I just wanted to follow up on a couple of the comments I got on my last post.
In that post, in cased you missed it (it was a cracker), I explained why I wasn’t buying gold.
I don’t think the price will go up, (more than likely will have further to fall from here) so I’m not a gold speculator. And I don’t really think gold at these prices will protect my wealth should there be some sort of economic calamity. I’m not a gold insurer.
And I’m not a gold investor, because gold doesn’t pay you any returns.
So I’m not buying gold.
Now, pretty much every time I run this line (in these blogs, at dinner parties, at committal hearings) people accuse me of having my head in the sand.
The system’s corrupt, our currencies are fantasies, a global meltdown in inevitable.
Winter is coming.
So first of all, let me make it clear that I’m not some profit/loss Pollyanna, skipping through sunlit fields of blue birds and butterflies.
I’m well aware that there are dozens of icebergs lurking in these waters. At any one time, there are dozens of roads that would take us to economic ruin town.
But will they?
Murphy’s Law doesn’t apply to economics. Just because something could go wrong, does NOT mean that it will go wrong.
I mean I could think of any number of scenarios that could lead to a house price bust from here.
Maybe for some reason the US banks decided to monetise their massive balance sheets. This leads to run away inflation in the US. The world’s reserve currency collapses, global trade shrivels up, Australia follows the rest of the world into depression.
Maybe the reform program in China comes off the rails, or the Chinese property bubble pops. Chinese demand shrinks, wiping out what’s left of the mining sector’s contribution to the Australian economy. Incomes fall, unemployment rises, and the collapse in housing demand leads to a ‘Steve Keen’ correction to prices.
Or maybe the Italians and Spaniards follow Greece into debt delinquency, the European Union collapses, Germany starts an “Occupy Rome” movement, and the following debt crisis paralyses global credit markets. Home lending at home freezes.
I’m not ignorant to the risks.
They’re all perfectly reasonable scenarios. All perfectly feasible. And if they did occur, future generations would wonder how we could have been so blind to the risks. Hindsight is 20/20.
But the question is not ‘could’ they happen? But ‘will’ they happen? Just because the trigger exists, doesn’t mean it will be pulled.
People have been talking about all sorts of economic boogeymen since before the dog was a pup – the break-away colony of America, the rise of fascism, communism, the departure from the gold standard.
Oh that last one was a classic. People were predicting that the new currency wouldn’t last five years. That gold was again the only way to store your value.
But that was over 40 years ago.
That’s not to say that there were no risks. There were risks. There still are. It just didn’t play out that way.
There are always things that could go wrong.
But I tend to think that a heightened level of risk is just the price you pay for living in a complex global economy. It’s like driving a sports car. If your top speed is 240km/hr, then there’s obviously a lot more that could go seriously wrong.
But that’s also the point.
Likewise, we live in an era of unprecedented leverage, trade and economic speed. There are more risks associated with such a system, but I for one wouldn’t be taking us back to the 1950s.
As much as I love Elvis.
The other argument I don’t get in all this is from all those people crippled by conspiracy theories.
The central banks are owned by space reptiles. The currency has no real value. The Illuminati pulls the strings of government. The whole financial system is about implode. Justin Beiber has genetically modified talent.
Again, I’m not saying I’m ignorant to the stories that are out there. And I certainly believe that if individuals found themselves with the ways and means to twist the fate of the planet to their own benefit, they would.
And there’s a lot of things about 9-11 and the GFC that make me very, very suspicious.
But what I don’t understand is why this is a reason to buy gold.
I mean, if there was going to be a market that the Illuminati would get their claws into first, surely it would be gold.
And according to the official figures (as much as you can believe them) the biggest holders of gold are the global central banks. They account for 18% of the gold ever mined. And 72% of that is held in the US (most of it belonging to foreign central banks).
(Just why does Bundesbank store their gold at Fort Knox?)
So what would the central banks do if the sh$t hit the fan? Would they resign themselves to the will of the market? I doubt it.
To me, gold seems like a very unlikely commodity to put your faith in. Particularly if you don’t actually have the gold sitting in your basement.
“Excuse me space reptile, but now that Armageddon is here I’d like to exchange this piece of paper for some shiny metal.”
But who knows what the actual truth is. I don’t. And if I did I’d probably be lock up in Guantanamo Bay.
