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Tuesday, September 18, 2012

A Practical Assessment: Gold Possession & Broken Economy

Everywhere you look, especially the ads in financial newspapers and on the finance TV networks, its one hard-sale commercial after another to buy gold.

Gold is going up, up they say.. 'Look at QE3-- going to weaken the value of the dollar so gold will rise to infinity..  So Buy Now!'   etc... etc..

We're not here to tell you whether that strategy is right or wrong.  Honestly, since we have none to sell you, we don't care if you buy gold or you don't-- that's completely your business.

But what we will do today is brainstorm a little bit.. ask some of the reality based questions that you never see addressed in those adverts and areas which many gold purchasers are... well.. under some delusions.

Remember:  This is a brainstorming exercise and ultimately you do as you wish.. Your money-- you earned it (unless you're a professional Investor, in which case you stole it)

First, let us say the stock market crashes really bad and over a prolonged period of time.  The currency is weakened and you're holding onto a lot of gold...  Let's ask ourselves some questions..

What will you be trying to convert your gold into?  Pretzels?  Sticks of gum?  No-  money... US Dollars.. the same dollars that you and everyone sought to avoid possessing by buying gold in the first place...

And how easy do you really think it will be to convert your physical gold into cash during a time of panic?  The stock market may say gold is $2,500/oz but do you really think you will get that or even close to that amount when there's lines of people in front of 'Buy Gold' shoppes desperate to sell?  Do you think these stores will possess that much stand-by cash?

Maybe you get a cashier's check; an IOU as it were.  And if there are bank runs and eventually bank holidays, how excited must you be to deposit a piece of paper with pretty numbers on it after giving to another your physical gold.

And Lord help you if all you possess are Gold backed certificates...  In other words, there are some who advertise buying gold but they retain the physical possession-- you possess what amounts to a receipt for a future delivery upon request.
Let's think of supermarkets and gas stations right before a hurricane hits... The panic mindset of people stocking up on everything they can find...  If there was a true economic event which caused gold to dramatically spike to the levels the greedy hope/pray for, it actually will be worse in some ways for a gold hoarder.

Do you really think your local supermarket, gas station or 7-11 is going to start accepting little gold bars in exchange for milk and bread?  And if it did happen it would mean one of two things-- either you massively overpaid for that food because in all likelihood you're not getting exact change back.. OR it means you paid the Correct price and Lordy Lordy-- Help us all if milk and bread ever come to over $2,000.

Now, let us look at the reality of gold itself.   Today gold is at $1,770 for one ounce. That is the weight of two Double-Stuf Oreo cookies.  Thats equal to 100 grams.  So if you sought to purchase 10 gold coins, that's $17,770, and so on...  

Perhaps you're super wealthy.. perhaps you own 1000... 10,000 coins...

Now, understand the fact and Truth that the government does not want people having that much financial autonomy from its system, ask yourself:
Don't you think the government will place limits on how much you can sell at a given period of time?  Perhaps set up a national gold monitoring database (if one isn't established already) to track what each person does?

And if you are selling your gold coins for let's say $2,500 each, don't you think the government is not going to want to tax  it-- heavily??  Perhaps congress will establish a specific tax rate for gold sales over the amount of 'X' which will cut into all that profit you think you're keeping off the transfer sale...

Or the government can do what it did during the early 1930s... Government demanded everyone turn in their gold certificates or be put into prison.  Then the government re-pegged the gold i.e. devalued it by 25%.

The point made is that gold is an asset.. its a commodity.. and its easily sabotageable by any and all governments who wish to manipulate the free-market system of buying/selling for their own benefit.

For all the weakening of the US Dollar, you still can use it to buy anything one needs in any physical location, banks happily accept deposits which allow you to write checks to pay bills, and as anyone whose been through a natural disaster may attest, when going to stores for supplies and power is still out, credit cards are worthless...
No matter how pseudo-smart you think you are with your investment strategies and possession of commodities like gold, in the reality of the day to day lives we all lead, cash will always be King