"5 Reasons Not to Buy Gold" - study by the Natl. Bureau of Econ. Research

[Rassah]

Article here

http://online.barrons.com/article/SB50001424052748704372504578289922761002366.html#articleTabs_article%3D0

Although I'm a huge fan of Bitcoin, I was never really a fan of gold, and have usually advised people against buying it. Partly because of the shady overpriced pushers, costly storage, and difficulty of selling it later, and mostly due to studies that show that over the very long term, your gold investments will gain you maybe a 3% return. I believe stocks are a much better alternative.

This article, however, brings up some problems that I believe may foreshadow some issues we may have with Bitcoin. Despite gold's wide acceptance, it still fluctuates wildly, is a poor currency hedge, and is subject to manipulations. Will Bitcoin fall to the same fate, or will its wider use and acceptance help with that? (Since you can't really trade gold that easily, it mostly sits out of sight in vaults, while you can carry bitcoins on a phone and send and receive them as easily as credit card transactions). Thoughts?

[ElectricMucus]

Partly because of the shady overpriced pushers, costly storage, and difficulty of selling it later, and mostly doe to studies that show that over the very long term, your gold investments will gain you maybe a 3% return. I believe stocks are a much better alternative.

Alternative for what?
Gold is a safety net for the absolutely worst financial situations you could imagine. You might be able to use bitcoin in such a situation but good luck selling stocks during a real economic crisis or personal crisis.

Is it overvalued for that purpose? Who the frack cares?

[Spaceman_Spiff]

Is it me or is looking at the inflation rate or the real interest rate of 1 country, then comparing it to a globally traded commodity a flawed way of thinking?

[ElectricMucus]

Is it me or is looking at the inflation rate or the real interest rate of 1 country, then comparing it to a globally traded commodity a flawed way of thinking?

Not only that, I do consider it a strawman argument.

[Rassah]

Gold is a safety net for the absolutely worst financial situations you could imagine. You might be able to use bitcoin in such a situation but good luck selling stocks during a real economic crisis or personal crisis.

I'm assuming you mean a worse situation than this?

Take what happened in Brazil between 1980 and 2000, for example, when — according to the International Monetary Fund — inflation averaged 250% per year. Over this two-decade period, according to the researchers' calculations, gold's price in inflation-adjusted terms dropped 70%.

I don't really believe a total collapse is possible. The reason is the world is just waaaay to damn big. If the USA, Canada, Europe, and China collapsed, we still have India, Africa, and all of South America who will gradly buy up their now much cheaper products.
But, even if there was a catastrophic world-wide collapse, would anyone even be interested in gold? And would bitcoin fare any better?

[Lethn]

Oh dear, another American believing in the amazing free market economy that doesn't exist  , stocks are not the better alternative, in fact, they could well be the worst, why? Because like government bonds they're just worthless pieces of paper. If you look at the most commonly traded stocks ( from what I saw it was telecommunications like Vodafone, not a typo that's just how they listed it ) you will see that most stock traders are riding the volatility of the stocks thinking they're stable. Look at their earnings, study their EPS and of course check the P.E's, there's also the most basic of basic stuff like what there revenue is, mining and oil is where it's at in reality and that includes gold because they're consistently making profits but the trade volume is low right now. I guarantee you though once the crises hits, all the stocks will go on a sell frenzy just like 2008 - 2009 and then the commodities are just going to go higher and higher because of all the inflation the governments are causing.

What you have to realise is as well that China isn't going to collapse either unless it lets the U.S and Europe drag it down, I suspect many western countries will end up like Greece is now, just about any other country that has a surplus and hasn't been doing phony practices which is what this is all really about will be fine.

[nybble41]

Take what happened in Brazil between 1980 and 2000, for example, when — according to the International Monetary Fund — inflation averaged 250% per year. Over this two-decade period, according to the researchers' calculations, gold's price in inflation-adjusted terms dropped 70%.

Or perhaps inflation was really only 220% per year rather than 250%. With that level of hyperinflation, accurate estimates must be rather difficult. Personally, I would trust the gold market over researchers' estimates of the inflation rate.

