Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: bearwhizbeer Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 20  
Subject: Re: GLD Does is own gold or futures? Date: 5/27/2009 3:23 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
“It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” - Warren Buffett
-------------
This sounds brilliant until you ask: These people watching from Mars? What kind of economic system do they have?

Aside from the industrial uses for gold (which are legion), gold is an investment in value/worth-storage. Hundreds, perhaps thousands of times a day, some five billion people must come to an agreement about the cost of a cheeseburger, 50" HDTV, a basket of wheat, a tanker of oil, or some other trifle. We need a base. We've needed a base for the last several thousand years. It's in our nature. I can't speak for Martians, but I'm sure they have their own quirks.

For a while, that base was salt. Rome began as a salt trading station. Way early on, Roman soldiers were paid with salt. Our word "salary" stems from salt. But salt wasn't the most convenient method for storing value. And not every nation wanted to be paid with it. Plus, the Romans learned how to produce salt cheaply, so, you know, inflation. The gold-to-salt ratio today is Zimbabwaen.

Inter-connected civilizations need, in fact, DEMAND, something to be the base. The base must be something tangible, something that I can carry, show, maybe cut a piece from and give to you for the cheeseburger you're vending. For the time being, you'll accept instead a few pieces of green paper with "Federal Reserve Note" printed across the top. However, there's a good chance that in the not too distant future, you'll wants lots more of that paper. Or some other kind of paper. Or maybe even a small piece of gold. At that point, some of my gold comes out of the ground, is converted via methods detailed elsewhere to whatever you'll accept, and exchanged for your cheeseburger.

True, the gold has done nothing. It's not supposed to do anything. Gold is a hedge against the blend of individual human folly, the "wisdom" of masses, and idiocy of governments holding it all together. More people wanting a piece of that hedge? I'd be shocked if the price didn't go up. The demand itself isn't artificial, although people may not know what they're getting into. But I must wonder how significant an influence new buyers of GLD are on the actual price of gold, when compared to the billion or ten the Treasury is dumping into the system.

And for the price of gold to be cut in half overnight, it would have to start spewing from Vesuvius. Or maybe every gold owner, everywhere, at the same time, takes the blue pill and wakes up from the dream. I don't see either happening.

The gold game will not end until something replaces gold. Maybe those brilliant, yet smug, Martians have discovered something. Sad that they don't share their ideas.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement