Thursday, December 19, 2013
This year gold is having its first down year in over a decade. And with the stock market making new highs, gold is getting tons of bad press.
Since 2000, gold is up 343 percent and the S&P 500 is up 24 percent, not including dividends, which averages about 2 percent a year (gold has no yield). Nasdaq is still down 21 percent from its peak of 5,133 in 2000.
Since the beginning of civilization (roughly 8,000 years) 171,000 tons of gold has been mined, and the value of all the gold mined is about $7 trillion. A lot of sweat went into mining that gold.
Just as a comparison, President Obama, with the help of the Federal Reserve, has borrowed $7 trillion in just the past five years. He has spent $7 trillion in just the last two years. Obama hasn’t broken into a sweat yet.
The media touts this new debt Obama has issued as risk-free. It’s interesting to note that, TLT, an ETF that tracks long-term treasuries, is down 21 percent from its 2012 peak. Not so risk-free.
The U.S. had gold reserves of about 21,000 tons in 1952, by the time Richard M. Nixon took us off the gold standard in the early 1970s, we had only 8,100 tons left. That 8,100 tons is valued at $325 billion, the U.S. government spends that much in a month.
Furthermore, in 1952 that 21,000 tons of gold was actually backing the money supply (the dollar). Today, our money supply is exponentially higher and backed by nothing except the full faith and credit of the politicians (I feel more secure now).
Since the dollar doesn’t need gold backing it, the size of the national debt doesn’t matter and deficits don’t matter, why did Americans wait 200 years to start printing and borrowing their way to prosperity? Moreover, why don’t we borrow an extra $2 trillion or $3 trillion a year instead of a puny trillion dollars a year?
I think every American will have an answer to that question in the next few years (whether they want to admit it to themselves or not).
Good luck getting all those government promises such as pensions, Social Security and savings that are simply pieces of paper backed by nothing, actually getting paid off and not just this year, but for the next 20 years.
Maybe it really isn’t that crazy to have a little bit of gold.