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06/01/2006 Archived Entry: "Gold is down. What, me worry?"

when the yellow metal touched $733 per ounce.

Should “gold bugs” (the derisive term for those who have some inkling of the historical and economic importance of gold as money) be worried? I’m not. In fact, I’m buying.

If you looked at $700 an ounce gold and thought “I wish I had bought some sooner,” the gods have smiled on you. How often do you get a second chance?

Corrections of 10% or more (this one is about 14% right now) are a normal part of any bull market. I can’t say why gold zoomed to $733, or why it fell. But the basic reasons for owning gold haven’t changed in 3,000 years.

1) Gold has value: humans have wanted gold for a variety of purposes throughout recorded history, and almost certainly before the records began. That hasn’t changed.
2) Gold is fungible: an ounce of gold is just as good as any other ounce. Diamonds have to be graded; they are not all equal. Split a 2-carat stone into 1-carat parts and the result is generally worth much less than the original. Split 2 ounces of gold into two 1-ounce coins or bars and they are worth almost exactly as much as before.
3) Gold is portable: you can easily carry enough gold in a briefcase to buy a house.
4) Gold is durable: bury it, drop a gold coin in the ocean for 1,000 years, it emerges as shiny and new as the day it was minted. Silver, wheat, houses, oil, almost nothing holds up like gold.
5) Gold is scarce, and will always be so: it takes great effort to pull half a gram of gold from a ton of rock. Government currency doesn’t even need paper and ink anymore, it is created with keystrokes. Less effort is required to create a billion new “dollars” than I spent creating this blog post.

Will gold go up or down? I don’t claim to know. In the long term, the value of the dollar will reach that of all paper money: zero. The day will come when no amount of FRNs will buy a gold coin. When that will happen, no one can say. I’m afraid all the signs point to “sooner” rather than “later” but that is just my opinion. In the meanwhile, with government spending wildly out of control, with the US dependent on foreigners lending us $2,000,000,000 every day, with US arrogance and belligerence creating virulently anti-American sentiment world-wide, with a war burning a billion or two dollars a week, with government spying on our telephone calls, our emails, and our bank accounts, you have a choice:

A) Keep your “money” as digital bits in a “bank” where every penny you deposit or spend is recorded and tracked, so that politicians can steal it slowly via inflation, faster via taxes, or instantly by “freezing” the account or using “asset forfeiture” laws, OR
B) Keep as much as your wealth as you can afford in a small, pleasantly heavy, well hidden trove of gold bullion coins.

I find that choice pretty easy. This is not investment advice. This is an essential part of how you live free: by ridding yourself of the tyranny of government-created money.

Posted by Silver @ 07:48 PM CST

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