There’s always something to howl about

“When Wal-Mart has a gold coin section in the jewelry department…

…then we can start talking about a possible bubble in gold.”–Gary North, on

Gold is an investment asset. It therefore will not become popular short of an economic collapse – hyperinflation followed by a depression. The average person owns no gold coins, nor will he anytime soon.

Where would he buy them? How could 100 million households buy a single gold coin per household? This would be impossible. There are only a few small coin stores in any community. They are mostly mom-and-pop outfits. The U.S. Mint could not meet the demand.

When Wal-Mart has a gold coin section in the jewelry department, then we can start talking about a possible bubble in gold. Not until then.

If you’re looking for the best primer for owning gold click the link above and read the whole article.  Of course, if you’re confident that the Fed will find a way to unwind QE II, and that the money center banks are all safe, and that we’re finished with bail outs, and that the Federal budget deficit is under control, you have no need to own gold as an an inflation hedge.  If you think ANY of those shoes could still drop, buy the yellow metal until you see it offered at Sam’s Club.


18 Comments so far

  1. Jeff Brown April 17th, 2011 2:45 pm

    As usual, common sense from the ultimate WingMan.

  2. Jim Klein April 18th, 2011 8:04 am

    I think people can get snookered into thinking it’s a great “investment.” It’s protection, it’s barter; it’s a store of wealth. To me, that’s not what “investment” means, which is usually about income. I believe that in actual inflation periods, gold tends to appreciate on the low side, particularly when compared with many other assets. It does much better /anticipating/ inflation, as now.

    I wouldn’t want to talk anyone off gold, because it’s may be the best way to /store/ wealth right now, and perhaps forever. But I still wouldn’t suggest that people direct the part of their wealth that’s intended for “investment” into gold particularly, and like you keep saying, never the derivatives. Any business making any money, or even random farmland anywhere, are both better investments (qua investments!) than gold IMO. Gold appreciates just fine, but as an asset class that returns income as it’s held, it’s the worst. It’s still a great buy right now, but I think people should be aware of that.

    I guess all I’m saying is that there’s a difference between an asset that’s meant to store wealth, and one that’s meant to produce it…gold is so remarkable that it’s the best and the worst simultaneously! That speaks to the nature of value, I think.

  3. Al Lorenz April 18th, 2011 10:51 am

    I am happy that the financial sector is weighing in on the deficit by the way of Standard & Poors. The next bubble IS government spending. All we are talking about today is what we can do to get through the collapse of that bubble when it bursts.

  4. Al Lorenz April 18th, 2011 10:58 am

    I am pleased that the rating agencies are weighing in on government spending via Standard & Poors historical downgrade. Government spending is the next bubble. All we are talking about today is how to cope with it bursting. Great information Brian.

  5. Brian Brady April 18th, 2011 11:09 am

    I’m glad you made that distinction from North , Jim. I might further clarify that income is not necessarily as important as earnings (which usually translates to income unless they are retained). Nonetheless, gold doesn’t necessarily have much productive value (whereas silver might).

    Precious metals can best be described as a hedge. In a perfect world, you’d lose half the money you paid for gold because the rest of your portfolio would be soaring. This morning’s news, about the possible USTSY credit rating downgrade, suggests that the hedge is prudent though.

    North debunks an all important myth, though; we are not in a precious metals bubble . His Wal-Mart illustration is one of my favorites.

  6. Jim Klein April 18th, 2011 11:34 am

    The thing I like about silver is that it appears to be more purely market driven, which is a rare thing these days. IOW it’s not soaring because some minority is speculating that it will soar; I think it’s soaring because an awful lot of people actually want the item. I take that as a good thing. These days, I take anything that happens purely because someone wants it and not by way of taking it, as good!

