gold companies, and keeping it all accurate and up to date, was too big a task for one or two people.

So we started GoldNerds, a small company that sells information about the gold companies listed on the ASX, to investors, in sophisticated Microsoft Excel spreadsheets. With a team of a dozen part-time researchers, we update our spreadsheet every two weeks. Each spreadsheet shows every gold company, one per line, so the companies are easy to browse, sort, filter, and compare—the sort of things that investors want to do. While GoldNerds has many parameters, it was the cost of gold in the ground that started us off.

On the ASX, you can buy gold in Australian deposits with mining operations for as little as $8 per resource ounce. In one case you can even buy it for less than negative $100 per ounce (this company has more cash and bullion than its market capitalization, a solid, profitable, and relatively trouble-free mining operation, but no one seems to know about it). Or explorers with viable deposits at $2 per ounce.

Or you can pay a $165 per resource ounce for Newcrest, or $200 – $300 for some producers. The Chinese are currently trying to buy Norton, a quality West Australian producer, a bargain at only $30 per ounce. The variation is wide, partly due to factors like cash costs, but partly because the market is simply not paying much attention at the moment.

Disclosure: We own some of the mining companies mentioned.

—————————————————————————

See you in Sydney, this weekend at The AEF conference (book here), and Mon-Tues at The Gold Symposium

Because these are independent groups targeting independent people, both of these are great value — most conferences targeting government and the financial crowds charge 3 – 4 times the price. There are GALA dinners, boat cruises (AEF), excellent speeches.

You only live once, and we’re looking forward to a chance to be with friends.

 Keynote Presentation: David Evans, Editor, GoldNerds,

Gold Begins to Shine Again

* Why we had a bubble, the GFC, and what’s up next

* Gold forecast for the next 15 years, in the best case for the central banks

* Why gold stocks are extremely cheap right now, and why the market is changing its mind.

* How to choose gold stocks.

Other posts on these themes:

VN:F [1.9.22_1171]
Rating: 7.8/10 (43 votes cast)
Buy gold while it’s in the ground (Plus David and Jo will be in Sydney at the Gold Symposium - Monday), 7.8 out of 10 based on 43 ratings

Tiny Url for this post: http://tinyurl.com/k5m7lva

143 comments to Buy gold while it’s in the ground (Plus David and Jo will be in Sydney at the Gold Symposium – Monday)

  • #
    John Brookes

    There is a question I’m interested in that is related to this post. Some of the money in our economy is earned by people working, and some is earned by people investing. Over the years, the balance between these two must have changed. Does anyone have a graph of the ratio of these two sources of income?

    A bit more on the post. If there is too much debt, would not a sustained period of inflation be a good thing, as it would reduce debt? I know that it would be bad for people who owned lots of depreciating money, but maybe the overall effect of inflation would be good.


    Report this

    57

    • #
      MadJak

      JB,

      The problem with inflation is that even the people without enough money get thumped – all so the over indebted can get a free ride for their own stupidity.

      Talk to anyone who lived in argentina during the 80s – try living having to spend all your pay on the day you got paid because it would be worth so much less the next day. In that instance the only middle class people who survived that mess were the ones who had at least some gold.


      Report this

      50

    • #
      Shevva

      You might want to look at the German economy in 1920′s to understand what inflation does, remember it’s just the inflation I’m looking at and not the politics.

      A simple Google search gave me this ‘In 1922, a loaf of bread cost 163 marks, by September 1923, this figure had reached 1,500,000 marks and at the peak of hyperinflation, November 1923, a loaf of bread cost 200,000,000,000 marks’

      http://www.historylearningsite.co.uk/hyperinflation_weimar_germany.htm


      Report this

      40

      • #
        MadJak

        Another example was Zimbabwe,

        I had a 10000 zim dollar note a few years ago. It had a use by date on it – purely an attempt to reighn in hyperinflation ( and no, that didn’t work either)


        Report this

        10

    • #
      Richard The Great

      John- no inflation cannot reduce the debt burden. Money can only be created by an act of borrowing i.e. increasing debt. Since the interest is never created the amount of debt will always exceed the amount of money and debt can only increase. Ultimately the debt ends up on the books if the treasury. It is indeed a debt crisis. If all money was used to pay off debt, all money would cease to exist long before all debt does. Forcing interest rates down like the Federal Reserve has done in the last five years is no guarantee of currency devaluation like the Fed hoped. This is because of bond speculation. The US money supply is imploding as debt servicing is strangling the economy. Speculators know that the Fed has to top up the imploding money supply. They also know that the Fed has to, by law, buy treasuries using open market transactions i.e. the Fed cannot buy from the treasury. They then preempt the Fed by buying treasuries which they sell to the Fed at a profit. This forces bond prices up and interest rates down. This creates more not less deflation. Contrary to what it believes, the Fed is no longer in control. Falling (not low) interest rates are devastating to productive enterprise as falling interest rates increase the burden of debt. This in effect transfers capital from the producer to the pockets of bond speculators.

      The only way the burden of debt can be reduced is by re-monetizing gold or default (a form of state sanctioned theft). Gold monetized is the only form of money that is nobody’s liability and is the only ultimate extinguisher of debt. Gold does not control prices but does control interest rates. When the central bank artificially depresses interest rates under a gold standard, over valued interest bearing bonds are junked in favor of non interest bearing gold metal. Only when the interest rates are high enough do investors dis-hoard.


      Report this

      40

    • #
      Jaymez

      John most people’s debt in Australia is at a variable interest rate. That is, banks can alter interest rates at any time. If we experience a period of rising inflation, it will inevitably coincide with rising interest rates, The banks do not want to be paid back in the future with money which will be worth much less than it is today without appropriate compensation via increasing interest rates. So high inflation will see those bank loans rise if peoples payments cant keep pace with the rising interest rates.


      Report this

      10

    • #

      There is a question I’m interested in that is related to this post. Some of the money in our economy is earned by people working, and some is earned by people investing. Over the years, the balance between these two must have changed. Does anyone have a graph of the ratio of these two sources of income?

      Bless you John. Define working? Define investment? If I work to save money, then risk it to help a group pull off an expensive feat drilling holes into rock a kilometer deep to find an element sick people need for medical equipment, is that “work” or “investing”? It takes hours of research to figure out which group has the best ground, the honest managers, the drill results that count, and even then, I might lose all the cash and get nothing in return. If I get it right, and have some luck, I’ll get a reward, pay the government tax, still pay to use the medical equipment (as anyone would). I’ve asked for nothing, and paid my way, and employed people, produced an essential item. Is that work?

      There are “investors” and “investors” — you are probably thinking more of the hedge funds, the high frequency traders, the shorts, though there are some arguable benefits from these too. (Not the high F trader IMHO).

      A bit more on the post. If there is too much debt, would not a sustained period of inflation be a good thing, as it would reduce debt? I know that it would be bad for people who owned lots of depreciating money, but maybe the overall effect of inflation would be good.

      Inflation punishes the savers, and rewards the speculators. So it ruins retirees with cash and risk-averse people who work hard and plan ahead, Meanwhile it rewards takeovers and mergers and people who are willing to borrow big and take risks. Is that what you meant when you said “good”?

      A little inflation may grease the wheels, but a lot of inflation destroys the incentive to work, be honest, be sensible.


      Report this

      160

      • #
        John Brookes

        Its just that I’d never thought about the balance between work and investment. Clearly we need some investment. But there must be a balance – you can’t have too few people actually working. The people building, making coffee, treating the sick, teaching, writing software, fixing cars, delivering mail, making roads, looking after the very young and the very old, developing new technology, raising kids, running farms, driving trucks, mining, cutting hair, etc etc.

        So I’m just concerned that we may have the balance wrong.


        Report this

        00

        • #
          Mark D.

          John, you’ve forgotten the reason there are investments. Stocks are sold to finance business growth. That means if you increase investments you potentially increase employment and wages. People that have high investment returns are the ones that can purchase the products and services that in turn employ people. The problem we have now is a loss of confidence in government policies. This is damping business expansion and hiring thus a negative economic forcing.

          I’m just concerned that we may have the balance wrong.

          We have the balance wrong? Did someone give you the right to control it?


          Report this

          00

        • #
          Mark Fraser

          There’s another group of people involved in the process of “creating” wealth. The development and sale of goods, services, technology etc. outside of the “local” economy is necessary to maintain that balance. Without it, taxation and inflation will eventually cause us to clean each others’ toilets for free. Manipulation of the brush and plunger, I’m sorry to say, does NOT create wealth. (There’s a metaphor out there somewhere involving wind farms, solar panels and tesla towers, but I’m too groggy to go there right now.)


          Report this

          00

        • #
          Ted O'Brien

          In my understanding of the world, work is investment.


          Report this

          00

    • #
      Mark D.

      John, inflation is always bad unless you are able to increase your income at the same or higher rate. Most people can’t do that. Additionally, inflation erodes savings. Bank savings accounts and so called secure investments (government securities) pay hardly any interest today. This discourages savings and/or encourages more risky investments to attempt to stay ahead of the inflation. So just when the world economies are at what appears to be the brink of a major burst, it is also the same time as people are risking more by buying stocks. This is a classic catch 22 and seems to me to be a recipe for disaster.

      If you have high debt then inflation may work out to be a good thing (if you can stay solvent during a collapse). You’ll end up paying the debt off with dollars that are cheaper than when you took the debt. Of course you’ll have lost the interest. Since inflation is often the fault of government monetary policies, you could say that it is just another way to tax the people.


      Report this

      40

    • #
      Streetcred

      Inflation as a means of debt reduction is only useful if you get in at the beginning, like a ponzi scheme. In times of rampant inflation we used to say, “… get into debt and let inflation bail you out.” You just don’t want to be looking for a stool when the music stops.


      Report this

      20

  • #
    TimiBoy

    I prefer a safe full of Silver, with a few golden tones to make it look pretty. Not quite there yet but working on it. Where is it? LOL, I’ll never tell…

    But I don’t think the fall will be as hard as many say. We must see a fall of course, but we are not headed for Armageddon.


