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Thursday, November 21, 2013


There is one reason to won gold: you believe that the unlimited issue of paper money will lead to the ultimate devaluation of paper money.  Gold is an alternate currency.  Gold is a hard asset.  Gold is a store of wealth.

So why, as the governments of the world issue paper money in quantities that have no historical precedence, is gold mired in a terrible slump?

It's not.

Bullion is in a slump.  But the bullion market is easily manipulated.  You may believe that, sure the stock market is manipulated, and the currency markets are manipulated, and the interest rate markets are manipulated, and the derivatives markets are manipulated - but Gold?!  No way!!!!  Fine.  Believe what you will.

What matters is why it can be manipulated - whether or not you believe it is. It can be manipulated because one ounce of bullion is fungible with every other ounce - or indistinguishable from every other ounce.   In other words that very quality that makes it suitable to be currency - that gives it liquidity - makes it easily manipulated.  Because players with enough wealth can buy it it sufficient quantities to move markets wherever they want.  (Even if you believe they have far to much integrity to do so.)

Eventually, in the very long run, markets can not be manipulated.  Eventually they get to where they're going.  Eventually.  This doesn't help you at any particular point in time.

The same problem exists for the Gold stock market.  Every single gold stock can be manipulated.  For all the same reasons.  And besides, if you own gold stocks you really just own paper.  If you can get your stock printed on paper.  Otherwise, you just own the thought of paper.  Of course, this thought can be cashed in for other paper in the Stock Casino.  If you're really lucky.  But it is not a hard asset.  So you're totally at the mercy of the very wealthy who can move the value of your thought-paper at will.  (Of course, you may believe they have fat too much integrity to do so.)

So what does that leave?  It leaves all the gold coins and medals (which until the 20th century had the same currency value as coins) minted between 600 BCE and 1933 - when the world functionally went off the gold standard.

This comprises so many markets, it would take books and books to go through them.  However, let's take ancient gold coins.  No two are exactly alike.  In fact, finding two coins from the same 2500 year old die, is extremely difficult.  Then find them with similar strikes, and in similar states of preservation.  You can't.  Therefor, no matter how rich you are, you can't move the markets.  Because each piece you buy is unique.

Look at the Portrait Stater of Alexander the Great issued under Lysimachus in 320 BCE pictured above.  Not only is this a tremendously important historical document - it is unique.  You'll never see another exactly like it.  So how do you value it?  It takes tremendous study.  If you have a billion dollars you can surely buy it - at some price.  But you'll still have no idea how to value it. 

This makes for a fairly illiquid market.  That's the problem if you want to use this hard asset as currency.  And that's the tremendous value if you want to use this hard asset as a store of wealth. It has a 2500 year track record of holding its value - and gaining value in proportion to the issue of paper money - over time.  And with a lot of study you can learn to understand that value.  And this will make you competitive against even the super wealthy.  At least until the super wealthy take the time and effort to learn about the these values.  Then it will be too late.

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