But am I going to let this stop me from getting ahead in life?
No way!
You’ve just got to do the best you can with what you’ve got. Life’s just like that.
Maybe the game is rigged, but it’s still a game. And it’s a game that’s treated me very well up til now.
You can’t conscientiously object to the current economic system (which is not to say we couldn’t change it over time if we all worked on it). But for now, it’s all there is.
And so you’ve just got to do your best with what there is. Be the best person you can be. Invest your money as best you can. Be a loving friend and family member.
Choose to be an active investor. Not a side-line philosopher.
One last thing… Sometimes I read the comments on my blog and think, “Dude, we’re just not meant to be together.”
Oil and water don’t mix.
I don’t mind people disagreeing with me, I’m always happy to consider another view of the world. But if you vehementtly oppose my views, opinions and call me an idiot then I suggest you get off my bus and find yourself another one that’s a bit more to your philosophical views and likings.
Andrew says
Jon there will always be those who need to preach doom and gloom, just like there will always be trolls who get off hiding behind the anonymity of their keyboard. I don’t understand either, just accept they’ll be there and move on.
Having said that, I agree with your conclusion that if they feel so strongly about your blogging in a negative way then they should either stop reading or at least give their opinions on a forum that is more appropriate.
ian says
Everyone has an opinion which is fine. But I get sick of opinions from people who have never done anything or achieved anything themselves but are happy to advise everyone else how they should or shouldn’t do things. Talks is cheap. Being negative is a cop out so you don’t have to make a decision or do anything. I prefer to listen to people who have actually been very successful. Runs on the board count.
Ed Burton says
Jon, One thing I KNOW about you – you’re not “an idiot”, you are one of the smartest guys I’ve ever met. Some people HAVE to hold onto their “philosophies” be it gold, real estate, stock market or anything else to rationalize their investments…(I wonder what these people paid for their gold – bet it’s nowhere near as low as today’s prices. I REALLY enjoy your articles, sure sometimes I don’t agree 100% but then, I drive a different car to you and live in a different state, etc.
If the “gold bugs” want to read bullish comments from a “guru gold bug” then unsubscribe from here and look up Peter Schiff/europacificmetals (he’s a guy who has recommended gold all the way up to it’s $US1,900 approx. high and all the way down to it’s present $US1,3000 (odd) and his “excuse” for it being around $US1,300 now is “Buy more and average down”.
Remember guys Warren Buffet’s rules of investing
1. Don’t lose money
2. Don’t forget rule No. 1
In my 30 years of coaching people on how to invest I’m constantly amazed at how people dream up new ways to lose money!
martyproperty says
Is this the same Ed Burton that ran investment courses?…I was part of your Platinum Inner Circle and had a great time at our monthly meets ups and thank
fully purchased some property in mining areas in 2004 which did very well…just wish I could have bought more as you kept telling us…good to see you are still around Ed! 🙂
Roger says
Hi John, I presume that you could apply the same arguments to buying and stocking Silver? ….. Roger
Robert says
Oops I must’ve missed the unsubscribe and hit the discuss button ! Ha Ha
Yew Beauty !
Even if you did disagree with some of Jon-nos views (if I may be so fraternal),
isn’t it always a good gee-up to get an email worth the reading?
I always get a gee-up from your provoking words ‘Jonno’ – keep ’em, going Bloke.
Cheers Robert
Jenny Kennedy says
I agree: even though I don’t necessarily agree with all of your comments Jon, you always backs your arguments with logic. There will always be doomsayers, who can’t even talk the talk, let alone walk the walk. Well done Jon, I always look forward to reading your emails and will keep reading them :). Your advice is always welcome and on the mark!
Regards
Jenny
Steven says
Jon you leave not doubt about you really think and its refreshing.
I agree we are in the game and we play our hand with what we have the best we can and the returns will be what they are and as long as live and breath we are in the game so keep up with changes and and doing your best.
Steve
Aaron says
Thank you for the hilarious, raucous, belly busting laugh! These lines had me in tears;
“…Justin Beiber has genetically modified talent.”
“Excuse me space reptile, but now that Armageddon is here I’d like to exchange this piece of paper for some shiny metal.”