    Report this

    20

  • #
    Gnome

    2 basic problems with all this;

    1- everyone knows the music will stop one day, but no-one knows when. Fortunes have been lost by wise people who were right, but acted too soon in the market. A lot of the penny dreadful shares will go down again, long before they go up.

    2- an investment in penny dreadfuls is mostly an investment in someone else’s lifestyle. Alan Bond is back in the market, Rodney Adler is banned from directorships but his wife isn’t etc. Do you even know what name she uses in prospectuses?

    Remember, $10,000 only buys about six ounces of real gold. How much trouble is it to store about a matchboxful of anything?

    You might get rich or you might get busted. The directors of some of these companies don’t face the second possibility, they will be looking after themselves first and foremost. Are you sure you can be careful enough? Not all investment scams are run from an Asian call centre?


    Report this

    40

  • #
    bananabender

    Sorry but this article shows a complete misunderstanding of economic geology and mining. As the gold price increases the mineable reserves increase exponentially. eg at $4000 it is probably economical to recover gold from seawater.


    Report this

    30

    • #

      Steady on bananabender. Things aren’t that simple. When gold gets to $4000 per ounce the cost of doing everything has already gone up. Inflation does weird things to all the “fixed” numbers we think we have a handle on.

      BTW: David has a pretty good grip on mining economics. Goldnerds don’t just do “cash costs” we do shares, in the money options, option costs, we look at the investments the mines hold on their books, plus the hedges, the liabilities, we calculate their Market cap, and their EV, reserves, resources, we look at their construction costs, their ongoing capex, their future cash cost, and we’ve developed a Total Cost per Ounce calculation which takes all that into account. Naturally we read drill results with keen interest.

      We’ve been watching Australian gold miners stay just ahead (or in some cases, frustratingly, just behind) The price of gold has risen (in $US from $700 in Nov 08 to $1750 now),but so far, the $A cash costs have kept pace, rising just as fast as the $A gold. There’s a divergence starting to happen especially as other mineral booms slow and the gold price rises… wait and see.


      Report this

      30

  • #

    If you don’t have any confidence in the private sector or the state supporting you in retirement, you should make provision yourself. The first investment should always be property or land. As Mark Twain remarked about land; always buy it, they don’t make it any more. In a similar sense, investing in Gold has the same advantage. There’s only a finite amount of it and not as much of it as you might think. This is because it’s only made by relatively rare super-novas (no pun intended Jo!).

    It’s been calculated that all the Gold ever mined is only enough to fill three olympic size swimming pools.

    Quantative easing, or printing money as it used to be called, simply devalues it. Gold, on the other hand, can’t be printed.

    Pointman


    Report this

    60

    • #

      A very good point Pointman, except Australians have done the land investments to death and created bubble prices that have not much further to go. Inflation has already arrived on those assets.

      See Demographia – international housing affordability (PDF)– to find out which countries you shouldn’t invest in real estate in right now.

      “Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices having generally been from 2.0 to 3.0 times median household incomes”

      2012 results
      National median for
      Australia = 6.7;
      NZ = 6.4;
      HK = (!) 12.6;
      Can = 4.5;
      Ireland 3.4;
      US = 3.1 :-)

      “All major markets in Australia and New Zealand, as well as Hong Kong were severely unaffordable.”


      Report this

      00

      • #

        Just out of interest, how many of those countries have a capital gains tax?. Here in NZ where real wages have been falling for years I believe many have speculated on the property market just as a means of getting ahead, (No capital gains tax here). When you combine this with a stifling regulatory environment regarding new developments, rising construction costs and over zealous, empire building local body authorities we have a situation where home ownership is fast becoming a luxury for many. I personally know people who live paycheck to paycheck yet have a portfolio of rental properties. They live on a knife edge because of reliable tenancy and interest rates. Perhaps someone a lot smarter than I could make the connection between our Western love affair with property speculation and how it relates to our present economic predicament. My feeling is that there is a connection.


        Report this

        00

    • #

      I’ve never had much confidence in the private pension industry or the state delivering a decent retirement income. That being the case, I’ve always been a private investor. Gold, like cash savings, property, equity or debt instruments, are assents you can invest in, but like all assets, the price varies. If you’re by nature a trader, then you have to get two decisions right; when to buy a particular asset and when to sell it.

      I’m not a trader but an investor, which is to say I only have to get one decision right; when to buy. Having bought something, the only time I ever sell it is if I’m exercising a stop loss, which I’m ruthless about. When stock markets and economies are middling along, it’s not a particularly good time to buy anything. If you have the patience to wait for them, boom and bust times are the best times to buy assets. In a bull market, you steer clear of equities because they’ll eventually come off their highs. That’s the time to buy out of fashion assets like gold, hence the $700 Jo referred to in 2008. At the bottom of a bear market, gold, because of the flight to safety, will have shot up to $1750 and equities will be on their butt. That’s when you can buy equities with secure dividends and a decent YCE, because of the price plunge.

      That being the case, I wouldn’t be attracted to buying gold at this particular point in the economic cycle. Incidentally, you can buy gold indirectly using a gold-based Exchange-Traded Fund or EFT.

      http://en.wikipedia.org/wiki/Exchange-traded_fund

      Pointman


      Report this

      00

      • #

        Pointman, it’s a supply demand thing. Gold competes with paper currency. Right now for decades paper currency has been expanding far faster than gold. Rather than $1700 gold being expensive, it’s barely begun to close the gap to get back to long time averages. Gold didn’t just double in the 1970′s inflation run, it went from $35 – $800 (which was a bubble). Money printing (though central bank deposit digits) went vertical in 2008, breaking century long records in a month, so this is like the 70′s but more so… Rampant loose money creation drives corruption because there was less pressure to make smart decisions, and more reasons just to “be in the game” and go for the ride. So in a sense, as the effect of all those malinvestments culminates — this is not the time to buy gold to become super wealthy, but it is the time to get out of nearly everything else (except for a few other real commodities that are not in “boom time” pricing).

        BTW ETF’s are paper-gold. They have all the risks that any paper currency does.


        Report this

        20

      • #

        Agreed Jo. Supply and demand come up with the market value of any asset, as opposed to what one considers to be its intrinsic value, an equally imaginary number but any significant difference between the two being the basis of all investment decisions. Nothing particularly new about arbitrage really.

        Pointman


        Report this

        00

        • #
          Ted O'Brien

          No. Pointman, S & D come up with the market value only in a free market. There is no such market.

          Take housing as an outstanding example. The price of houses is set by the banks, not by the buyers. Because the marginal operators are doing what the banks allow them to do. Meanwhile the banks are paying scant heed to S & D, their focus being on profit from lending.

          As a farmer, trading in primary commodities as a seller, I have seen all my life that people who quote the Law of Supply and Demand demonstrate a very poor understanding of both Supply and Demand, and, consequently, of their much quoted “Law”.

          Even the market for gold is heavily subject to the markets in other commodities.


          Report this

          00

  • #

    John Brookes, your brain seems to be in tune for once. Pity you can not get AGW out of your head then you might be able to contribute something.
    Re -debt there are historical precedents. The hyper-inflation in Germany (http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic) is an example. There were billion mark stamps which were worth less than the paper they were printed on. The people who lost the most were the middle classes- the tradesmen, professionals, shop keepers, small business owners etc. The very rich benefited because they could sell assets outside the country and then towards the end buy distressed assets cheaply to increase their wealth and power. The poor had nothing after WW1 and could not get much worse. The Wiki article says hyperinflation is widely believed to have contributed to the Nazi takeover of Germany and Adolf Hitler’s rise to power. Pseudo-nationalists and dictators bring on inflation and political benefit at the start by promising relief. Zimbabwe (Rhodesia) was the food bowl of Africa but now is one of the poorest countries in the world with millions starving or dead because the middle class farmers and business were wiped out.
    If certain governments are not voted out in the near future then there will be more examples of hyperinflation and people starving.


    Report this

    30

    • #
      JMD

      Germany was also strangled by an economic blockade at the time, don’t forget that part. Hyperinflation was the result of the Reichsbank ‘financing’ the unpayable debts of the government & banking system. Sanctions meant little or no trade & no interbank payments were possible. The Reichsbank, the issuer of the German mark, was stuck holding the bag.

      Little different to Zimbabwe, or now Iran.


      Report this

      10

    • #
      Shevva

      Funny I replied to John then read your comment further down.


      Report this

      00

  • #
    Pete

    Bananabender is right

    At $US 4000 it becomes economic to extract gold from seawater. And there’s plenty of that. I own a whole lot of gold stocks that come well recommended and have good properties that will become gold mines. In the last 18 months they have all lost value despite improving the quality of the asset base. The only credible answer to that is that we are in a deflationary environment which means unbelievably that cash is the only sensible instrument to be holding.

    I don’t doubt your figures but I am not sure how that plays in reality. Much of the debt is held by sovereign entities and is book entry accounting. There is clearly a willingness on the part of most reserve banks and governments to debauch their currencies (Lenin would be laughing) to accommodate the increase in money supply and it will have to stop somewhere. The only thing I can think of is when say the Chinese or other buyers of mainly US debt go on strike and say no more that then the money printers wont be able to give it way.

    Not sure what happens then…….


    Report this

    00

    • #
      JMD

      Not sure what happens then…….

      It’s called $US hyperinflation, not that I’m predicting it anytime soon. And Bananabender is wrong. Gold is an inert metal that has been mined for thousands of years, there is hundreds of thousands of tonnes of gold, yet its value is not declining.


      Report this

      00

      • #
        Richard The Great

        Exactly. The question has been asked “why gold as money?”. Even Von Mises did not attempt to answer this. The annual gold production is about 2500 tonnes and about 100 years of production is currently “available” on the surface in the form of coin or bullion yet it holds its value. The marginal utility of gold is unique in that it declines at a rate slower than that of any other substance on Earth. Various assets have differing marginal utilities after which accumulation is no longer desirable. This point for gold is for all intents and purposes out of reach it is so far away.


