Thursday, May 31, 2012

Gold, Money and Madness (Debunking goldbugs)

Subjects I have more than passing acquaintance with.
Back in September 2008 (remember Sept '08?) I mentioned my experience with Homestake, the largest U.S. gold mine,:
...After the mine closed in 2002 I went out to Lead to answer the question "Is gold an asset you want to own during deflation?" I was quite possibly the last person with access to the company records from the '30's. The skeleton staff that Barrick had in place for the shutdown were literally boxing documents for the archivists as I sat there....
I'll get to money and madness in another post, in the meantime here's FT Alphaville:

Debunking goldbugs
Goldbugs don’t just believe in the fundamentals of gold. They worship at the altar of gold.
The goldbug view represents a market philosophy, a doctrine and a belief-system.
Question it and you incite anger, rage, ridicule.
For ‘non-believers’ this can be frustrating. It’s impossible to have a rational discussion on the subject because goldbugs inevitably intervene with ‘ absolute’ views, none of which are open to adjustment. They stick to those absolutes, even if the facts don’t fit support the narrative.
One might say the following 10 commandments reign at all times:
1) Thou shalt not have any other money than gold.
2) Thou shalt not make paper idol money.
3) Thou shalt not call bullion a relic ever.
4) Remember the day Nixon broke the gold standard.
5) Honour thy gold reserves.
6) Thou shalt not suppress the gold price.
7) Thou shalt not borrow gold from another man.
8) Thou shalt not steal another man’s gold.
9) Thou shalt not bear false witness against gold or talk down gold.
10) Thou shalt not covet another man’s gold.
While FT Alphaville is sympathetic with some of the points raised by goldbugs, we feel what gets in the way of constructive debate is the goldbug’s utter and complete hatred of the so-called paper money system.
Yet the fiat system has a lot more going for it than you might think.

Unlike the gold system, which asks you to put your faith in an inanimate shiny object, a paper “fiat” system asks you to put faith in relationships, in your neighbours, your community. It asks you to believe that society will honour its debts because it doesn’t make sense for it not to — largely because it is just as dependent on you honouring your debts to it, as you are on it honouring its debts to you. It’s a system based on quid pro quo relationships. A symbiosis based on trust....MUCH MORE
Everything is fungible, the question is which is the numerator and which the denominator.

From 2009's "Speculators Turn From Oil To Gold And Copper" which began:
Last Friday I had a comment on the MarketBeat post "Gold Prices: $6,300 by 2065?":
Climateer wrote:
Better gold than oil.
I’ve got no problem with non-consumables being all the rage.
If someone wants to bid 2500 guilders per bulb for their tulips, have at it.
The standard reference for gold is Professor Roy Jastram’s “The Golden Constant” originally published by Wiley.
Here’s a quick overview by Jill Leyland, currently a Vice President of the Royal Statistical Society
You could’ve done what I did to research the behavior of gold under deflation: head out to the Homestake mine the month Barrick was boxing up HM’s records for the archivists. Since you can’t do that now, the next best thing is the May 1, ‘09 reprinting of Jastram’s classic by Edward Elgar Publishing, updated by the above mentioned Ms. Leyland.
Amazon is sold out, there’s 1 copy being offered on ebay for $176.84.
Today the Wall Street Journal's The Source blog writes:
Something rather odd has happened to all that hot speculative cash that was flowing into oil. It’s drained away and is flooding instead into gold and copper...
Are you quoting rocks per dollar or dollars per rock?