Maggie's Farm

Regarding the "Gold Bubble" article.
This was one of the oddest pieces of journalism I've ever seen.
Sure, IF you invested $1 in a BASKET of stocks and traded them regularly to stay with the "very best", you'd have alot more money today. But back then (and even today to a degree), who did that? If you picked ANY ONE stock and bought and held it - it'd be worth exactly ZERO today. So the comparison is inaccurate as well as imprecise.

Gold, by any measure, is the longest lasting investment of all time.

Name another stock, bond, or element which people return to time after time after time.

Sure, it CAN bubble, and has many times. But consider why it bubbles - uncertainty. Gold is a certainty. During uncertain times, people turn to it because of exactly what IT provides that stocks cannot - assuredness. If stocks are undermined by lousy management or poor public policy, gold will remain a steady gainer because it is a known quantity. This is one reason ownership was outlawed during the Depression - an attempt to FORCE money into places it was perceived to "provide economic value" (well, it was also to prevent the government from competing with private forces as it purchased gold to back the dollar - which is what private forces are doing now as they hedge themselves against the dollar's eventual decline).

Outlawing gold ownership had none of the beneficial effects that were hoped for. In fact, it undermined the overall investment market to a very large degree. If you have one of your hedges removed - you just go and find another one.

Right now, gold has alot of room to go up. Why? Let's consider the reasons.
1. Fiat money is being created by virtually every state at a rapid pace. This alone will cause gold prices to climb as investors seek places to put the toilet paper money they are generating. One could say gold is actually providing a backstop to devaluation, for the time being.
2. India and China are buying it in truckloads. Why? Because as currencies fail due to fiat overload, the ones with the gold will make the rules.
3. The concept that gold ads indicate the "average guy" is into gold and therefore the market is "peaking" is odd. The idea is to get people to SELL THEIR GOLD. In a peaking market, people are BUYING GOLD. So as long as people continue to sell into this market, it will continue to climb. There are enough people (that journalist included) who clearly don't understand this concept.

Right now, the "smart" money is buying gold. Lots of it.
If you watch volume in the stock market, as it has risen recently, the volume has shrunk. That is typically a sign of growth running its course. Don't get me wrong, the stock market could go up - and possibly quite a bit more (I doubt it...it should stall around 11,000). But Gold will continue to climb even if it takes a step back here and there.

So why is gold NOT a "barbaric metal" as some have called it?
Well consider it's qualities - which happen to mimic all the key qualities of REAL MONEY:
1. It is a medium of exchange (a paper dollar and an ounce of gold can both provide this function)
2. It is a store of value (a paper dollar can do this in good times. In bad times it cannot. Gold is not a bad investment during deflation, but it's phenomenal during inflation)
3. It is a unit of account. You can measure accounts by dollar value - but you could just as easily do it by unit of gold value. Indeed, many traders during periods of uncertainty insist on payment in gold
4. It is a standard of deferred payment. Nuff said on that.

Fact is - Gold IS MONEY. Always will be.
Other "types" of money have not stood the test of time because they lack marginal value:
large round stones
salt

Other commodities can't be money because they get used in large amounts:
oil
food
copper

During an apocalyptic situation, there is a belief that gold is useless. To a degree, this is true. Who wants gold when you'll need food or heating oil? Better to barter things you need.
In that situation, gold is "worthless". But as time goes by (and we've seen this over an over again), as society gets back on its feet, a medium of exchange and portability of value is required. What provides it?

GOLD.

Good luck bashing it. But it will always be with us, and in bad times, we'll always rely on it as long as a market system is in place.