        Report this

        00

    • #

      Total gold above ground is about 150,000 tons. Annual production is 2500 tons a year.
      Turnover at the LBMA (london bullion metal assn.) is 500 ton a day. Add it up. Total annual gold production turns over every week. Gold is not traded as a commodity, it’s a currency.

      Governments have an option to pay off debts by printing money and handing it out in pork barrels, or by convincing the masses that austerity and hard work is a good idea.

      Does anyone want to bet that a western government chooses fiscal responsibility with complete payment of debts at current values? Anyone?

      Pete: gold stocks (at least in Australia) bottomed in winter this year at incredibly low prices and insane PE ratios. It was hard to sit it out.


      Report this

      30

    • #
      ExWarmist

      Pete says…

      The only thing I can think of is when say the Chinese or other buyers of mainly US debt go on strike and say no more that then the money printers wont be able to give it way.

      Not sure what happens then…….

      Japan is on the way to becoming the largest foreign holder of US Paper, China is already dropping away, and I remember reading somewhere that most of their US paper is now short term, and they could rapidly divest it over 2 to 3 years by simply letting it mature.

      The US Federal reserve is going to have to print a lot more money to keep the current monetary/financial system (and hence it’s owning banks) alive


      Report this

      10

  • #
    Winston

    Just a question, Jo, from an investment neophyte,

    If carbon taxation regimes succeed and really ramp up to $350 a tonne for example much earlier than 2050, then how does that impact upon the relative profitability of gold “in the ground” as opposed to “real” in the hand gold?

    Sorry for the dumb question,
    Thanks,
    Winston


    Report this

    00

    • #

      Winston, if carbon taxes get to $350/t all bets are off. But it depends on where your gold is. If it is under Australia then it gets very exxy to dig up. But if the gold price is high, it may still have most of it’s value as long as investors think that any current government will be overturned in the not too distant future. There is always a political bet in the valuation.

      But if you own Australian shares which dig up gold overseas, perhaps they will escape the tax.


      Report this

      00

  • #
    JMD

    The Chinese are currently trying to buy Norton, a quality West Australian producer, a bargain at only $30 per ounce.

    While buying the shares of gold miners can be profitable (I still own some myself), this quote illustrates why you need to be extremely careful. Norton might have gold in the ground, but they are also up to their eyeballs in debt, thanks to a moronic dabble in gold forwards some years back. I bought a bunch of Norton shares at the height of the panic in ’08 & all I can say is thank God for Chinese money, which I took. In nearly 4 years all Norton have done is issue more & more shares & not once pay a dividend. The creditors got their cut, the shareholders got nothing.

    It is stretching the truth somewhat to say Norton is quality. Maybe the Chinese will whip it into shape.

    I agree with you that gold is not a bubble, nor will it ever be, but you are on thin ice saying “Gold is literally useless”. Rubbish. Gold is the most precious thing. It is money. Why blather about gold if you think it’s useless? Why do you think it’s called a precious metal?


    Report this

    00

    • #

      JMD, “useless” for human material needs, but yes, precious because it is an anti-cheating device — it protects your purchasing power, your hard work — against the theft of inflation.


      Report this

      10

      • #
        Richard The Great

        The magic of a gold standard is not price fixing (that would be anti free market) but interest rate stabilization and an extinguisher of debt.


        Report this

        00

  • #
    jollygreenwatchman

    Hmmmm, I’m still not convinced that gold is an any more worthwhile investment than access to sacks of seed, a bit of practiced know how, and the company of a non city based community.

    Perhaps Larry Norman put it best when he sang “Life was filled with guns and war and everyone got trampled on the floor. I wish we’d all been ready. Children died the days grew cold A piece of bread could buy a bag of gold. I wish we’d all been ready. There’s no time to change your mind. The son has come and you’ve been left behind …”

    Verse 19 of chapter of a certain prophetic kinda ancient record known as “Ezekiel” also springs to mind.

    I mean, if the collection of books it belongs to can be so continually right about the Jewish people and the nation of Israel, then when it talks about the relative worth of gold … well, you get my drift, yes ?

    I reckon learning how to hunt and find (and purify) water is a better investment than buying an inedible metal.

    Nothing wrong with doing both if you really want to though, I guess.

    Where your treasure is, your heart will be also ?


    Report this

    10

  • #
    John Brookes

    But back to my original question – has anyone got a historic record of how the ratio of investment income to earned income has changed over the years?


    Report this

    03

    • #
      Jean-Paul

      Hello John.
      Your question is interesting, but I can put another one, that looks even more relevant to me : what’s the ratio of salary earned by public servants to the salary earned by producers of marketable goods?

      I can answer that one for my own country : Belgium. In 1954 (figures found in the “Agenda des Notaires, édition 1955″), there were 150 000 public servants for more or less 8,5 million inhabitants. Nowadays, the government shies away from telling it, but the last number they cited some 5 years ago was 825 000. So, if using the same ratio public servants/inhabitants, there should be 46,75 million inhabitants in Belgium. But in fact, we are only 11 million.


      Report this

      40

    • #
      TrueNews

      AND – The reason for your question is ? John.

      Please tell me your not one of those public servants that (like treasury) want to hit the poor old superannuants in the next MYEFO.


      Report this

      00

    • #
      Jaymez

      You could dig into the ABS data to get that information, and/or maybe the ATO has the information.

      Having worked in the financial services area for some time, I can tell you that Until the Late 70′ and early 80′s there were very few ‘ordinary’ people, (mums & Dads, workers, small business people), with direct share investments, and it was almost impossible to invest offshore. There were next to no private superannuation funds so any ‘investors’ either had bank deposits, government bonds, mortgage bonds, Insurance bonds, or direct property with a few of the big Australian Industrial companies, usually starting with the letter ‘B’. BHP, Brambles, Boral,and if they got really adventurous they might work their way down the alphabet to say Coles.

      Probably the greatest difference made to ‘investment’ income over the years has been the introduction of compulsory superannuation and tax incentives for private superannuation for self employed people. This has lead to the point where there is now a compulsory super contribution of 9% of salary for all workers to super which is invested and compulsorily preserved until retirement for those born after 1959, at age 60 years. The compulsory contribution rate is about to go up to 12%, and there is about $1.3 Trillion invested in superannuation today. In addition many middle class baby boomers owe little or nothing on their home and have other investments including property and shares. So that amount will continue to grow until baby boomers start to retire en mass and draw down on that money to live. However, it is likely baby boomers who had fewer children themselves, will pass on sizeable inheritances to their children by way of houses and remaining retirement funds as we dies off. Leaving the following generation the most well catered for retirees in Australia’s history with good inheritances and fully funded super.

      It would be my guesstimate that by the time the last of the baby boomers has retired, the income earned from investments in Australia, including super, may actually be similar to that earned from employment, that is of course unless we do something to dramatically boost immigration to fill the population hole the baby boomer bubble will be leaving behind. Ideally Australia should have an immigration policy favouring only those born some time well after 1965 – say born after 1975, so they can work at least 10 years after the last baby boomers retire.

      Without a boost in immigration of people born after 1965 increasing as the birth rate dropped away after 1965, not only will there be pressure to find enough workers in Australia, but the Australian property market will collapse as there will not be sufficient population to take up demand for the baby boomer houses built in the suburbs.


      Report this

      00

      • #
        John Brookes

        Thanks Jaymez. The way I look at it, someone has to do the work. It seems to me that if investments grow and grow (courtesy of compulsory super), the returns will have to decline. Otherwise Australia could become a place where 30% of the adult population actually do all the work, and that doesn’t seem like a good idea.

        I’ve never managed to accumulate much wealth (even super), so I anticipate working until age gets the better of me.


        Report this

        10

        • #
          Streetcred

          I won’t be able to afford your keep JB so you’d better get back to work.


          Report this

          20

        • #

          “30% of the adult population actually do all the work”

          Do you think it is that high right now?

          Take out the bureaucrats, paper shufflers, con artists(almost anyone in the financial advice industry for starters), paid liars like politicians, journalists, real estate agents and anyone else who basically holds a gun to people’s heads to get paid (cops running speed traps in places where it is perfectly safe to drive at the speed people are being booked for) and what percentage do you think you’ll get?


          Report this

          10

  • #
    James In Footscray

    Just my ten cents’ worth as a regular reader.

    I love Jo’s work on climate change. It promotes the scientific method. It defends mainstream science.

    But this post is different. It’s almost spruiking a get-rich-quick scheme. And the whole suggestion of ‘secrets’ in gold, banking and international finance feels a bit conspiratorial and a bit icky.

    I’m sure David can support every single statement. It’s just an uncomfortable feeling.

    Cheers

    James


    Report this

    40

    • #

      Yes, James, I hear you. I’m working on it. Literally… in response, I’ve just added to the top:

      Money is grubby thing, but financial independence means freedom. Freedom to spend time writing what a heart believes instead of what an employer demands. (Freedom to follow the most inexplicable whim — like tossing the 9-5 day to debate details of dendroclimatology with people who detest you).

      There’s more I need to say…


      Report this

      50

    • #
      TrueNews

      James
      I could kind of agree with you because I had a similar first impression.

      But, after re-reading and mulling over the article I came up with a slightly different viewpoint.

      The following bullet points are formed purely from my own personal thoughts after reading and re-reading this article.
      .

      1. What does it cost to blog on this site.
      2. What does it cost to run this site.
      3. What does a skilled mathematician do to make a living when he, by his devotion to exposing the truth on global warming, is possibly persona non gratis in academia
      4. Is it really so bad that David and Jo use what they have bought and paid for (this site), for which we pay nothing, to give a plug to their new business venture.
      (I note the research started in 2007 and has been for personal use until now)

      Disclosure:
      I have no association whatsoever with either David Evans or Jo Nova.
      I do invest in equities and derivatives.

      @Jo – 12.1
      Do not appologise for making an independant living.
      Neither should you term money [sic] “is grubby thing”.
      Money earned by honest endevour and hard work is not ‘grubby’ and it can be pretty insulting to those that have made money this way to name it such.
      Slap on Wrist :)


      Report this

      10

      • #

        True news, thanks, yes, and thanks to James, I’ve completely rewritten the whole top section.