[ElectricMucus]

Gold is a safety net for the absolutely worst financial situations you could imagine. You might be able to use bitcoin in such a situation but good luck selling stocks during a real economic crisis or personal crisis.

I'm assuming you mean a worse situation than this?

Take what happened in Brazil between 1980 and 2000, for example, when — according to the International Monetary Fund — inflation averaged 250% per year. Over this two-decade period, according to the researchers' calculations, gold's price in inflation-adjusted terms dropped 70%.

I don't really believe a total collapse is possible. The reason is the world is just waaaay to damn big. If the USA, Canada, Europe, and China collapsed, we still have India, Africa, and all of South America who will gradly buy up their now much cheaper products.
But, even if there was a catastrophic world-wide collapse, would anyone even be interested in gold? And would bitcoin fare any better?

At first I do not believe this research until I see the data myself.
Second, a 70% drop is better than a 100% drop, which if you pick the wrong stock is almost a certainty in this situation. You might pick the right one but then how do you think your chances are if you don't? You plan on starving?

Of course there are other safety nets like land, real estate, food, tools and other machinery but none of those are as transportable as gold.
Bitcoin isn't really for the worst situations since it depends on infrastructure and it depends on the circumstances of course.

[CurbsideProphet]

What you have to realise is as well that China isn't going to collapse either unless it lets the U.S and Europe drag it down, I suspect many western countries will end up like Greece is now, just about any other country that has a surplus and hasn't been doing phony practices which is what this is all really about will be fine.

It won't?  China has a symbiotic relationship with the west.  It depends on the US and Europe to purchase its exports.  If the US and Europe collapse, how exactly does China "not get dragged down" with everyone else?

As for Greece, it is rather insignificant in terms of the world economy.  The only reason Greece gets a lot of attention is because if Greece fails, people are worried that much bigger economies (like Italy or Spain) may follow.  In other words, systemic collapse.  A collapse of the two largest economies in the world (the US and the European Union) would not leave anyone "fine." 

[Rassah]

Second, a 70% drop is better than a 100% drop, which if you pick the wrong stock is almost a certainty in this situation. You might pick the right one but then how do you think your chances are if you don't? You plan on starving?

You don't "pick the right stock," you pick a hugely diversified portfolio of both local and international stocks. If your country falls, there's a good chance the others won't. And even with something like the 2008 crash, just keep buying while it's cheap, and wait for the rebound. (If something like 3/4th of professional stock managers who pick stocks still can't outperform the market as a whole, I sure as hell won't bother either, and will just buy the market)

But, regardless, I don't think any of the points in the article are in question, are they? If they are, the counterpoints of "No, no, it actually IS all those things the article says it isn't. Take my word for it!" aren't very good counter-arguments. Besides, I'm mostly concerned about bitcoin's fate regarding this. Could it eventually be subject to manipulation and similar issues?

[stochastic]

I'm assuming you mean a worse situation than this?

Take what happened in Brazil between 1980 and 2000, for example, when — according to the International Monetary Fund — inflation averaged 250% per year. Over this two-decade period, according to the researchers' calculations, gold's price in inflation-adjusted terms dropped 70%.

I don't really believe a total collapse is possible. The reason is the world is just waaaay to damn big. If the USA, Canada, Europe, and China collapsed, we still have India, Africa, and all of South America who will gradly buy up their now much cheaper products.
But, even if there was a catastrophic world-wide collapse, would anyone even be interested in gold? And would bitcoin fare any better?

You have the assumption that gold is an inflation hedge, but it is not.  It is a systemic failure hedge.

[robamichael]

4 words:

Austrian Business Cycle Theory.

http://www.youtube.com/watch?v=wCmwRN5gjOo

[Lethn]

What you have to realise is as well that China isn't going to collapse either unless it lets the U.S and Europe drag it down, I suspect many western countries will end up like Greece is now, just about any other country that has a surplus and hasn't been doing phony practices which is what this is all really about will be fine.

It won't?  China has a symbiotic relationship with the west.  It depends on the US and Europe to purchase its exports.  If the US and Europe collapse, how exactly does China "not get dragged down" with everyone else?

