True price and value of gold: Massive scam or cost of a suit?

Jack Caldwell railcars

The expensive clothes store at the entrance to our office building is advertising “two hand-made suits for $1,500.”

This tells that the price of gold will decrease a lot more. For historically the price of gold has been equal to the price of a suit for a well-dressed man. It cost an ounce of gold to buy a toga for a Roman senator;  it cost ounce of gold to buy the outfit Lord Capulet wore at that fateful ball where Juliet met Romeo; it cost my father $35 for a good suit when he was a miner of gold at $35 an ounce. Why should I pay twice the price of an ounce of gold for a suit?

Over the past days, we have read many reports on the fall of the price of gold. I am not concerned. This is just the way the price of gold fluctuates. I conclude this is the bursting of yet another bubble. Akin to the bursting of the bubble of the cost of tulip bulbs—for now the tulips are in full bloom here in Vancouver.

Spring comes and the heart bursts at tulips, the continued rise in the price of property here in Vancouver, and the bursting of the gold bubble. Who really cares if the price of gold, houses, bulbs, and men suits fluctuates?

These prices have gone so far up and down in my life time that I no longer fret or even read about it. Consider property:  the house in Orange County that I bought for $250K that increased to $1 million and is now worth less than the house in Vancouver that I bought for $132K and is now worth $650K. Things fluctuate in value due to forces far beyond our control.

Consider the US 401K and the Canadian RRSP. Both have gone up, and down, and up. Both are more or less worth what I put into them in the first place. You cannot make money investing anymore; all you can do is protect income from the taxman.  Spend less; save more; and squander the cash on pleasure—for why leave it to the taxman, the kids, and the grandkids?

Fact is the price of gold is still crazy high; at least twice the historical correlation with the cost of a man’s suit. Most gold mined goes beneath the beds of rich Indian ladies or into the vaults of pathetic Cypriot banks to prop up ill-begotten gains of corrupt Russians.

Survivalists worship at the altar of gold. Not because their religion is sound or sane; but because they secretly long for the collapse of society and the fall of the president. They are motivated by primordial hate. They are motivated by lust for power—or failing that the pleasures of a Roman crowd inspired by slaves fighting to bloody death. They are inspired by the pleasure of watching others in pain. In short, they are nuts.

I grew up believing that gold cost $35 an ounce. My grandfathers and fathers lived, worked, and died inspired by a belief in $35/oz. gold. How sad to think that their lives were lived by so callous and false a code. Yet they would revel in joy at the idea of $700/oz. gold and they would cry for greedy people grieving over $1,400/oz. gold

My mining ancestors never thought of what happened to the gold they mined. It would, I suspect, horrify them to consider gold as dowry, as jewelry, as locked in vaults to support venial dictators and incompetent politicians.

They mined because it was the only job to be had. My father joined the forces as a lad of seventeen (he lied about his age to get away from cutting polony at OK Bazaars.) He survived five years in the war in North Africa including the fight at El Alamein.  He saw his friends die—shot to pieces. He came back a 22-year old of horrific knowledge and experience. He and his friend who survived were broken: they learnt to live for a game of bowls, a brandy, and a quite night of poker. Mining gold made this survival possible.

Would he and his fellow war-survivor not now, rightly, brand us as shallow & venial to be so greedy about the price of gold?  How many suits of clothes do we really need?

He insisted that I do military or civil engineering and not mining engineering. He believed that military engineers build things that win wars; he believed civil engineers build things we need to live. Maybe he would be proud of his granddaughters who are civil engineers and of his grandson who manages the tomahawk missile program of the US 5th Fleet. He would not care what the price of gold or even understand who lost how much the when prices dropped.

He would spurn those silly people who earn a dishonest living writing about why the price of gold must go up, why it has gone down, and what it all means to those who live in hate  of the current US system. He would surely be happy at his eight great-grand-children who are Americans and who will invent new ways to cope.

