Tuesday, April 2, 2013

Gold Price Defying Logic?

"Logic (from the Greek λογική, logikē) refers to both the study of modes of reasoning (which are valid, and which are fallacious) and the use of valid reasoning."

I heard it said last week that there are reasons why smart people believe stupid things. We humans are complex beasts, we can find comfort in seeing hope where there is none, and then comfort where there is only darkness and nothing. Smart as we think we are, we are all prone to deception.

Are we who swap our paper for gold deceived by those with vested interests? Are they laughing at us while they take our wealth from us?

Maybe.

But not likely. So let's be logical about this. Come, let us reason together.

The case to own gold is one fraught with contrary argument. Buy gold as an inflation hedge (rising prices that is) or don't buy gold, it's headed for the door. Price is going to $1000 per oz.

Here's why I think we all need to hold some gold.

1. It's shiny and nice to look at (nah, just kidding)

2. It protects you from governments. This is the main reason. Forget the price. Gold is a store of wealth with no counter-party risk. That is if you own the physical stuff in LBMA form outside the banking system. Gold has seen civilisations come and go, fiat money systems come and go, but remains the best store of wealth. It may not even be money...hmm but that's too deep a thought for today.

Just look at depositors theft in Cyprus and soon New Zealand and Canada with the list growing daily as governments salivate over the success of the Cyprus bail-in and want in on the scam.

3. Gold is a hedge against inflation. OK, so studies have proven otherwise, but really, look at the gold price graph since 2001. Seems to follow the money printing quite nicely. But, I hear you say, what about the printing of $85 billion per month by the Fed and the gold price heading down? Well, history shows that when sovereign debt levels get to 90% of GDP then inflation goes haywire. Remember, inflation is only the money supply increase. Right now the Fed are printing like crazy and when this money supply reaches 'the scary point' and there's a wee push from an unknown event (war?) then the price genie is let lose.

By the way, the US debt to GDP will be 120% next year.

4. Peace of mind.

So there are a few reasons to hold gold. Be smart and not stupid, or be smart and stupid. I don't care, but own physical gold anyway.

Gold in New Zealand dollars: $1910.42 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $33.46 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)
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