        As it happen, we’ve been selling GoldNerds now since 2007 – but honestly – selling subscriptions to that is a micro business, our living comes from the investments (which is why we need Goldnerds). If I was a hard nosed business woman, I could have stuck ads on the site for Goldnerds all along, but I didn’t until about 6 months ago. Crazy perhaps.

        So go read the top again, and click on some of the links I’ve added in. Every six months I have to explain this odd climate-gold-currency connection – the segway…

        Read We are all austrians now…

        I was trying to do all the research for 200 ASX companies in 2007, and I realized I had no chance of keeping up with it. But the collective power of subscribers covers the cost of 12 researchers to update it every two weeks. We get the cutting edge information we need. We get calls from very interesting people sometimes, and offers for David to speak at conferences. We meet other investors. It’s a lifestyle thing. We decided long ago we didn’t want to work for anyone.


        Report this

        30

    • #
      KinkyKeith

      I agree with you James,

      as True News says, but it is a situation that many of us now at retirement age need to keep examining.

      The world is in a big mess and it is best to keep informed rather than the alternative.

      On the other hand you may think you have the answer, embark on a program to bullet proof your future, and

      then find governments have done something totally illogical but which is very politically expedient and you

      are left holding an empty wallet.

      Difficult times.

      Keep learning, hope for a better future, despite politicians.

      KK :)


      Report this

      00

  • #
    TrueNews

    The last ‘Gold Standard’ currency I heard about was the proposed Gold Dinar.
    Apparently some of the Oil producing nations were considering establishing it as the standard of payment for oil rather than the USD.

    Unfortunately this didn’t go down too well with the ‘paper printers’ so they got rid of the guy that proposed it.

    Anyone remember Gadaffi ?


    Report this

    10

  • #
    PeterB in Indianapolis

    John,
    star comment

    I assume by “ratio of earned income to investment income” you mean “money people make “with their own hands” as opposed to “money people make by putting their money into other people’s hands”.

    I don’t have a link to a chart on this, but I will try Google and see what pops up.

    However, especially here in the US, the ratio has changed DRAMATICALLY in the past 40 years. It used to be the US made things, and that was the primary way that most people in the US made money. The problem now is that the FED has printed ridiculous amounts of fiat money out of thin air (see M2, M3 and M6 figures for the US in the past 10 years or so). The VAST majority of this Monopoly money (hopefully you are familiar with the classic board game) has been “donated” to the US MegaBanks. This should come as no surprise, as all of the directors of the FED have been, and will be again, directors of the US MegaBanks.

    Instead of loaning this money out to the people and putting it to work in the economy (which would be highly inflationary given the shear quantity of money involved), the banks have figured out that with the Prime interest rate being near zero, they cannot make a decent profit by loaning the money out.

    SO… what to do with all of this money sitting on the books of these MegaBanks? Simple, they dump the vast majority of it into the stock market, thus driving the market up wildly (the vast majority of the rebound in stocks from about Dow 6600 to Dow currently 13,300 or so has been due to this single factor alone). By driving the stock market up from 6600 to 13,300, the banks have magically “doubled their money” in a few short years, which is a far greater profit margin than they could have made loaning it out. Stock prices have also gone up because the value of the dollar has gone down – that is, if company A is worth $10 per share when there are $100 Trillion dollars in existence, then company A (all other things being equal) MUST be worth $20 per share when there are $200 Trillion dollars in existence.

    Of course, the printing of all of this funny money devalues the dollar, and creates “stealth inflation”. I call it stealth inflation because the US now EXCLUDES food, energy, and other “core costs” from their inflation calculations (which is highly dodgy at best). The stealth inflation from creating ridiculous amounts of extra dollars results in rising costs for food, energy, and raw materials (the things which no longer “count”), and so the “average American” has less dollars for “discretionary spending” because they already spent all of their money to feed themselves and heat the house and gas up the car.

    Because there is – according to the government anyway – no inflation (because they specifically exclude everything which has rising costs), businesses do not increase wages for workers, because businesses can claim that there is “no inflation” so people don’t need a raise! All the while, materials costs and energy costs for businesses are increasing as well, so they have less money to allocate for raises, capital improvement, business expansion, etc.

    Basically here in the US right now, you are either a MegaBanker, or you are screwed. Because of this incredible market distortion, the ratio you speak of is currently way out of whack, but it is due to the actions of the FED and the US Government (which are really one in the same entity).


    Report this

    80

    • #
      KinkyKeith

      A very clear and informative comment Peter.

      Older Australians have been hard hit but at least compared to the US we have some hope.

      Sorry to be so “down” but I think you have already said this.

      KK


      Report this

      00

      • #
        ExWarmist

        Hi KK.

        I’m 20 years away from retirement – and I only have physical assets in my SMSF.

        No paper, no counterparty risk.

        Yes – risk of theft or confiscation.

        Gold and Silver bullion play a part.

        Note that the banking act of Australia allows the Reserve Bank to confiscate gold at a market price – with some caveats (Hence Silver… which is not named in the legislation)


        Report this

        20

        • #
          Andrew McRae

          Wow. The more I find out about the country I live in, the more outraged I become that I didn’t wake up to the lies sooner and that the previous generation let this happen on their watch. Thanks for nothing, boomers. That eternal vigilance didn’t last long, eh?

          So the RBA can send the cops round to anyone’s house and steal their gold. Welcome to the People’s Republic of Australasia. Almost makes me glad to have nothing worth stealing. I guess they will have an aussie dollar devaluation and make my meagre savings worthless instead. This is all very f’n crappy.
          Maybe I should have pissed all my money away drinking on Friday nights like everyone else my age.
          At least then I would have had fun, and I’d still end up destitute like the rest of you will.

          Just last week I heard the prediction that the USD will be devalued hugely in the next 9 months, followed by the other major currencies such as the Euro, and a UN / World Bank currency will then be brought in as the replacement that you will have to pay through the nose to get. Then that new currency becomes the currency of the new one-world government.
          By the way, that new currency already exists, they’re called Strategic Drawing Rights, SDRs.
          The other half of the rumour is that SDRs will be backed by gold and silver.

          Maybe Goldnerds are onto something?
          Or maybe our kleptocratic pseudo-governmental puppetmasters know no bounds and will take ownership of any future gold that gets dug up and declare prior contracts on it null and void, entitling them to the entire proceeds of sale.
          I mean once they cross that line and anything “owned” by anybody is ripe for acquisition, there is really nowhere to turn, is there?

          Okay, Big Government. I was wrong about you. We’ve all been very wrong. We’ve been saying for years that you are slow and inefficient. How wrong we were. With this new strategy of confiscation it is apparent you have reached an unprecedented commitment to efficiency by “cutting out paperwork” and “cutting out the middle man”. Our property rights would be cut out of the economy and then we’ll be cut out too.


          Report this

          20

          • #
            KinkyKeith

            Hi Andrew

            You sound like another Victim of the politics of envy.

            I don’t think you would want to repeat the boomer life; I wasn’t what its made out to be.

            The stories on JJJ and the ABC and Sydney Morning Herald about what the boomers did or didn’t do

            are 99.99% bullshit. There was no easy life; just a long hard grind.

            If I wanted to be uncharitable I could say that all my hard work and taxes have been p$ssed up against

            the wall by politicians buying votes from the younger generation.

            If, after reading the above you still feel hard done by, just let me know your address and I’ll send you a box of tissues.

            Don’t be so gullible.

            KK :)


            Report this

            00

          • #
            Andrew McRae

            KK, if you would like to address anything I actually said, instead of imagining things I didn’t say in some symmetrical opportunity for self pity, please do so.


            Report this

            00

          • #
            KinkyKeith

            Hi Andrew

            What does this sound like:?

            “that the previous generation let this happen on their watch. Thanks for nothing, boomers. That eternal vigilance didn’t last long, eh?”

            KK :)


            Report this

            00

          • #
            ExWarmist

            I’m gen X, and I don’t blame boomers for anything.

            Blame isn’t helpful, and the underlying structures that are present in society are very much multi-generational in nature, the boomers are just as much trapped within those structures as any other generation, pre or post.

            I personally think that boomers are ripe for exploitation as they move into retirement and then hostel & nursing home education.

            Due to the size of the demographic cohort that they represent, and the cost of looking after them, and the fact that I think economics plays a big part in determining what is deemed moral – I would predict the following for the boomers.

            [1] The pensions will disappear in terms of their purchasing power.
            [2] Their super will see increasing taxes.
            [3] The Overton window will move towards voluntary euthanasia, and then to involuntary euthanasia as the bulk of the cohort hit nursing homes.

            I could be wrong – it’s just a prediction.


            Report this

            10

          • #
            ExWarmist

            …nursing home education…???

            Don’t know how I wrote that.

            Meant …nursing home situation.


            Report this

            00

          • #
            Andrew McRae

            KK,
            Am not interested in what that “sounds like” to you. It obviously was blaming previous generations for encroachments that ought to have been resisted. What it definitely obviously explicitly was NOT was any declaration of envy of anything. Please learn to read English. Your initial response was a response to an imagined non-event.

            As for my allegedly being “gullible”, (aside from it being a strawman argument as established by previous paragraph), the entirely legal ability of the RBA to compulsorily acquire private property of a particular kind is a fact of history and a law that has never been repealed. If that’s gullible I’d hate to see your definition of realistic.

            To explain the phenomenon you exhibited, I propose a theory titled “Newton’s Second Law of Self-Pity”. That each expression of self-pity requires an equal but opposite expression of self-pity, but no actual causal connection between the two expressions is needed.

            However, on this occasion, in recognition of the fact the relevant law was made long before you ever existed, and in recognition of past good behaviour, I am prepared to let you off with a caution. :-S
            Plus it is pointless of me to blame anybody since that will change nothing.


            Report this

            10

          • #
            KinkyKeith

            Hi Andrew

            Perhaps if I’m going to be let off with a caution it may help to say that maybe I jumped in a little strong there.

            Being a boomer and hearing how we lived the hippy life and smoked dope all the time and lived in the

            “lucky country” where all you had to do was get up each day and money would flow into your bank

            account the boomer thing has started to wear a bit thin.

