Saturday, November 21, 2009

Gold is Wealth

Why should we own gold? What is gold good for? What does it mean to say "gold is wealth"? And what exactly is wealth? We have contemplated the pure concept of money. [1][2][3] How about the pure concept of wealth?

We all have needs. In fact, we all have the same needs in sustaining our lives. In some things, some of the most essential needs, we are all equally and extremely wealthy. We could even build a pyramid of these needs and their supply relative to our demand for them. In many cases, the most needed things are in such complete supply as to overwhelm demand. No need to hedge against a future shortage of these things through derivatives or swaps. You see, wealth in fact is anything that helps us in meeting our future needs. To have more than you demand for immediate survival is to be wealthy!

Take, for example, the Higgs Boson. Assuming this particle actually exists, it is the foundation of all things, of all life. It is something we all need in order to survive! We would simply disappear (or not exist) without it. It is what makes matter matter, so to speak. And again, assuming these things really exists, then there must be plenty of them around. More supply than we demand. Or at least, theoretically, the perfect supply to meet demand at all points in time.

Another essential need we all have is gravity! What would you do if you ran out of gravity? Float away? Thankfully we have a plentiful supply of gravity that "outweighs" demand. ;)

How about sunlight? Are you wealthy in sunlight? Well, we may not all be equally wealthy when it comes to sunlight, but there is no doubt that we all need it to survive. And amazingly enough, supply seems to always meet demand without the need for hedging or storing sunlight for future use.

Moving on up the pyramid we come to oxygen. Yes, there are some situations in which it pays to store oxygen for future use. If you are planning a trip to outer space or, perhaps, to the bottom of the ocean then it would make sense to hedge your bets and load up on more oxygen than you think you might need. The risk:reward ratio highly favors a surplus of oxygen in situations where it is possible for demand to outrun supply!

Topping off the pyramid we have the needs we humans all strive to secure, food, clothing and shelter. And in our modern world of electronics and internal combustion we could also add energy to this list. Under the most extreme conditions, we could probably find wood to burn in the forest for cooking and heating. But who wants to live like Ted Kaczynski (pre-arrest)? Even Mad Max had fuel for his car!

But luckily for us, 5,000 years of trade have taught us that we don't need to plan as meticulously for survival as an astronaut or a deep sea diver. As Aristotle [4] explains:

We can generally blunder our way through day to day and year to year in the comfortable fact of life that, through the open market--through the ability to trade with others--we can generally obtain what we materially need in one facet in exchange for some of our own wealth in another facet. Food for clothing seems like a pretty reasonable medieval exchange, doesn't it?

We all know the inefficiencies of barter, don't we? As civilization and trade evolved from the dawn of man to the 20th century, Gold revealed itself to be the single most reliable, universal agent that could be traded in various quantities for anything anywhere on Earth. Maybe most remarkable in this is that Gold is not itself something that is needed or consumed in satisfaction of our basic material needs for survival. But due to it being perfectly and uniquely suited for this universal role in trade for any other person's available wealth as necessary to meet our own specific needs, Gold has become such a near proxy for the real wealth we require for life that many of us have permitted ourselves the casual inclusion of Gold into our otherwise strict definition of wealth.

Those in the financial industry have come to call this universal wealth asset (Gold) by the name "money," but that unnecessarily confuses the issue. In their efforts to facilitate various objectives in modern life, those in the financial industry endeavored to master the alchemist's craft--to methodically create "money" from such substances as worthless base metals or from paper. Even the village idiot can clearly see that "the bankers and others" didn't succeed in creating Gold. But the village idiots were never so sure that these nickel coins and paper notes weren't in fact successfully turned into this other thing that the experts called "money." As for me, I'm comfortable calling these lesser creations by the name "currency," and further, I recognize that they can and do serve a useful purpose in modern society. With this distinction I am not so easily baffled as the village idiots into thinking that these currencies created in the image of "real money" can actually attain the superior wealth function of the asset they sought to imitate--that being Gold. And you shouldn't be fooled either.

Every currency made in imitation of Gold goes hand in hand with the financial architecture that supports it right into the trashbin of failed efforts, and are logged into the collective wisdom of those who vow not to be fooled again. Based on the "conception, care, and feeding" of the various currencies and their supporting architectures, the life span--or timeline--of predictable rise and fall milestones may vary in length from one currency to another. They may serve a purpose while they last, but they all suffer the same eventual demise at the hands of inflation. Remember, these currencies are man's artificial attempt, time and time again, to imitate Gold for use in modern commerce. They are built for speed--built to be borrowed specifically, and spent rapidly! They are not suitable for saving. For that you must turn to the master--the near-wealth proxy upon which all currencies must bow down in inferior imitation.

