Here is a ridiculous “anti-gold” argument that keeps popping up and it is usually presented by people who should know better. In the last few weeks, I heard it from a graduate from an Ivy League business school and a prominent money manager. They said “what good is gold? You can’t take it to a gas station or a grocery store and pay for a purchase with a gold coin.” The logic of this escapes me! Can you bring a stock certificate or a T-Bill to the gas station or the grocery store and pay for a purchase with them? Of course not! In all of these examples, including gold or silver, you sell the “asset” for dollars and use the dollars to make your purchases. They are trying to discredit gold by pointing out that it isn’t money. Gold hasn’t been money, in the US, since 1933 when Roosevelt confiscated it and removed it from circulation. Prior to that date, you could walk into a bank and exchange Gold Certificates” for gold coins, like the $20 Saint Gaudens. Gold had a fixed value of slightly more than $20 an ounce then. It was changed to $35 after the confiscation – in other words, the government “devalued” the dollar by 60%.
A picture of a gold certificate (top image is the obverse of the certificate, bottom image is the reverse of the certificate)
Series 1934 $100 Gold Certificate, Obverse
$100,000 Gold Certificate, Obverse
Gold is an “unofficial” form of money now, in that it tends to hold its value (as money should) over long periods of time. It is the first asset that people around the globe seek out when their currency starts to fail (the Euro, now) or when times get very bad, as in war or depression.
Gold is like Rodney Dangerfield. It don’t get no respect.
I expect to hear the same ridiculous arguments why gold is not worth owning a year from now, when gold will cost you at least $2,000 an ounce. They will tell you that it is too expensive. It doesn’t pay any interest. You can’t spend it at the local store.
My favorite is the “doesn’t pay any interest” argument. One could say that CDs and T-Bills don’t pay any interest either, but that’s another matter. If you have an asset, like gold, that goes up on average (the last 10 years) nearly 20% a year, then you sell off an ounce here and an ounce there for the dollars that you need. You can sell up to 20% of your coins each year and the remaining ounces of gold will still be worth what you paid for them. Like a bond – the principal or value remains the same and you get to spend the interest. The difference is that the bond paid 1% or 3% and gold rose by nearly 20%. You keep the “interest,” but I’ll take the gold.
When someone uses one of these arguments with you to knock gold, just walk away. They know NOTHING about gold and you are wasting your time to listen to what they have to say.
Please mark your calendars because yesterday the S&P 500 closed at 1,050.
Why is this important? Because it means the market has officially closed BELOW its previous significant low (1,056) which occurred during the February 2010 correction.
In plain terms, this is THE first time the market has done this since the rally began in March 2009. Before this, every single time the market corrected, it closed at a higher low.
This is a loud, clear signal to investors that the rally has ended and that the top is in. Sure we might get decent bounces (like the one that started a few minutes ago), but the trend is now down.