            Sorry.

            There is a very strong media group of 25 year olds who constantly harp on how the boomers have left a

            mess for the next generation, namely “them”. Apparently we all have gigantic stores of cash and have polluted the air with CO2.

            Politics at its best.

            Glad you don’t have that disease.

            KK :)


            Report this

            00

          • #
            KinkyKeith

            Hi Ex

            I have given my son instruction that in the event of me reaching old age, and at a time when I no

            longer know who I am and who he is he is to do the following.

            Buy a ten dollar folding chair and place me in it facing the ocean at Bar Beach.

            Leave me there until all the CO2 has been eliminated from my blood stream.

            I am not to be placed in a nursing home.

            KK


            Report this

            00

    • #
      John Brookes

      Thanks Peter. There has to be a way to make our financial system work for us. I think this is the big battle of the current decade.


      Report this

      00

  • #
    Doug Proctor

    The paradox is that gold as bullion is at a high price, while gold companies (i.e. gold in the ground) is at a low price. I don’t know what this says about the perceived future of monetary value. It would seem to me to say that gold is a relatively short-term hold, but long-term – the time taken to revive gold operations and bring more onto the market – gold prices are going to come down.

    Or it could be saying that there is a surplus of gold in the market. Conversely, there is a deficiency of money to buy the gold that is in the market. Either case says you do not want to spend money now to provide more gold later. Either you depress the price of gold (too much gold seeking too little money) or you depress the price of gold AND you still can’t sell your gold.

    Avoiding a situation like the natural gas situation in North America? Gas used to be worth lots (2005), then huge lots more of gas available, gas prices drop, no reason to drill more AND the value of gas companies collapses. Is gold the new natural gas of the world?


    Report this

    01

  • #
    Jaymez

    I worked for many years in financial services before establishing my own small investment banking organisation which I sold to a household financial institution about 10 years ago. Since then I have been pretty much retired and just looking after my own investments.

    I see nothing wrong with what Jo has written. I have always provided a component of this type of advice to my own personal clients but I would clarify things a little:

    1. Hyper Inflation is terrible for an economy as a whole, but any company which has a commanding market share at the start of such a cycle will come out of that cycle with a similar or better market share as their smaller competitors fall by the wayside. So investments in solid companies which will see through the cycle will still be worthwhile, their stores, assets, brands, people etc will still be valuable. Coca Cola Amatil were still valuable in Argentina after hyper inflation. Coles, Woolworths, Bunnings, Rio Tinto, Woodside , the bank Majors, major financials like AMP, QBE, srtong industrials like CSL will still be there. You share price will be volatile, but they will come through the volatility and quite possibly stronger.

    2. I agree property in Australia is incredibly expensive. Here in WA if you bought at the peak in 2007, you are probably sitting on a market price of up to 30% less than you paid for it – and that’s 5 years ago. WA probably looks as good as any other state in terms of population growth, but property prices are at a point where it is almost physically impossible for them to become more expensive based on current multiples. So population growth may stop prices declining (so they may keep pace with inflation), but I really don’t expect real, above inflation capital growth from property for at least a half a dozen years or more. I have seen these cycles before. So sure, own the property you live in, but beyond that, find a market outside Australia if you want to invest in property.

    3. I totally agree that if you think investing in gold is a great idea, and you expect the price of gold to go up, then why wouldn’t you invest in gold miners (or if you are more speculative, gold prospectors). I am much more conservative than some of the suggestions made in the write up. I look for current gold producers who have known gold reserves, who are actually producing gold and have a long history of gold production, have more prospects in the pipeline, pay dividends and have a strong balance sheet. So I pay more for my ‘in ground’ gold, but there is lower risk involved. And, of course if the gold price moves up, there is a direct benefit to the share price.

    In my retirement and with all my other interests I don’t want to be looking at my portfolio daily so I don’t trade much, but I’m going to check out GoldNerds.

    As far as any criticism about Jo writing on Gold markets. Firstly – I see science in all of this, and it is a science site after all. Secondly, for crying out loud, Tim Flannery is our Climate Commissioner – if he can talk about climate I reckon Jo can talk about gold!


    Report this

    110

  • #
    Dave Hayes

    @Proctor,
    I read the natural gas price in the USA will drive the coal plants offline in favor of the much greener NG. Once this takes place, NG prices will soar.
    Just my conspiracy theory.


    Report this

    00

  • #
    Richard C (NZ)

    FYI Jo and others.

    I queried John Christy as to which modeling group it was that has mimiced absolute temperature and trajectory this century so far in his EPS statement Figure 2.1. This was his reply:-

    Richard:

    This model labeled 27 should be inmcm4 (Russia)

    http://www.springerlink.com/content/x6647x575g82734j/

    John C.

    John R. Christy
    Director, Earth System Science Center
    Distinguished Professor, Atmospheric Science
    University of Alabama in Huntsville
    Alabama State Climatologist

    # # #

    What did the Russians do that everyone else didn’t in CMIP5 for AR5? Did they ramp GHG forcing down to zero I wonder? They do say there were “some changes in the formulation”

    Abstract

    The INMCM3.0 climate model has formed the basis for the development of a new climate-model version: the INMCM4.0. It differs from the previous version in that there is an increase in its spatial resolution and some changes in the formulation of coupled atmosphere-ocean general circulation models. A numerical experiment was conducted on the basis of this new version to simulate the present-day climate. The model data were compared with observational data and the INMCM3.0 model data. It is shown that the new model adequately reproduces the most significant features of the observed atmospheric and oceanic climate. This new model is ready to participate in the Coupled Model Intercomparison Project Phase 5 (CMIP5), the results of which are to be used in preparing the fifth assessment report of the Intergovernmental Panel on Climate Change (IPCC).

    # # #

    Good to see a modeling group validating their model against observations (GCM group that is, RTM groups do this religiously) – this is a major breakthrough.


    Report this

    10

    • #
      KinkyKeith

      Hi Richard

      This is way too complex for me to be trying to look at in depth.

      One thing that does come out of it and which I have always understood from my modeling work is that the Global Climate Models were not functional and were a work in progress.

      This underlines the fact that any comments about them should never have been made by politicians and scammers from the UN as they said nothing of use.

      A metaphore.

      You go to a restaurant and ask for fried duck.

      After twenty minutes you get a plate with a frozen duck.

      Whilst it is true that this has the potential to be fried duck, it is not actually fried duck and everyone can see that.

      Climate models are NOT Climate models and the only ones who can see that are people who have worked with real world models.

      It is just rubbish to say Climate Scientists are going to model the Climate.

      What the hell is meant by that?

      Until the actual terms to be predicted are specified and the scope of prediction limited to something

      realistic, I would not have much faith that Climate Models will ever be Climate Models.

      I think I would prefer the frozen duck.

      At least when it thaws I could give it to our dog.

      KK :)

      ps. I think University research, done properly, is a good thing and hope that research in all areas of

      study continues FREE FROM POLITICAL INTERFERENCE.


      Report this

      00

      • #
        Richard C (NZ)

        >”Climate models are NOT Climate models”

        One is now: INMCM4.0 – From Russia with Love


        Report this

        10

        • #
          KinkyKeith

          Hi Richard

          Thanks. I have not gone deeply into the Climate Models but it’s interesting that you have found one that inspires confidence.

          Is it possible to briefly outline what it does.

          Is it linked to CO2 for instance, is it linked to Milankovich cycles, is it linked to sunstpots.

          What are the output indicators?

          It’s such a big system and difficult to get a handle on.

          KK :)


          Report this

          00

          • #
            Richard C (NZ)

            KK

            >Is it possible to briefly outline what it does.

            Description of the CCM INM RAS and model experiments

            Description of the atmospheric climate model inmcm4.0.(new)

            Short description of the coupled climate model inmcm3.0 and model experiments.

            http://83.149.207.89/GCM_DATA_PLOTTING/GCM_INM_DATA_en.html

            >Is it linked to CO2 for instance,

            Yes, I’m guessing it is initialized with the same spin-up datasets as every other group up to 2000 for CMIP5 I think. After that the models are forced with specified concentrations from the RCP Database for each emissions scenario.

            However, It’s not the concentration that matters so much, it’s how radiative transfer processes are handled and what absorption and scattering characteristics of the gasses are parameterized. You may like to peruse this thread for what I’ve been able to glean so far.

            At that hotlink, 5.2 Heat emission on page 43 of Volodin, Dianskii, and Gusev gives the formulae, share of emissions across the spectrum, and references tables of coefficients.

            >is it linked to Milankovich cycles,

            No. Since the only (new) validation possible is only the first decade or so of the 21st century, that’s not really relevant at this stage.

            >is it linked to sunstpots.

            Yes and no. All models are parameterized with solar activity but different providers supply different datasets. 5.3 Solar heating in Volodin, Dianskii, and Gusev provides plenty of info but I don’t know what solar datasets they use for initialization yet.

            >What are the output indicators?

            Heaps (7 pages). See Standard output of model on page 81 of Volodin, Dianskii, and Gusev


            Report this

            10

          • #
            KinkyKeith

            Hi Richard

            Carried over

            Had a look at the Model Description and I can see why you are so excited about it.

            My basic approach to this has been not to bother looking at what the models do because I figured there

            was no way anyone could build a model that would relate CO2 levels to Atmospheric temperatures.

            I still believe that.

            But looking at the range of factors that the Russians have tried to quantify in their No 4.0 it is

            astounding. It’s a shame that Global Climate Modelling has been caught up in the Global Warming via CO2

            thing because the model described is of great interest and value just on its own even without the

            millstone of CO2 having to be carried along with it.

            Having Pressure estimates related to wind speed and air temperature may even be useful for routing

            passenger aircraft or ocean cargo vessels to avoid headwinds etc.

            It may even be useful for farmers when a prolonged drought has occurred in the past they have just waited

            it out; often with very damaging results for mental health and well-being.

            Reasonably solid predictability may be used to guide people off the land for the 10 or 20 years of drought.