So you see, learning how the world works is all about each man coming to the understanding about the real wealth we all require to best ensure our survival. Knowing that Gold is the master proxy for our life's day-to-day and year-to-year shifting requirements for food, clothing, shelter, and energy, it simply makes more sense to gather in Gold for later use than to gather in clothes (that we may outgrow,) food (that may spoil,) houses which are more than our needs, or energy (that we can't store.) You see, time bears witness to this undeniable fact: Gold can be called wealth because it is an enduring wealth proxy in exchange for our life's needs. Currency, on the other hand, serves a specific modern economic purpose--to be borrowed and inflated in placation of man's immediate desires. It is not wealth, it fails as a proxy for the Gold it tries to imitate. Do not confuse the two.

I think we can chop off the bottom four "foundational" layers of our pyramid now, since they are in full supply. Let's think of them as the solid ground upon which this wealth pyramid stands.

Now that we have established a solid pyramid of life's necessities and the need for a pure wealth concept in order to secure a future supply, let us take another look at John Exter's inverse pyramid of paper products based on wealth derivatives. I first introduced this concept on my blog in the post called All Paper is STILL a short position on gold. And by the way, George Washington himself [5] helpfully pointed out that the image I used, from Wikipedia, may not be the correct Exter pyramid. Perhaps Trace Mayer's pyramid [6] is better. In any case, let's make a fresh one for our conceptual purposes:

Next, let us place this paper derivative inverse pyramid atop the real wealth pyramid. Let's see how it looks!

Does it look a little like an hourglass?

Now picture this. The inverse pyramid on top is actually ten (10) times larger than the pyramid on the bottom. And it is 100 to 200 times larger than the golden capstone!

In ancient times gold was the very best item for trading and as such, it became the very best wealth reserve. Later, gold became currency and came to be known as money. Today, gold is commonly believed to be only a commodity and is traded as such.

I propose to you that we can estimate that as a mere commodity today, gold is relegated to a trading range of between $700 and $5,000. As a currency, which it has not been since at least 1933, it would be range-bound between $4,000 and $11,000 according to Jim Rickards. [7] And set free to fill its ancient role as a wealth reserve, gold will rise to somewhere between $10,000 and $100,000 in today's dollars.

Be wary of the "men's suit comparison". Just a couple hundred years ago a wealthy man amidst 1 billion others on this planet might have had a handful of fine men's suits, a nice house and a large plantation. Today a wealthy man would have dozens of fine suits, a couple mansions, a large yacht, 29 flat screen TV's, an iPhone, and a sizable paper-wealth trading account. And that is among 6.75 billion souls on the planet. Compare wealth with wealth, not suits with suits.

Can you imagine a gold price of AT LEAST $100,000 per ounce? How about a real purchasing power increase, measured in today's dollar purchasing power, to somewhere between $10,000 and $100,000? In the bell curve below we can see that the most probable PP landing zone is between $25,000 per troy ounce and $85,000 per troy ounce. Can you think of a better reason to invest in physical gold coins right now? How about protection from hyperinflation? $100,000 is the bare minimum in this case. The top is infinite! Imagine $12 trillion per troy ounce... the size of today's US national debt reduced to one single gold coin you could buy tomorrow! Can you imagine it? It doesn't really matter if you can't see it like I do, as long as you buy the coin. As JFK liked to say, "a rising tide lifts all boats", not just the ones that believe in rising tides.

You don't have to buy my story as long as you buy gold!


[1] Gold is Money - Part 1
[2] Gold is Money - Part 2
[3] Gold is Money - Part 3
[4] Full credit goes to Aristotle for his acute clarity of Thought. Sir Ari, where are you?
[5] The first president of the USA converses with FOFOA
[6] The Great Credit Contraction Liquidity Pyramid - By Trace Mayer
[7] Jim Rickards on CNBC's SquawkBox, 11/19/09


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Anonymous said...


I'll try to find that again. Those doubts are based on the same principles as I posted here, just better worded.

Don't bother looking for me, I'll find you, since you do have a handle.

Thanks for lots of insight on euro.

costata said...

Greetings All,

Any thoughts on why silver is not performing its previous role, leading the advance of our favourite yellow metal?

To recap:
1. Silver is well below the previous high.

2. Reported Chinese public demand for silver is rising strongly off a low base.

3. Last time I looked the gold/silver ratio was 63:1. A few weeks ago it was around 55:1. So silver has experienced a DEVALUATION of over 14% in terms of gold.

Have gold and silver come to the parting of the ways?

eg. Gold progresses to Freegold and silver charts a different course.

Professor Fekete puts forward some very convincing arguments against bi-metallism. If I understood Another's writings Another was adamant that silver wasn't going along for the Freegold ride.

FOFOA said...