Sure the value of my investments in gold, silver, and copper mines has decreased in recent days. But, as I say in my EduMine course on investing in mining: invest for the long term.  A lot of it is paper profit; it came; it went; and it will come again. And if it does not, then sit back and cogitate. Or take the past gains and spend them on ephemeral pleasure. Buy a good book; get and ride a fancy bike; go see an opera; or frequent those of the night. For surely one of the gifts our ancestors bestowed us by fighting long and terrible wars and mining hard in the deep dark of 6,000 ft. is the chance to enjoy simple pleasures they never could.

The price of gold may affect how much money you have to spend on books, CDs, DVDs, bikes, brandy & cognac, and the other pleasures of the flesh. Yet I defy  them to tell me they cannot live a full and satisfactory life regardless of the price of gold.

To wit: this evening I rode home on my bike along lanes lined by full blossom. The trees were replete with white and pink; the bulbs in full bloom of daffodils; the sun reflected off the asphalt; other riders strong and muscular of tone; the mountains with a smattering of snow; the graffiti bright and innovative; the sun just setting behind the city-scape of tall towers; and the kids of the local university bold and brash as we crossed the traffic lanes.

Could life be better? NO. Regardless of the value of investments, the price of gold, the work opportunities missed, the conferences not attended, and the other pleasures not indulged. They can await tomorrow.

If you take nothing from this posting, recall only this:

  • Journalists will write of the price of gold; this is no more than pusillanimous pontification in pursuit of words that beget their income.
  • Gold-begotten income is but a substitute for life really lived by way of simple pleasures like a bike ride along blossom-filled lanes.
  • Fancy cars, expensive boats, and even attendance at foreign conferences are dull by comparison with the pleasures of off-spring, their promise, and their potential to remake the world anew.
  • Pessimism is a destructive force that denigrates the originator and the receptor; ignore those who predict the end of the world because the price of gold drops.

It will go up again and more reasons for the price fluctuations will be trotted out by pundits. At least if you still believe in the Supercycle; believe that the more millions coming into this world will demand and get a life-style like ours; believe that banks and countries won’t sell off gold reserves to stave off financial disaster; and believe that upward price spirals are a law of nature.

Or if you believe the drop in the price of gold is a massive scam perpetrated by an obscure American  institution, namely the American Syndicate of Collusion and Manipulation. Here is how one report explains this scam:

Economist Dr. Paul Craig Roberts, assistant treasury secretary during the Reagan administration and former editor of the Wall Street Journal, is one of many experts who argue that the recent collapse in gold and silver prices was carefully orchestrated by the Fed and a coalition of allied mega-banks. In a widely cited analysis of the recent plunge in precious metals entitled “Assault On Gold Update,” he said the U.S. central bank was “rigging all markets” — bond prices, interest rates, and of course, the bullion market.

The purpose, Roberts argued, is to protect the value of the dollar while the Fed continues adding to the supply of fiat U.S. currency faster than demand increases. If the dollar’s exchange rate were to fall, prices would rise, the Fed would lose control over interest rates, the bond market would collapse, and turmoil would reign in the financial system, Roberts noted. So, the U.S. central bank had to act. According to Roberts and other experts, it did so by selling “paper” gold that may not even really exist — naked short selling, in other words.

“Rapidly rising bullion prices were an indication of loss of confidence in the dollar and were signaling a drop in the dollar’s exchange rate,” Roberts explained. “The Fed used naked shorts in the paper gold market to offset the price effect of a rising demand for bullion possession. Short sales that drive down the price trigger stop-loss orders that automatically lead to individual sales of bullion holdings once their loss limits are reached.”

Ultimately we should rejoice that we are free to enjoy the story of the price of gold as a game played by the super-rich, by traders far smarter than we are, by bankers panicking, and survivalists who have lost faith in the ability of Americans to reinvent the country.

Of course some mines may close, slow down production, be put on hold, or never get developed. Of course some miners will lose their jobs or not advance to new ones. Fewer mining conferences will make lots of money. And websites will have to hang on by increasing quality.

The drop in the price of gold and other commodities is significant and does affect real people. But it is not the worst thing happening: these fluctuations have occurred before and will occur again. The trick is to arrange your affairs so you are less vulnerable. Only you can decide how to do that.

For more from Jack Caldwell, see his blog, I Think Mining