            My comments are raw and not very accurate but I would hope that Governments would fund research into

            Climate for its own sake and just leave the CO2 aspect as a predictor of potential crop growth and yield.

            KK :)


            Report this

            00

          • #
            Richard C (NZ)

            KK (also carried over)

            I’m not getting excited yet. John Christy cautions that it might be right for the wrong reasons and I’m inclined to agree. I note that trajectory rises slightly over the next decade or so but there’s no reason in the metrics at present to support that (e.g. SST is in negative phase).

            The jury is still out on predictive ability. I have my doubts.

            You’ll find that NCAR’s CESM and CAM models are similarly comprehensive:-

            http://www.cesm.ucar.edu/models/cesm1.0/cam/

            The difference I see immediately is that CAM5 implements an out-sourced radiative transfer module (RTM) from AER but INMCM4.0. doesn’t. That module is rigourously validated against observations BEFORE integration into other GCMs. See RRTMG here:-

            http://rtweb.aer.com/rrtm_frame.html

            The question though is: does CAM5 modify the previously validated RRTMG by “ramping” (an optional initial parameter setting scale of forcing factor) of GHGs say, so that the RTM gets overridden? For all the millions of dollars and supercomputing capability NCAR has at their disposal and the TeraBytes of output they generated for CMIP5, they were unable to match the Russian effort.

            NCAR CMIP5

            Models used: 5 (CCSM4, CESM1-BGC, CESM1- WACCM,
            CESM1-FASTCHEM, CESM1-CAM5)

            Total volume submitted: ~136 TB

            Total volume generated: ~1380 TB

            Total simulated years: ~28,500

            Number of model runs: 555 total

            http://www.wcrp-climate.org/wgcm/WGCM16/Meehl_CESM_CCSM.pdf

            Quantity does not always equate to quality.

            If INMCM4.0 has a point-of-difference that explains its lower climate sensitivity to all the other AR5 models it will be in the treatment of radiation and heat emission I’m convinced. Over the next few days (probably weeks) I’ll be reading through the relevant parts of the model description and the external references to gas characteristics to see if there’s any clues

            Re:-

            It’s a shame that Global Climate Modelling has been caught up in the Global Warming via CO2 thing because the model described is of great interest and value just on its own even without the millstone of CO2 having to be carried along with it.

            I agree but we wouldn’t have the international scope and scale of these models if it wasn’t for CO2-centric policies pumping money into the industry (yes it’s an industry now). Thing is, when you look at the INMCM4.0 description, CO2 tends to fade into insignificance beside water vapour for example in 5.2 Heat emission, let alone all the other dynamics e.g. ENSO.


            Report this

            00

          • #
            KinkyKeith

            Hi Richard

            “we wouldn’t have the international scope and scale of these models if it wasn’t for CO2-centric policies pumping money into”

            So there has been some good come from the CO2 craziness; even if CO2 is only in the models for form and grant money.

            KK


            Report this

            00

      • #
        Truthseeker

        KK,

        You say …

        ps. I think University research, done properly, is a good thing and hope that research in all areas of

        study continues FREE FROM POLITICAL INTERFERENCE.

        The only way that is going to occur is if universities get no government funding whatsoever and have to rely on donations and fees to operate.


        Report this

        30

        • #
          Roy Hogue

          The only way that is going to occur is if universities get no government funding whatsoever and have to rely on donations and fees to operate.

          What a wonderful idea.


          Report this

          30

  • #
    Roy Hogue

    So many opinions; so little ability to predict the future…

    Hmm! What to do?

    They told me to cheer up, things could be worse. So I cheered up and sure enough, things got worse.

    Will it go up :-) or will it go down :-( ? In the end you make your choice and then you take what comes.


    Report this

    30

  • #
    Nic

    ‘Mark to Model’ accounting for all the overvalued assets on banks’ books and federal reserve banks etc. reminds me of ‘mark to model’ climate data…

    Also reminds me of government accounting. I don’t know if people are aware, but all the debt, debt, debt stuff is another accounting illusion. Government budgets are the operating budget. They don’t take into account the far greater sum of ‘public money’ i.e tax that is held in investments within the many thousands of government corporations. The US government institutions collectively control something like 80% of the Fortune 500 companies including all the banks. Ten years ago it was something like 70%.

    Google ‘Walter Burien CAFR1 (Consolidated Annual Financial Accounts) or checkout Corporation Nation on Google/YouTube and you can see how to check your own council and governments.

    Remember everything is corporately structured today, including you. For example – your pension fund is a corporation trading for profit – you do not own shares in this company, you are a BENEFICIARY…big difference. Indeed, you do not own your fiat currency – it belongs to the bank. You do not own your house or your car – you are registered to the government – see the legal definition of ‘registration’ in Black’s Law Dictionary. Even the shares you think you own on the stock market are not yours – you are just the beneficiary… (Wiki Cede and Co.) ( quote from PDF David C. Donald
    The Rise and Effects of the Indirect Holding System: How Corporate America Ceded Its Shareholders To Intermediaries
    Institute for Law and Finance
    WORKING PAPER SERIES NO. 68 09/ 2007
    CONCLUSION
    “This paper has explained how the choice of the indirect holding system for securities settlement forced U.S. issuers to cede their shareholder data to intermediaries…(This paper)argued that although the indirect holding system and its negative effects are no longer necessary, a combination of unawareness and interest serves to perpetuate a perceived need for issuers and shareholders to cede their ownership/governance relationship to a custodian utility…” )

    This information takes a while to assimilate but it’s well worth the effort. The devil is always in the detail.


    Report this

    00

  • #
    Philip Bradley

    We are seeing at the moment with Iran what will happen if confidence in fiat currencies collapses. They are forced to pay for imports with gold. I recently calculated that in order to finance current levels of world trade, with current world stocks of gold, gold would need to at $20,000/oz.

    So I forsee 3 things happening.

    1. Gold will go substantially higher in price.

    2. World trade will collapse.
    (bad news for a heavily trade dependent economy like Australia)

    3. Governments will confiscate privately held gold to pay for ‘necessary’ imports.


    Report this

    10

    • #
      KinkyKeith

      Hi Brad,

      Close, my calculation got $19,000 an ounce; that’s $US of course,

      so if you used $AUD that might explain the difference.

      KK :)


      Report this

      10

      • #
        Philip Bradley

        Mine was USD as well. I probably rounded up to $20,000. It was just a ‘in my head’ calculation.


        Report this

        00

        • #
          KinkyKeith

          I’m not sure what to make of all this Phillip.

          Maybe I’ve seen too many Jameses, JBs and Gee Ayes and am getting hyper vigilant.

          Point two is scarey but I doubt that any holdup would last long.

          KK


          Report this

          00

          • #
            Philip Bradley

            As a percentage of GDP world trade peaked in 1929 and didn’t return to that level until 1965. Which tells us a slump in world trade will likely last decades.


            Report this

            00

          • #
            KinkyKeith

            Phillip,

            I have a confession to make; I didn’t do any calculation for “Close, my calculation got $19,000 an ounce; that’s $US of course,”. Your earlier comments seemed very warmerish?

            But back to the analysis at hand : yes the graphs paint a potentially glum picture but something has

            changed.

            The world is a lot more interconnected than 1930; people in what are now rural environments want to

            move into the world they see on television and are in need of their dose of Urbanisation.

            In Vietnam , for example in 1975, the population was 40 million or so and 80% non urban.

            ie people lived off the land or the sea. Most people rode bicycles.

            Currently Vietnam has a population of well over 70 million with say 80% under the age of 30 years.

            Most ride motor cycles and a number drive cars.

            Johnny Nguyen and Elvis Phuong do not want to be ploughing a rice field behind a water buffalo.

            The BRIC countries are like Vietnam in some ways but not exactly the same.

            Brazil, Russia, India and China will all become more urbanised and I suspect that the next big world

            trade growth spurt may be on the verge of starting up.

            We live in interesting times.

            Like many older people I have to defer my retirement because of the recent wipe-out in the economy;

            really bad news.

            They say what doesn’t kill you makes you stronger so maybe we should be thankful for

            the chance to suffer and grow?

            At least I have a hobby here and can spend time putting the pieces of the Global Warming scam together

            with other interesting people. This reminds me I should make another donation to Unqerty p/l.

            Everybody here seems to have skills that have the common theme of science but are varied enough to

            keep providing comment and useful criticism and insight into what happened with CAGW.

            The discussion has gone through stages and we are now at the “it’s political how do we get the public informed stage”.

            The AGW scam is like many cases in the past of mass hysteria that seem unstoppable.

            How will AGW end: with a bang or a whimper?

            KK :)


            Report this

            00

  • #
    Dylan

    Gold itself is not an investment. It is a store of value i.e. zero growth.

    The market certainly is paying attention and it has priced the risk.

    My 2c – I think posts on gold speculation, Slater & Gordon, Lewandowsky etc are undermining your AGW message.


    Report this

    00

    • #
      KinkyKeith

      Come on mick

      You know that all of those things are inextricably liked to the Madness of AGW.

      KK


      Report this

      00

    • #
      Joe V.

      You cann’t just go on talking about AGW forever- well you can, but that message is out there now, people have got the message and want to move on.

      I remember wishing some months ago that Jo might start writing , from her valuable experience and realistic perspective on things, more about the now more impending threats to humanity than the now busted AGW fraud. Exposing AGW is done.

      I’m sure this Blog will remain pertinent and relevant by moving with well ahead of the times. It is a priviledge that one we may have come to know so well and trust on AGW is willing to share her wider experience with us. It is Jo’s way of looking at things which seems most valuable and would be wasted if it didn’t move on to now greater things.

      Long live the Greatest Blog on Earth, for as long as she’s willing to share it with us.


      Report this

      10

      • #
        KinkyKeith

        Agree wholeheartedly Joe.

        The thing that makes this blog so “real” is that we have to acknowledge the science.

        Science always keeps us honest even when, like in AGW, we have it mixed with politics, greed and cult worship.

        Science always has a basis of truth that can be tested and there is no escaping that.

        From that base any other discussion, as now, with the world economy there is an air of believability about

        the blog that derives from the science base.

