Saturday, November 07, 2009

Not One God Damn Thing

Governments around the World used to be in the business of accumulating gold. A large gold reserve enhanced status and indicated the financial health and security of a regime.With ample gold reserves, a country could threaten or make war, sustain itself when taxes fell short, even feed the people if crops failed. During times of political upheaval, the faction that could keep control of the gold reserves always had the upper hand in keeping control of the country. If a deposed faction could get the gold reserves out of the country, the new ruling faction faced a much more difficult time maintaining control.

For a long time now, governments have been pretending that gold reserves didn't mean much. Not many but some governments have sold off substantial portions of their gold reserves. Almost no governments have added to their gold reserves in many decades. Apathy towards gold made it difficult for miners to sell their production, even to just cover costs. The value of gold stagnated and even decreased relative to purchasing power.

Things may be changing. The Chinese are the largest producers of mined gold in the World. The Chinese government is accumulating virtually all of it into its reserves. Russia is also a big producer. They are doing the same. The Indian Government just bought 200 tons of gold from the International Monetary Fund and was willing to pay almost double what gold was worth last year. The Indians are supposedly the shrewdest and most knowledgeable gold traders on the face of the Earth.

Investors around the World are accumulating gold. Individuals are purchasing gold coins and ingots, knowing they will have to pay a steep premium to buy and endure a discount if they sell it back to a dealer. Even so, the wait to buy gold is long in many places.

Gold gets a lot of bad press. All the touts, advisers and analysts say it's a bad deal, in a bubble formation and will crash soon. Here in America, people have other things to worry about. Almost nobody is buying gold except the affluent, who are worried about proper diversification.

I understand that I only have two choices. I can have my money in gold or some countries currency. For now, I'll keep the gold. I may lose money with gold. I don't think so but even if I do, my downside risk is limited. If all you have is the dollar, there is no downside limit. With gold there is also a potential upside, which is non-existent, at this point, with most currencies.

You never know. Gold could continue to increase in price, as the Treasury prints huge amounts of money to fund spending deficits, in anticipation of inflation. At the same time the contracting economy may experience perceived deflation as demand for goods, services and assets shrink. If I'm nimble, I could get out of gold at the right time with a big paper profit, buy up distressed but still ultimately valuable assets that are in decline and die rich. Do I think my chances of that are good? Nah! I'm just a little guy. I don't have much and will likely lose it in any case but what the fuck have I got to lose?

Not one God damn thing.


W.C. Varones said...

Sri Lanka too.

I'm with you-- I'm slashing my spending and dumping what I save into roughly equal measures of gold, cash, and global stocks.

reddog said...

I'm only keeping enough cash reserve to meet emergency spending needs and exist, very simply. for a couple of years.

I think almost anything is better than cash, at this point. To guarantee adequate future cash flow, I would go with cheap rental housing in thriving urban areas or a nice mobile home park or two. Mobile home parks are a license to steal. You can't even buy them. You have to build your own.