Why Buy Gold?

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Read Why Buy Silver?

(January 2013)

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  • Gold has been real money (medium of exchange and a store of value) for over 3,000 years. It is still real money.
  • Gold has no counter-party risk. It is not someone else’s liability. It has intrinsic value that is recognized around the world.
  • ALL paper money systems have eventually failed. The intrinsic value of paper money is effectively zero; and all paper money has, throughout history, eventually devalued to zero.
  • Paper money is a liability of a central bank or a government that may be insolvent. The money issued by a central bank or government has value based NOT on its intrinsic value, but only upon people’s faith, trust, and confidence in that money. Occasionally that faith and confidence is misplaced. For example:
  • zimbabwe

  • The price of gold in US dollars since the year 2001 has been strongly correlated with the ever-increasing official national debt of the United States. Read $4,000 Gold! Yes, But When? Does anyone believe that the national debt will decrease or even remain constant over the next several years? NO! The national debt will increase even more rapidly over the next four years and so will the price of gold. Skeptical? Then look at the chart of national debt and the nearly parallel price of gold. Still skeptical? Do you remember gasoline selling for less than $.20 per gallon and gold selling for about $40? They have increased in price because there are currently many more dollars in circulation than in the 1960s – hence, it takes more dollars to buy an ounce of gold, a gallon of gasoline, a loaf of bread, a cup of coffee, or a fighter jet.
  • Click on image to enlarge.

  • Because governments and central banks issue paper money backed by nothing but faith and credit, they are in competition with gold which is real money. Should we be surprised when they discount the importance of gold and discourage ownership? Should we be surprised when the “Oracle of Omaha” denigrates gold ownership? (Berkshire Hathaway holds huge positions in banking stocks and Goldman Sachs stock.) Should we be surprised when news stories are heavily slanted against gold ownership?
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  • Groucho Marx once said, “Who are you going to believe, me or your own eyes?” Who are you going to believe – the history of gold as valuable money while paper money failed, or the pronouncements of politicians, central banks, and the owners of bank stocks?
  • Who and what do you believe? It will be important to your financial well-being if (when) paper money accelerates its journey toward an intrinsic value of zero. Read Ten Steps to Safety.
  • Are you going to believe history and current facts or less reliable information from politicians, central banks, and the owners of bank stocks?

GE Christenson
aka Deviant Investor

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8 Responses to “Why Buy Gold?”

  1. [...] From 1/1/2008 – 1/1/2013, the official debt increased at 12.2% compounded annually. The unfunded liabilities for Social Security, Medicare, Medicaid, and government pensions increased substantially faster. Does this appear to be sustainable, prudent, and financially solvent? What are you doing NOW to protect your life savings, knowing that unsustainable deficits and money printing will create a weaker dollar? Why Buy Gold? [...]

  2. [...] From 1/1/2008 – 1/1/2013, the official debt increased at 12.2% compounded annually. The unfunded liabilities for Social Security, Medicare, Medicaid, and government pensions increased substantially faster. Does this appear to be sustainable, prudent, and financially solvent? What are you doing NOW to protect your life savings, knowing that unsustainable deficits and money printing will create a weaker dollar? Why Buy Gold? [...]

  3. Tom says:

    I am long the GLOBAL RESERVE CURRENCY (US$),
    - protected by the US military -
    which is inversely correlated to the US$.

    And, I am not even American.

    I don’t believe in all the other nonsense
    that goldbugs spin when SELLING
    their stock of gold and silver
    to the public.

    Isn’t it interesting that most
    goldbugs are Americans?!

    Why don’t they just leave USA
    if they expect a US$ DEVALUATION?
    Makes no sense.

    What would happen to OIL and FOOD prices
    if the US$ were to be DEVALUED?

    GLOBAL rioting and demonstrations!!!

    • I can’t agree with much of what you say.

      1) You are long the US$. Your choice.

      2) In my experience, most goldbugs do NOT sell their gold and silver. They want more gold and seldom want to sell it. Consequently, they are not trying to generate a market for what they don’t want to sell. In my experience, they want insurance against the loss of purchasing power in their unbacked paper currencies, and they want some insurance against another financial meltdown.

      3) Based on the traffic to this site, there are a large number of followers in Canada, the UK, Australia, Germany, and Asia. I do not think it is accurate to suggest that most goldbugs are American.

      4) If the US$ continues its devaluation – ongoing devaluation – oil and food prices will go much higher. We agree on this. And there will be social unrest. We agree on this. But that is why people want gold – they see exactly this scenario. It is NOT a reason to think that the dollar will never be devalued. It is down roughly 95% to 98% in the last 100 years. Why would you think it will suddenly become stable?

      5) When was the last time you paid under $0.20 for gasoline? Do you still think there is no devaluation? Slow and steady devaluation is better than a sudden drop in value, but they are both devaluations.

      I encourage you to look at the history of unbacked paper currencies and rethink your position.

      GE Christenson
      aka Deviant Investor

  4. Chuck says:

    Good article, For all the reasons you list I started buying gold strongly in 2006 /c the money I made selling my home then. I have over the years bought approx 80 + OZ of gold, ( most of it for $500-$700 Oz.)& also somewhere > 1000 Oz of silver @ $5.00 to $10.00 Oz. & this has obviously benefitted me tremendously. I have not bought any recently, but have instead been putting my extra Social Security $$ into gold & silver mining stocks, & these have fallen a lot recently, I however am not discouraged by that, I just keep buying them while they are still low, because, for all the reasons you have enumerated, I expect them to go up significantly soon. I do have my own personal history to back this belief up, wouldn’t you say? Keep passing the word, someday the sheeple will get it. PS Many of my friends & relatives think I’m crazy, do you? CL.

    • I think you understand the issues and that you are definitely not crazy. Congratulations on what I think is an intelligent investment process that you have been using. I wish you further success.

      GE Christenson
      aka Deviant Investor

  5. Phil says:

    Your pop up SHARE is right in the way of reading on a mobile. Along with ONLINE VISITORS.

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