        KK


        Report this

        20

  • #
    Joe's World(progressive evolution)

    Jo!!!

    Did you know that gold too evolved…along with many other different elements?

    Been looking at how no plant life would exist without having to find fertile soil. This would not exist if the planet started out as straight rock. It would need by-products from organisms dying which is VERY plentiful in water and the timeline it represents.


    Report this

    01

  • #

    Gold itself is not an investment. It is a store of value i.e. zero growth.

    And when the value of everything else is falling due to inflation, it is not zero growth. It’s a relative thing.

    You can’t eat dollars and they don’t keep you warm. Unless the bank pays you interest that’s higher than the rate of inflation (which means money supply, not “CPI”), you are bleeding purchasing power year after year.

    The science of money is as dismally reported as the science of climate. The vested interests are even more lop-sided than in the climate debate.

    But thanks for your opinion, I’m sure it’s shared, and I need to explain myself better.


    Report this

    10

    • #
      Dylan

      Problem is when you write on economics then this economist starts to wonder about the quality of your science articles to a scientist*. I’m sure your science is sound. Your science communication is excellent. It is your specialisation and, at least on this web site, perhaps you shouldn’t stray.

      *I know absolutely nothing of Goldnerds. It may be an excellent service.


      Report this

      01

      • #

        Yep. All true. I risk alienating anyone trained in Keynsian economics. I risk being called a “conspiracy theorist”. Their name-calling is getting more rabid as the evidence stacks up against them.

        But the parallels in the two fields are crying out for attention.

        Keynsian economics justifies Big-Government decisions. So is it any surprize that of the two competing schools of economic thinking (Hayek/Mises v Keynes) one of them dominates university curriculums / awards / UN support / govt departments, and the other offers simpler testable hypothesis with empirical support and is followed by independent non-aligned thinkers. One is used repeatedly in the MSM and the other (belatedly) is blooming across the internet collecting followers.

        One form of econs tells us there is a free lunch — if governments just rescue us with “liquidity” we can smooth out the bumps, and the government can rescue nearly everyone and everything from failure. The other says it’s constant hard work, people need to take risks (and some will fail) but in the long run we’ll be stronger, wealthier, more free and the ride will be smoother for most.

        Ultimately someone pays for the free lunch.


        Report this

        70

        • #

          That “someone” is our children.


          Report this

          10

          • #
            KinkyKeith

            Ceetee

            There is pain enough around for everybody.

            Why this theme of “our children”?

            Was there ever a generation that didn’t have some gigantic catastrophe like this current mess?

            Politicians are cunning; apparently more cunning than the average voter.

            KK


            Report this

            10

        • #
          Roy Hogue

          Ultimately someone pays for the free lunch.

          And the tragedy is that not only do those who don’t get the free lunch have to pay for it but those who do eat it end up paying as well. What a waste of your life to sit there living on a handout!


          Report this

          10

      • #
        Joe V.

        It seems Economists are trained that fiscal prudence is but one element of Economics and one that can perhaps even be overcome by more modern methods.

        In the real world however , denying the fundamentals only delays and spreads the pain.
        How many Economists understand Macroeconomics ?


        Report this

        10

        • #
          Dylan

          Jo, I think we are all well past Friedman’s theory, whether we know it or not.

          How many Economists understand Macroeconomics ?

          Zero.

          How many “Economists” [think they] understand Macroeconomics ?

          Too many. The overwhelming majority of those calling themselves economists have either business or commerce degrees. Make a point of checking qualifications.


          Report this

          00

          • #
            Richard C (NZ)

            Dylan

            The really nasty development is the cobbling together of climate with economics e.g. (H/t Bishop Hill):-

            Example of integrated assessment model (IAM) output:-

            ‘The Social Cost of CO2 from the PAGE09 Model’

            Chris Hope, 2011
            Cambridge Judge Business School, University of Cambridge

            http://www.jbs.cam.ac.uk/research/working_papers/2011/wp1105.pdf

            See Bishop Hill for PAGE09 input issues:-

            ‘Climate sensitivity and the Stern report’

            http://www.bishop-hill.net/blog/2012/10/1/climate-sensitivity-and-the-stern-report.htm

            You will not believe the inputs and outputs of this model


            Report this

            10

          • #
            Joe V.

            No reflection on yourself, of which I know nothing.
            Practitioners in Science and in Economics don’t necessarily keep in touch with the fundamentals and can readily be seduced by novel methods.

            Sad to say some of us learned more about the scientific method on here than in 4 years study of Science at University.

            Similarly, Business people can make better Economists than Academics do.
            A case of Money where one’s mouth is perhaps.


            Report this

            20

          • #
            Dylan

            Sad to say some of us learned more about the scientific method on here than in 4 years study of Science at University.

            Definitely arrogant. Probably naive.

            Similarly, Business people can make better Economists than Academics do.
            A case of Money where one’s mouth is perhaps.

            Business to economics is like comparing a boilermaker to a mechanical engineer. Business is one very small part of economics.


            Report this

            10

          • #
            Joe V.

            Business to economics is like comparing a boilermaker to a mechanical engineer. Business is one very small part of economics.

            That’s a good comparison. Business is the part that matters though.

            Which part of economics is academia ?


            Report this

            00

    • #
      Truthseeker

      Jo,

      You say …

      You can’t eat dollars and they don’t keep you warm

      The same can be said for gold.


      Report this

      00

    • #
      Rock Doctor

      I’ve heard this argument before as to the value of holding physical gold and it’s benefits as a hedge against currency inflation and I think the best plan is to own a chicken farm. When “currencies collapse and civilization as we know it ends and on and on” I’ll sell you a chicken for a bar of gold. Or perhaps not. Ten liters of gasoline might be much more useful to me rather than a bar of metal with little practical use outside the electronics and fashion industry.

      I note that many correspondents boast about their gold holdings and immediately convert their value into fiat currencies in either AUD or USD. Whether or not you realize it this is an admission as to the limits of the usefulness of holding gold. I still can’t walk into McDonalds and buy a McHappy Meal with a gold bar and I doubt I ever will. Gold is only worth what people are willing to pay for it and for that to happen all those markets that are supposed to crash due to the failure of fiat currencies will still have to be in operation. Either that or I’ll find the proposition of bartering one of my chickens for 10 liters of gasoline a lot more attractive than that bag of gold coins you’ve been so careful to hoard.


      Report this

      10

  • #
    John F. Hultquist

    Quite an interesting post and comments. Thanks Jo, David, and others.
    I can add a couple of links that may be of general interest. The first explains why a lot of the world’s gold ends up in India. Such cultural things are often a surprise to many in the western nations. My main accumulation of gold is in my computer assuring good contacts for the interacting parts. Not typical, I know. [Mutual funds do include some commodities.]
    http://www.gold-eagle.com/editorials_02/mehta052402.html

    Second link is to a post on Chiefio’s blog titled “Demographic Bomb and US Debt Explosion”:
    http://chiefio.wordpress.com/2012/09/14/demographic-bomb-and-us-debt-explosion/

    This is a serious issue and ‘bleak’ seems to be our future.
    In his post, E. M. Smith, writes:
    “During times of inflation, the stock market does not rise fast enough. What wins are “stuff” investments. Metals (gold, silver, platinum), oil wells (modulo short term drops on business slow downs), real estate, collectables. My “story” would expect “stuff” to rise in price.”


    Report this

    30

    • #
      handjive

      Chiefio is a great blog.

      Always worth a visit as he writes the most interesting & intelligent things on such a wide range of topics.

      Highly recommended.


      Report this

      10

  • #
    Bruce D Scott

    Thank you Jo, for an informative and accurate article. There is a great deal occurring in this nation state of Australia, that looks like Germany during the 1930s.


    Report this

    10

  • #
    pat

    wish u and david success with this enterprise, jo. it’s good u’ve set up a network to do the research etc.

    meanwhile, climate models for marsh have proven CAGW climate models for earth are “valid”. that makes sense!

    18 Oct: MSNBC: Reuters: Deborah Zabarenko: Models of Earth’s climate change confirmed on Mars
    Astronomers find that computer calculations match up with traces of ancient snowfall
    Astronomers say computer models have accurately forecast conditions on Mars and are valid predictors of climate change on Earth.
    These computer programs predicted Martian glaciers and other features on Earth’s planetary neighbor, a U.S.-French team of scientists found.
    “Some public figures imply that modeling of global climate change on Earth is ‘junk science,’ but if climate models can explain features observed on other planets, then the models must have at least some validity,” lead researcher William Hartmann of the Planetary Science Institute said Tuesday in a statement.
    The team’s findings were presented at the annual meeting of the American Astronomical Society’s planetary sciences division in Reno, Nev…
    ***”We do have a lot of public figures, in our country particularly, saying that the global climate modeling studies have very little value,” Hartmann said. “If the global climate modeling people can run these models on Mars and we actually see things that come out of the model on another planet, then the climate modeling people must be doing something right.”
    http://www.msnbc.msn.com/id/49456341/ns/technology_and_science-space/


    Report this

    00

  • #
    pat

    oops, mars not marsh…


    Report this

    00

  • #
    Joe's World(progressive evolution)

    Jo,

    When a politician makes changes to our standard of living, one question usually pops into my head.
    “What vested interest does this politician gain?”
    Many politicians have relatives or gain new positions after office. It is not unheard of in many corruption cases of cash being slipped under the table.
    It is not illegal to start out a company and have investors.

    Gold’s worth is only what trust we have in it’s value.
    Food and preserving it for longer periods is basic survival for what would be a very difficult winter without foresight.
    Regulations and new laws are what is killing the family farmers in Canada. Now they are being classed into the working factory groups and have to pay for all the protections of labor.
    Cannot pick an apple off a tree anymore as it may generate a lawsuit if the person falls. Also need safety boots and a hardhat.

    The further society advances, the greater the complexity.

    This is what I am advocating about how our planet changed over time from 4.5 billion years to today…


    Report this

    00

  • #
    John Brookes

    And yet.. and yet… we in Australia are very well off. We are a lot better off now than when I was a kid. Most of my friends (50 ish) are pretty well off. You’d have to think that our policies of the last 40 years have been pretty good.