As for Greece, it is rather insignificant in terms of the world economy.  The only reason Greece gets a lot of attention is because if Greece fails, people are worried that much bigger economies (like Italy or Spain) may follow.  In other words, systemic collapse.  A collapse of the two largest economies in the world (the US and the European Union) would not leave anyone "fine."  

China is perfectly capable of consuming the goods it produces and it has other countries to trade with besides US and Europe, the idea that China 'depends' on the US and Europe is neo-keynesian bullshit propaganda fed to us at an early age through state schools. China would actually be better off if it cut us loose because they are actually the ones holding our countries together with their surplus, how do you think we keep borrowing so much beyond what we can actually pay back?

We don't trade anything with them for the most part except worthless paper, let alone goods that are actually worth anything so how the hell are they dependent on us for anything? You should check out Peter Schiffs island economy story because it does an excellent job of explaining this kind of thinking in a correct way, no country actually 'needs' another country to consume its goods, especially when they're giving it away in return for nothing. It's not just China who are being scammed like this as well, it's Germany too as well as other places like India and Brazil that have raw resources, manufacturing etc.

Edit: Actually here you go: https://www.youtube.com/watch?v=IlWpGm9POwQ

[CurbsideProphet]

What you have to realise is as well that China isn't going to collapse either unless it lets the U.S and Europe drag it down, I suspect many western countries will end up like Greece is now, just about any other country that has a surplus and hasn't been doing phony practices which is what this is all really about will be fine.

It won't?  China has a symbiotic relationship with the west.  It depends on the US and Europe to purchase its exports.  If the US and Europe collapse, how exactly does China "not get dragged down" with everyone else?

As for Greece, it is rather insignificant in terms of the world economy.  The only reason Greece gets a lot of attention is because if Greece fails, people are worried that much bigger economies (like Italy or Spain) may follow.  In other words, systemic collapse.  A collapse of the two largest economies in the world (the US and the European Union) would not leave anyone "fine."  

China is perfectly capable of consuming the goods it produces and it has other countries to trade with besides US and Europe, the idea that China 'depends' on the US and Europe is neo-keynesian bullshit propaganda fed to us at an early age through state schools. China would actually be better off if it cut us loose because they are actually the ones holding our countries together with their surplus, how do you think we keep borrowing so much beyond what we can actually pay back?

We don't trade anything with them for the most part except worthless paper, let alone goods that are actually worth anything so how the hell are they dependent on us for anything? You should check out Peter Schiffs island economy story because it does an excellent job of explaining this kind of thinking in a correct way, no country actually 'needs' another country to consume its goods, especially when they're giving it away in return for nothing. It's not just China who are being scammed like this as well, it's Germany too as well as other places like India and Brazil that have raw resources, manufacturing etc.

Edit: Actually here you go: https://www.youtube.com/watch?v=IlWpGm9POwQ

This makes absolutely no sense.  So what you're saying is China doesn't need the US and only receives worthless paper.  If that's the case then why would they continue to trade?  Yes, China is the largest foreign holder of US debt but they continue to purchase it because they need to continue their (unsustainable) growth rate.  You can't simply take out the US and the European Union, which individually are double the GDP of China, and think everything will be hunky dory.

Why do you think Germany is still in the Euro and continues to bail out countries like Greece?  Germany is hardly known for their charitable nature.  The reason is if they left the Euro and returned to the Deutsche Mark they would be screwed.  Why?  Because like China they're a heavy exporter and the strongest of the European union.  If they left, the Euro would rapidly devalue (as countries default on sovereign debt) and the Deutsche Mark would take off like a rocket.  Being a heavy exporter, this would cause a great amount of damage to their economy. 

Every country is doing what they're doing because it's in their best interest.  China isn't buying worthless paper because they love America.  Germany isn't saving Greece because they want a unified Europe.  No, they're doing it because it's economics 101 and if they don't, they go down with the ship too. 