Laughter like that just simply had to be good for the soul. Funny Jon, very funny.
Lorraine says
hahaha Love it, don’t pull any bunches. Be straight to the point and give them their exit so they have no other option. I love that little cheekiness
Con says
i think your idiot calling friend has been watching too many movies. why don’t we all just have some fun with the game all the way till Amagedon(or earlier). respect for one another might even add to the fun
Marc montano says
Well said. It’s common sence.. Couldn’t agree more.
David says
Jon, agree 100%. I’ve never understood the run on Gold or even holding Gold. I know people do it, it just never made sense to me for the reasons you listed in your last 2 posts.
lilmis says
You’re a champion! This and the do not invest in gold article are the best you have written! I know I wouldn’t swap my preserves for a lump of gold!
Tricia says
Hello I found the above information very interesting. Thank you
Kathy says
I feel I must make a few points about gold as it generally seems to be fairly misunderstood by the mainstream.
Firstly, gold is NOT an investment, it is a store of wealth. It is not supposed to be an investment, and if it is purchased as an investment it is speculation pure and simple.
Secondly, gold and other precious metals have been used as a form of currency for at least 5,000 years and more. How long has any of the modern currencies in their current form been in existence?
Thirdly, no fiat currency (basically ALL the world’s currencies, or any country who is a member of the IMF anyway) has EVER, and I mean EVER lasted for any period of time. Nothing that is backed by just a promise that it is legal tender and nothing else, will last for any period of time.
Fourth point, gold has ALWAYS kept it’s value. 5000 years ago a gold coin would buy a person a suit of clothes, a good meal and accommodation for the night. A gold coin today will buy you exactly the same thing. It has kept it’s value. Contrast that with, for example, the US dollar, which has lost 97% of its purchasing power since 1913, so US$1 has dropped in value to 3 cents in 100 years. The AU$ has lost the same purchasing value. The $5 in your wallet now is not valued the same as it was one year, 5 years or 10+ years ago.
Fifth point, paper gold does in no way represent physical gold at all. There is far more paper gold issued than there is real gold in existence. Therefore, purchase physical gold (which is becoming scarce), and NOT a paper derivative, which does not guarantee it can be exchanged for the physical product.
Sixth point, the largest producer of gold in the world is China (Australia is about third I think from memory). Not ONE OUNCE of what is mined in China, leaves China, and they are also the largest global importer of gold as well. It is entirely possible they will launch their Yuan (Renminbi) as a gold backed currency in the very near future. This is because they hold vast amounts of US treasuries (the largest foreign holder in the world, followed by Japan), and with the US Federal Reserve Bank (a private enterprise owned by the world’s banking cartels, such as Rothschilds and various US banks) devaluing the US$ with their $85 billion dollar a month bond purchase money printing exercise, the value of their holdings is being diluted and diminished each month. (As an aside, the book, The Creature from Jekyll Island by G. Edward Griffin is an interesting read on the creation of the US Fed.)
Seventh point, Venezuela last year repatriated back to it’s own central bank their entire gold holdings (US$9 billion worth) from where they were being held by foreign banks as a hedge against currency instability.
Eighth point, Germany has also begun moves to repatriate back to it’s own central bank, it’s entire foreign held gold holdings including from Bank of England and the US Fed. The US Fed has advised it will take seven years to return what they held in total. Why might that be, and could it also have something to do with the current low price, as the US Fed tries to recover the gold which it has undoubtedly lent out to other central banks? Gold also suffers from “fractional reserve banking”, which is why there is not enough gold in existence to cover the paper gold out there. Could they possibly withdraw from the Euro (assuming it lasts that long) and issue their own currency as a gold backed Mark?
Ninth point, there are a number of central banks, including the Russian, Turkish, Ukraine, Azerbaijan, Kazakhstan, among others, that have been busily increasing their gold reserves over the past year, once again due to currency instabilities. Those reducing their gold holdings, such as Cyprus, need the funds to cover their debts and obligations (swapping the real thing for a fake!).
Tenth point, India is such a large importer of gold (used traditionally as a store of wealth and used particularly as gift giving during certain times such as Diwali), that their government in January this year (and ramped up in June) has restricted the import of gold due to the large trade imbalance the imports cause. Traditionally, India makes up 20% of global gold demand and is the world’s largest consumer of gold and until the ban, the second largest gold importer after China. Could this also have had a bearing on the drop in gold price (regardless of the fact that a large amount of gold is now being smuggled into India because of the ban)?