    But there seems to be a high degree of insecurity. Why do I have a feeling that something is not right?


    Report this

    00

    • #
      KinkyKeith

      John

      I don’t think you know what has happened to people 10 to 20 years older than you.

      Politicians use that lack of understanding to create “inter-generational” envy that attracts votes.

      Politicians are often a little bit self centred.

      KK


      Report this

      20

  • #
    Mark D.

    Jo, could you comment on silver?


    Report this

    00

  • #
    PeterB in Indianapolis

    I see a lot of comments on the web (even here) any time the subject of buying gold comes up thar are along the lines of “you can’t eat gold”.

    Well, of course not. It is a heavy metal. Quite toxic to the human body as are any heavy metals :)

    The point is, if the dollar goes to hell, it may take hundreds of dollars to buy a loaf of bread. However, the price of bread in terms of gold WILL NOT CHANGE SIGNIFICANTLY. This is why having at least SOME gold is crucial. You can buy around 750 loaves of bread with an ounce of gold right now, and if the dollar does go to hell, you will STILL BE ABLE TO buy 750 loaves of bread with that same ounce of gold.


    Report this

    20

  • #
    Evgueni Kretchetov

    There is a great passage on Gold by Warren Buffett in his last letter to shareholders.
    He says that buying gold does not make sense, because a)it is a non-productive “asset” and b)price of gold depends on those who buy it off you in the future to be even more scared than you are now.
    There is not enough gold in the world to serve as reserve.
    I believe the government of China did analysis of this, as they have a real problem of what to invest into, and they decided against it. I remember this is because gold only comprises 1-2% of all value traded (so if China wanted to, they can buy the lot, outright), and secondly, the price fluctuates wildly, thus making gold just a toy of the markets, and not serious investment.
    Put it this way (again, borrowed from WB) – if you had all of the money needed to buy all of the gold in the world – would you do it? Alternatively, for the same money, you can buy all of the farmland in the USA, as well as 14 Exxon Mobils (the most profitable Co in the World), and have a couple of hundred billion left over.
    The gold cube will not produce anything, but the land, and Exxon Mobils will, therefore it is an obvious choice.
    Yes, I hear, inflation, money printing. But you invested in productive assets which will raise with inflation, and then some.
    Gold on the other hand, depends on scared people paying you over the odds…
    Count me out.


    Report this

    10

    • #
      KinkyKeith

      Hi Evgueni

      That puts words to the unease I feel about gold for westerners who have the possibility of being able to have other assets.

      In rural populations say in India Africa and Asia where the only possible asset is gold, then it would be more useful.

      perhaps owning gold in the West is useful because it can be sold to people in less developed countries who need it as a safeguard.

      KK .


      Report this

      00

    • #
      Doug Proctor

      This is the best reply I’ve read (and thought about). The paradox between high gold bullion prices and low gold company stocks made me comment (above). My speculation rolled around the point you make: that the potential buyers of gold companies aren’t interested, that they believe or fear that gold in the future will drop in price. But you make the better point that gold, in itself, has value only in what others say it has. Much like a painting by Picasso: dabs of colour to some, a multi-million dollar value to others.

      Years ago I failed to exercise a lot of stock options because I believed that there was more value in the stock than in a purchased item. In hindsight I should have bought a house. Even though since then the house prices have gone down by 40%, and I would have “lost” that value, I still would have a house. And that house, in its trade value for another house, would have maintained its value (if not increased it, depending on the comparison house). Having gold would be like my stocks. They collapsed disproportionately to house prices (to zero); relative to a manufacturing facility or land, gold would likely fall disproportionately larger, as the value of gold is personal, without objective relationship to other things. It would be better to hold property or goods.

      China has been buying property and goods for some time. In the Congo, an entire iron ore project. In Canada, oil sands production. Having cash in the bank for China is like having cash is garbage bags for drug dealers: useless except for bragging rights.

      Gold as a material for short-term investment: if, as you say, there is far enough gold available for that purpose, and it gets recycled all the time, there is no incentive for more mining. At some stage all commodities, if allowed freely to be produced, will reach a supply/demand balance. Unlike others, gold does not get consumed, however. So a terminal amount should be reached. Perhaps we are there.

      Diamonds might be an example. DeBeers paid the Russians NOT to produce diamonds. DeBeers stockpiles the lesser diamonds, selling as gems only the better ones. “Diamonds are Forever” is a marketing ploy to keep second-hand diamonds out of the market and reducing prices. If gold is now at that terminal position, then the world is in a new place where the concept of gold is more important than actual gold. It is said that Fort Knox does not contain any gold (or silver) any more (which is why tours are not allowed, to anyone). If true (probably), then we have been in that position for a long time.

      Gold companies could then be in a dilemma. As a company they would have value only as natural gas companies have at present: as far as their cash-flow goes. Very little of a natural gas company’s value lie in its resources. If a gold company has a solid cash flow, then you should invest in it if it starts to dividend, at least if its current share value is predicated on the general market evaluation of gold companies. The value would rise to its ability to give a return on investment better than the alternative investment.

      Just thinkin’.


      Report this

      10

  • #

    There is not enough gold in the world to serve as reserve.

    According to which law of nature?

    That is an excellent case for buying it now. All we need is 0.5% of all those funds trying to get into the market to make something very predictable happen.


    Report this

    00

    • #
      Evgueni Kretchetov

      @Doug Proctor – thank you, I do agree with what you say.

      Jo – people have no fundamental need for gold, its industrial consumption is quite modest.

      Therefore the price of gold depends on the sentiment of the day, and predicting that is like, well, predicting the weather years in advance… :)

      Will gold keep its value if the World goes to hell in a bread basket is not a rhetorical question. If you look at price of gold over the last few years, gold crashed and burned when everything else did. Why? Because those that hold gold sold it to cover margin calls.

      If bad things happen, and herds see gold falling, for whatever reason (and remember, price of gold is nothing but sentiment) – it is also likely to crash like everything else, and then some.


      Report this

      10

      • #

        No fundamental need for gold?

        Even though it’s only fractions of a gram, gold is commonly used to make the connections between the semiconductor “chip” and the “pins” of the package. Gold-plated contacts are used in electrical connections that are safety-critical.

        Gold is used for far more than embellishment in a technological society. It facilitates it.


        Report this

        30

    • #
      John Brookes

      But this is the key point Jo. There is nothing special about gold except that it is rare. As a currency it works well, but I really think that paper money works better, because the supply can be controlled better. One of the most unusual currencies was tobacco, used in the southern US. The beauty about tobacco was that if there was inflation, the tobacco would end up being smoked – reducing the money supply and lessening inflation.

      I lived in a share house in 1982, and one of the guys who moved in had an ounce of gold. At the time it was worth around $800, and he foretold it going much higher. But I think $800 was pretty much the peak of that boom.


      Report this

      00

      • #

        There is nothing special about gold except that it is rare.

        I was under the impression that you were a physicist. Even so, you must be aware why gold is used as the metal of choice in technology.

        Why there were rolls of it laid over the top of cables on the moon’s surface during the Apollo missions.

        Gold is quite special.


        Report this

        30

  • #
    Andrew McRae

    Bangladesh goes begging for more UN money with a dodgied-up pseudoscience climate impact report.
    Lomborg decries the fraudulence.
    Again.

    Bah.

    No I don’t care. this climate fad is over. CAGW is boring. We won. Warmists suck. And it doesn’t matter. All of us, warmist and skeptic alike, will be as brothers rotting together in the poorhouse of the globalist banksters before long. You clutch at your golden straw as the liquidity surrounds you in an inflationary tsunami, washing you towards the gurgling gulag. Your golden breathing straw buys you airtime until it too is liquidated, as depleted as the ground from which it was ripped. The plan was hatched, the deal is done, the troopers are here and your tucker bag `aint wriggling by itself.

    In Ludwig We Trust.


    Report this

    10

    • #
      John Brookes

      I agree CAGW is boring. Its a slow motion accident. Its not exciting like a war, an earthquake or a car crash.


      Report this

      01

      • #
        Richard C (NZ)

        >”I agree CAGW is boring. Its a slow motion accident”

        I agree too. Virtual scenarios on century scales just don’t cut it when there’s real disasters to deal with right now.


        Report this

        20

  • #
    PeterB in Indianapolis

    An interesting little factoid: By ratio of purchasing power (change in CPI)

    In 1913, $1.00 was worth $0.92 compared to a 1789 dollar. That is, in the first 124 years of the American Republic, the dollar, overall, only lost EIGHT CENTS worth of purchasing power.

    In 2011 $1.00 was worth $0.04 compared to a 1913 dollar. That is, in the last 98 years of the American Republic, the dollar, overall, has lost NINETY-SIX CENTS worth of purchasing power.

    Why did I pick the year 1913? That was the year that the FEDERAL RESERVE WAS CREATED, WITH THE PRIMARY MANDATES OF CONTROLLING INFLATION AND BRINGING STABILITY TO THE VALUE OF THE DOLLAR!!!!

    Looks like they are doing a great job, no?

    When coining money was solely in the hands of the US Treasury Department, we only lost 8 cents of purchasing power in 123 years. I would say that the value of the dollar was INCREDIBLY STABLE overall throughout that period.

    Then look at the 98 years between 1913 and 2011 (the Federal Reserve Era)… hmm… we seem to have lost almost ALL of the purchasing power of the dollar compared to that first 123 year period… curious…

    And, most likely, completely by design!


    Report this

    20

    • #
      John Brookes

      Yes, and enjoyed huge economic growth at the same time. So was it good or bad?


      Report this

      01

      • #
        PeterB in Indianapolis

        John,

        Most of the world certainly enjoyed a greatly increased standard of living during the time period of 1913-2007, but since 2008, it seems like the chickens may be coming home to roost. Right now we seem to have a worldwide currency bubble, and if that bubble bursts, the aftermath could be highly unpleasant.

        You can only live beyond your means for so long before your world comes crashing down. The same is true for governments as it is for individuals.


        Report this

        10