[Spaceman_Spiff]

What you have to realise is as well that China isn't going to collapse either unless it lets the U.S and Europe drag it down, I suspect many western countries will end up like Greece is now, just about any other country that has a surplus and hasn't been doing phony practices which is what this is all really about will be fine.

It won't?  China has a symbiotic relationship with the west.  It depends on the US and Europe to purchase its exports.  If the US and Europe collapse, how exactly does China "not get dragged down" with everyone else?

As for Greece, it is rather insignificant in terms of the world economy.  The only reason Greece gets a lot of attention is because if Greece fails, people are worried that much bigger economies (like Italy or Spain) may follow.  In other words, systemic collapse.  A collapse of the two largest economies in the world (the US and the European Union) would not leave anyone "fine."  

China is perfectly capable of consuming the goods it produces and it has other countries to trade with besides US and Europe, the idea that China 'depends' on the US and Europe is neo-keynesian bullshit propaganda fed to us at an early age through state schools. China would actually be better off if it cut us loose because they are actually the ones holding our countries together with their surplus, how do you think we keep borrowing so much beyond what we can actually pay back?

We don't trade anything with them for the most part except worthless paper, let alone goods that are actually worth anything so how the hell are they dependent on us for anything? You should check out Peter Schiffs island economy story because it does an excellent job of explaining this kind of thinking in a correct way, no country actually 'needs' another country to consume its goods, especially when they're giving it away in return for nothing. It's not just China who are being scammed like this as well, it's Germany too as well as other places like India and Brazil that have raw resources, manufacturing etc.

Edit: Actually here you go: https://www.youtube.com/watch?v=IlWpGm9POwQ

This makes absolutely no sense.  So what you're saying is China doesn't need the US and only receives worthless paper.  If that's the case then why would they continue to trade?  Yes, China is the largest foreign holder of US debt but they continue to purchase it because they need to continue their (unsustainable) growth rate.  You can't simply take out the US and the European Union, which individually are double the GDP of China, and think everything will be hunky dory.

Why do you think Germany is still in the Euro and continues to bail out countries like Greece?  Germany is hardly known for their charitable nature.  The reason is if they left the Euro and returned to the Deutsche Mark they would be screwed.  Why?  Because like China they're a heavy exporter and the strongest of the European union.  If they left, the Euro would rapidly devalue (as countries default on sovereign debt) and the Deutsche Mark would take off like a rocket.  Being a heavy exporter, this would cause a great amount of damage to their economy. 

Every country is doing what they're doing because it's in their best interest.  China isn't buying worthless paper because they love America.  Germany isn't saving Greece because they want a unified Europe.  No, they're doing it because it's economics 101 and if they don't, they go down with the ship too. 

In the short run their economy would need to undergo a dramatic structuring yes, but longer-term, I think Lethn is correct.

Why do the Chinese and Germans continu with it then? 
My guess: because clinging on to the believe that everything will work out is very human.
Because cutting your losses and telling your people that a lot of the wealth they think they had was an illusion is political suicide.
Because kicking the can down the road is the "responsible" thing to do nowadays.

[Rassah]

Economics question: How do you continue a large growth rate by buying someone else's debt (aka giving someone else money)?

[hashman]

Why do you think Germany is still in the Euro and continues to bail out countries like Greece?  Germany is hardly known for their charitable nature.  The reason is if they left the Euro and returned to the Deutsche Mark they would be screwed.  Why?  Because like China they're a heavy exporter and the strongest of the European union.  If they left, the Euro would rapidly devalue (as countries default on sovereign debt) and the Deutsche Mark would take off like a rocket.  Being a heavy exporter, this would cause a great amount of damage to their economy. 

The problem with your logic here is that there is no person called "Germany".  Rather, persons with acting on their own interests represent the nation of Germany.   There are German citizens who can take advantage of Euro printing for their own interests.  There may be others who would benefit from a return the Mark.  There are probably others who are paid well for claiming that strong currency would hurt the economy, as you have claimed here..  generally those economists are paid by those who can benefit from monetary inflation.  From the point of view of a citizen or private business owner, its hard to see how being robbed (having your currency devalued) is a good thing.  Your claim that a heavy exporter would be hurt by having their assets go up in value is difficult for me to follow and has been beaten down several times in this forum. 