  7. Brian Brady April 18th, 2011 12:42 pm

    As you know, I prefer silver. First, you can buy silver with relatively small amounts of money. It’s an easy and cheap way to get in the game. Secondly, (and I begrudgingly put this in writing for fear of being branded a wacko), I think I could trade an ounce of silver more easily for a tank of gas or groceries than gold. Thirdly, silver is used in manufacturing goods so there is some demand for the metal.

    I worry that the gold-to-silver price ratio is skewed but I don’t think that really matters. On a relative basis, maybe gold is better than silver right now (or not) but we’re not buying for trades, we’re hedging. I don’t think you go wrong owning some of either metal

  8. Greg Swann April 18th, 2011 12:52 pm

    > I don’t think you go wrong owning some of either metal

    Your expectations argue that you want to own lead, and quite a bit of it. I don’t know that you’re right or wrong, but trade presupposes surpluses, and the scenario you are (not quite) talking about may have, as a concomitant factor, severe shortages of surpluses.

  9. Jim Klein April 18th, 2011 3:57 pm

    I’ve been saying there’ll be shortages of lots of stuff for a couple years now, even in this terribly weak environment. The key, as always, is the side of the equation almost nobody wants to look at—production. Half the people don’t want to do it, and the other half isn’t allowed to do it. It’s either made by Big Mama, or it ain’t made.

    Take thinking, for example…it’s free, there’s a huge demand, and absolutely nothing is blocking the supply. Yet still, look at the shortage!

  10. Brian Brady April 18th, 2011 4:54 pm

    @Greg If that’s where my argument leads, it was not precise. My argument should have been: “on a relative basis, I expect silver to perform better than gold because it has greater manufacturing demand.” I’m just comparing the two metals because I’ve had these conversations with Jim before.

    Your comment about production capacity makes me wonder: In a collapse, will demand for commodities collapse because production is restricted or arrested? I don’t think so. Call me an optimist but I think people will still want to make and buy/barter for things, regardless of a system collapse

  11. Greg Swann April 18th, 2011 5:16 pm

    > will demand for commodities collapse

    Supply will collapse.

    > I think people will still want to make and buy/barter for things, regardless of a system collapse

    I think they’ll pick through garbage — even if they have to shoot you to get at it.

    If anything is being traded, precious metals will be redundant. If nothing is, the only precious metal will be lead.

  12. Brian Brady April 18th, 2011 5:25 pm

    Got it now

  13. Greg Swann April 18th, 2011 5:38 pm

    > Got it now

    Just to be clear, I don’t think anything like this will happen. It’s plausible to me that the U.S. government will go broke, but, as in Egypt, etc., something less pleasant will replace it almost immediately. Dark Ages happen when all of civilization fails all at once. We’re probably immune from that fate. My bet would be for more of the same going forward for quite some time: There’s still a lot of wealth to be looted.

  14. Brian Brady April 18th, 2011 7:40 pm

    I agree that the “beatings will continue until morale improves” but I’m curious to see what happens to money. A devaluation like the peso? The Euro as world currency? Something has to happen to wipe out all the debt and I”m not sure what that might be

  15. Thomas A B Johnson April 19th, 2011 7:30 am

    Greg: You want to own precious metals in the form of copper jacketed lead. I bet I could trade a handful of bullets as readily as Brian’s silver. By the way, Brian- you will need some lead to keep your silver yours.

  16. […] Klein got me to thinking about a “store of wealth”, when I postulated that there is no gold bubble: I think people can get snookered into thinking it’s a great “investment.” It’s protection, […]

  17. Jim Klein April 19th, 2011 5:26 pm

    Right on all three sentences IMO, Thomas. From what I’ve heard, even as an investment vehicle in the near term, ammo figures to outdo everything. That’s not a good sign at all, especially if people end up having to turn their capital assets into consumable ones! I admittedly haven’t heard a whole lot, but the implication is that 223 and 762 figure to become the modern R12.

  18. Jeff Beck April 21st, 2011 7:41 am

    When the shit hits the fan there will only be two groups of people, those who have Flamethrowers and those who wish they did. Stock up on Flamethrowers.