11th point, with a nod to a previous responder to this article, I’d rather hold gold which costs nothing to hold, than a negatively geared property which costs money (yes, I am also a property owner and investor) because a negatively geared property is NOT an investment. An investment, by its very nature, means that it makes you money, not costs you money. Gambling on capital gain for anything, including gold or housing is exactly that, just gambling. In a properly functioning economy, the price of anything, including housing (which should never be anything but a consumable item) rises and falls in line with inflation and deflation. It is interesting to note that constant inflation is only a recent phenomenon, as experienced throughout the 20th century, and now into the 21st century. For the hundreds of years prior, periods of inflation have always been followed by periods of deflation. This constant inflation seems to have coincidently arisen at the same time as the rise of central banks (and arguably, fiat currencies), and their desire to control the price of money by artificially lowering and raising interest rates in the mistaken belief they can control economies. Beware the law of unintended consequences, for it builds bubbles!
I could go on with a bunch of other arguments, but I will finish on this last point, gold is not beholden to anybody, it is not a promise from a government that a piece of paper is worth x amount, it is not owned by any one person, country or entity and cannot be controlled. Our currencies require faith that it is what it is. Once that is gone, the value of that currency goes to zero, witness the hyperinflationary periods experienced during our recent history, such as the Weimar Republic in Germany, and more recently, in Zimbabwe, mainly caused by money printing. Gold does not have this problem. When it all turns to shit, and it will as the entire world economies are built on sand and debt in the mistaken belief that debt equals wealth, gold will still hold its value when all our currencies have reduced in value to zero and disappeared. You can’t eat gold (actually you can, there is edible gold, but that’s another story), but you sure as hell can’t eat paper with pictures of dead people on it or bricks and mortar for that matter (also tends to get stuck in your teeth), either. Could happen next year, or maybe not for another 50 years, but there ain’t a damn thing a government or central bank can do about it when it does happen.
Keith says
Hi Kathy,
Very nice rendition of it all. The US has squandered its gold agreed. The Chinese are buying and holding for all your reasons and additionally the fact that the internal currency (Yuan or Renminbi) does not exactly equal the external (Yuan Renminbi), that is used for trade. The balance at this time is only slightly off by a few points but when you take that into the huge size of the finances then it is a huge amount. They are closing the gap and the more they buy the harder it is for the US to recover any and return what they owe. Germany will never get it back. The chinese will be the next world currency. I don’t hold gold as an investment or stored. I have a faith in property. I have small holdings in shares etc. but my main is property. I don’t negative gear anything. I am retired at age 62, my property holdings look after my needs and I watch from the sidelines as the world postures. The losses I incurred through the GFC on shares etc were not of course pleasant but my life didn’t explode as my income stayed pretty much stable and I am still just plodding quietly along.
Jon, keep the “unsubscribe” link and hopefully the “others” will eventually go away.
josephine says
I’ve been on another site lately where the public have left replys like no sound (video)or that they were transferred to facebook etc. So rude yes. I came to a presentation of yours on the gold coast and honestly ppl mouths were dropping at the speed that which you drew on the white board! I don’t do gold either I mean it can be melted down to scrap jewellery that is. Let the gypsies and the rappers wear it lol
Bronwyn Nichols says
I enjoy your newsletters more when you get angry, or is it exasperated? You make a lot more sense then…for some reason….
Riarne says
In my inbox crammed and overflowing with junk mail,most of which I delete, but i always read your insightful ramblings. No complaints here … enjoy very much. thankyou.
Tom Sugar says
There is no doubt a positively geared property its the best investment.
Kathy has provided an excellent summary of why gold is a good investment at this time.
It stupid to say “gold has no income”, considering negatively geared property has negative income – so negative geared property must be worse than gold apparently. And there are many shares with no dividends, which is….. “no income”.
The reason to buy gold is that the Chinese are. If you agree China is going to be the economic superpower in the next 100 years then you should look at what the Chinese are buying. One day the Chinese will stop accepting foreign currencies. They will only do transactions in Chinese Yuan or …you guessed it…. gold.