 

[CurbsideProphet]

Why do you think Germany is still in the Euro and continues to bail out countries like Greece?  Germany is hardly known for their charitable nature.  The reason is if they left the Euro and returned to the Deutsche Mark they would be screwed.  Why?  Because like China they're a heavy exporter and the strongest of the European union.  If they left, the Euro would rapidly devalue (as countries default on sovereign debt) and the Deutsche Mark would take off like a rocket.  Being a heavy exporter, this would cause a great amount of damage to their economy. 

The problem with your logic here is that there is no person called "Germany".  Rather, persons with acting on their own interests represent the nation of Germany.   There are German citizens who can take advantage of Euro printing for their own interests.  There may be others who would benefit from a return the Mark.  There are probably others who are paid well for claiming that strong currency would hurt the economy, as you have claimed here..  generally those economists are paid by those who can benefit from monetary inflation.  From the point of view of a citizen or private business owner, its hard to see how being robbed (having your currency devalued) is a good thing.  Your claim that a heavy exporter would be hurt by having their assets go up in value is difficult for me to follow and has been beaten down several times in this forum.

I'll give you one more example, the Swiss Franc.  Why did the Swiss National Bank peg to the Euro if a highly overvalued currency is a good thing for an economy?

In Sept 2011:

The Swiss National Bank in effect devalued the franc, pledging to buy "unlimited quantities" of foreign currencies to force down its value. The SNB warned that it would no longer allow one Swiss franc to be worth more than €0.83 – equivalent to SFr1.20 to the euro – having watched the two currencies move closer to parity as Switzerland became a "safe haven" from the ravages of the eurozone crisis.

The SNB pledged to enforce a "substantial and sustained weakening of the Swiss franc", adding that it might move to an even lower exchange rate against the euro if needed.

"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development," said Switzerland's central bank.

http://www.guardian.co.uk/business/2011/sep/06/switzerland-pegs-swiss-franc-euro

It's a global economy.  To SELL globally, you need to have buyers in other currencies be able to afford your product.  If the price of your product skyrockets (currency appreciation), it becomes more expensive to your buyers (importers) and thus, they will buy less.  This is basic economics.  If this was "beaten down" several times on this forum, then by all means, post some examples where an overvalued currency is good in the long-term for a country that conducts heavily in international trade.  My examples are above, I'll wait for yours.

[btcgoldsilver]

I agree with the article that those are not good reasons to hold gold, however I would be happy to hold gold myself (and bitcoins for that matter) despite those reasons. I believe things happen in cycles and just now it is gold's time. Faith in fiat money backed by nothing and created out of thin air by central banks will continue to evaporate more and more. Eventually there will be a stampede towards gold. Which we can already see the beginnings of with countries wanting to repatriate their gold. I don't know the timescale for the peak but I feel it is inevitable and will be many levels higher than today's price. Fiat money is caught in a death spiral and is heading down the toilet.

On the subject of bitcoins I don't think they are as susceptible to the shananigans that go on suppressing metals because of various reasons which I've mentioned in my blog. http://afbitcoins.wordpress.com/2013/02/07/the-start-of-a-new-bitcoin-mania/

[🏰 TradeFortress 🏰]

Gold is a safety net for the absolutely worst financial situations you could imagine. You might be able to use bitcoin in such a situation but good luck selling stocks during a real economic crisis or personal crisis.

I'm assuming you mean a worse situation than this?

Take what happened in Brazil between 1980 and 2000, for example, when — according to the International Monetary Fund — inflation averaged 250% per year. Over this two-decade period, according to the researchers' calculations, gold's price in inflation-adjusted terms dropped 70%.

I don't really believe a total collapse is possible. The reason is the world is just waaaay to damn big. If the USA, Canada, Europe, and China collapsed, we still have India, Africa, and all of South America who will gradly buy up their now much cheaper products.
But, even if there was a catastrophic world-wide collapse, would anyone even be interested in gold? And would bitcoin fare any better?

If the United States of America economy collapsed then the world economy would collapse.