Hi Costata,

It doesn't look like they've parted ways yet, but it is possible. It can be only a wild guess how much they will close the gap before they do. I would give you my guess, but it is as worthless as a paper dollar so instead I will give you a couple quotes from Another...

"Silver will always be part of "gold money". But, is far too small a market for large, modern economies. Silver will do far better than any paper asset, only it will serve better as a "personal holding" than as a major money. If it is of your way to balance wealth, then silver will show value."

"I think, many buy the Silver (and platinum) for but one reason, it will increase always more percent than gold. It is always the thought of more leverage, yes? Even today, these metals have more use for the industry and find a better "concept of economic purpose" in the minds of investors. Many dealers say, this purpose is of better "investment reason" and as an aside, you also hold metal, like gold? I say, gold has "no investment reason" as it is "real money" that draws no interest from being "lent out". For this purpose, it is an asset that shows "the conclusion wealth" from our long life of investing in commerce! Given the option of investing for "economic purpose", there are and have been, many better items than silver (Dow Jones?). In future currency wars, silver will show a return, but it may prove as uncertain as the economy"


Raul said...


Today will probably turn out to be a very historical day as the cartel basically threw in the towel.

Our regulators will have to answer to a lot of questions as to what on earth were they regulating.

This may bring down the entire financial global apparatus."


Anonymous said...

The only reason Euro is rising is a shift from the dollar of those who need to stay liquid, dollar loss can easily inflate Euro due to the size diffrence! but once fiat currency confidence loss (this by failure of any one of them USD/JPY/GBP) then all of fiat including the Euro will fall at the same time against real asset specially GOLD! some will survive but will find its real value before become part of the new currency system.

Anonymous said...

@TomB: is a good place... Also for testing it.

Aangezien je van België bent, ben je ook soms op t forum van de Tijd? Ik ga de laatste tijd zelden op vanwege de censuring en mainstraiminformatie... Ze verkrachten de waarheid en ontkennen het bestaan van andere, op feiten gebaseerde, argumenten (door meermaals mijn reacties te wissen, vanwege tegenstrijdige belangen...)...



Anonymous said...

oops wrong post, it must be posted under the blog 'gold is wealth'...



Anonymous said...

@TomB: is a good place... Also for testing it.

Aangezien je van België bent, ben je ook soms op t forum van de Tijd? Ik ga de laatste tijd zelden op vanwege de censuring en mainstraiminformatie... Ze verkrachten de waarheid en ontkennen het bestaan van andere, op feiten gebaseerde, argumenten (door meermaals mijn reacties te wissen, vanwege tegenstrijdige belangen...)...



Anonymous said...

Again? how is this possible??? I posted the second time in 'gold is wealth' and then the computer placed it again under 'happy thanksgiving'...



Anonymous said...

@Swissman: Very interesting, but they ask at foreigners to first open an account (with a minimum of 100.000CHF) before getting the possibility of buying gold or platinum. Is this correct?


Anonymous said...

Ow, now I see it's a blog of 'Gold is Wealth', but the next page... What stupid of me... :-s


TomB said...

Jimmy: I frequently visit De Tijd to get news updates but I don't post comments at their forum because messages that don't fit in the mainstream view get deleted pretty quickly.

Desperado said...

Swissman said....
You can pay in cash anonimously for up to CHF 100 000 (=$100 000) in one transaction. No VAT is applied for gold, while for silver there is.

Such a transaction takes less than 5 minutes.

Swissman, have you ever sold gold back to UBS or any other Swiss banks?

The Mad Scientist said...

Brilliantly written except I would replace Higgs Boson with Scarlett Johansson's Busom as essential for life.

Anonymous said...

Of course no one pays an attention to what you say until you're proven right, but I was saying for years that SILVER IS A COMMODITY while GOLD IS MONEY.

They are valued similarly because silver is a very expensive commodity and was money in the past. However, while qualitatively similar, they are now different quantitatively!

This means that when a paradigm shift occurs, they will split their ways.

I.e.: take tungsten and gold. Quantitatively, they are similar as far as their weight is concerned. However, they are different in their quality because they have dissimilar atomic structure. As the temperature rises beyond particular point, one will melt while other will remain solid. This is an example that illustrates an impact of paradigm shift on qualitatively different matters.

Anonymous said...

Oops. Mixed up "q" terms there in second paragraph. Sorry. Example has it right. Couldn't find less complicated English words to explain this.

FOFOA said...

Anything for you, Mad.

Anonymous said...

What do the letters FOFOA stand for? Who is "Another"?

Anonymous said...

How do you get that bell curve for gold value centered on $55,000? Was that number just pulled out of the air?

Anonymous said...

foa = friend of another
fofoa = friend of friend of another

Anonymous said...

Sorry if I missed the answer ... what do the letters "FOFOA" stand for? And who is "Another"?

Anonymous said...

Thanks. Who is "Another"?

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