Thursday, March 10, 2011

My hobby:

Reading four-year-old investment analyses attacking gold bugs:

Gold flunked. Gold failed. Gold fizzled Wednesday. It closed at $680.30 an ounce, down on the day and now, for the first time since 2001 if my records are correct, it is down for the year.

On May 9, 2006, gold closed at $699.40. That means gold is down $19.10 on the year, or 2.7 percent. A deposit at the bank beat gold. The stock market beat gold. A little old lady on roller skates beat gold.

All I hear is silence. Is the gold bug community so self-assured that they can ignore this, or does silence mean a turn is coming in the trend? I have read that financial investors are so complacent that they are not taking sufficient account of the risks they are taking. Is this now true of gold investors also?

Today, of course, gold is above $1400 an ounce.

Don't get me wrong; I think it's a terrible idea to buy gold expecting to make money on it. But then, that's what conventional investment analysts have been saying since 2001, when an ounce of gold was around $250.


  1. This is probably the point at which some of the people who have read my impassioned attacks on hard currency expect me to poo-poo gold as an investment. Nonsense. As a private investment, knock yourself out. I'd recommend a diversified commodity portfolio rather than stacking bullion in your fortress of solitude, but if someone's willing to pay more later, go right ahead.

    My objection to hard money is that it stands for price fixing in a commodity whose value should be set by the market, and that it won't prevent inflation.

  2. After reading more, I have to grudgingly agree with you, much as I'd rather chew glass. I have a "libertarian heresy" post brewing about a particular angle on it.

    At this point, I basically support the Ron Paul model of gold "monetization", in which precious metals are simply exempted from capital gains taxes, allowing people to use them more freely as a private investment and, if everybody involved is chill with it, as a medium of exchange.

  3. Why specially-advantage gold, silver, or platinum vs iron, nickel, or lead? Is copper a precious metal or not?

    Speaking of heresies, I've got a post simmering about how an income tax is about the least economically harmful of the three major tax types (income, property, or sales); but that the attitude it engenders can be very bad

  4. Tradition, quite frankly. In a perfect world, I'd just ditch capital gains taxes altogether. In this world, I'd settle for de-penalizing the two most traditional monetary stores of value.

    (Yes, yes, copper--by itself or as brass or bronze--has been used as money almost as long as gold and silver, but it's traditionally been a concurrent fiat currency for small transactions, not a store of value in itself. During periods of severe instability or government collapse in the ancient world, undebased gold and silver coins traditionally retained most of their value, while buying bread with copper coins required the proverbial wheelbarrow of money. And Spartans were insane, so don't give me any of that iron-as-a-traditional-currency crap. ;) )

  5. And I'm with you on income tax. It's sort of like background checks on gun sales: they're not necessarily a serious problem by themselves, but the mechanisms necessary to make them work are inherently onerous.

  6. Since gold and silver are industrial commodities these days, I don't see the point of advantaging them over copper, platinum, nickel, or aluminum or iron (it wasn't just the spartans that used it for money/jewelry).

    All it will do is slightly drive up the market cost by the difference in tax value...

  7. As a market anarchist, it pains me to have to admit it, but yes, gold isn't very good at this.

    It's better than what we have now, in paper fiat money, but there are better solutions here in the 2010s.

    Cryptographically minted e-cash. You can truly guarantee no inflation of the money supply through, say, more mining, and it's never going to be discovered to have an industrial use the way gold is, either.

  8. @perlhaqr: that requires that you replace "the United States of America" with "issuer and algorithm" after "full faith and credit" - which doesn't change the problem. Not to mention the arbitrage problems.

    And it doesn't fix the issue if why we need inflation, either.