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Unlike mining stocks, gold is not an investment.
Gold is money. It is a store of wealth. Gold's 5x growth this past decade is
significant not because it's nominal price has increased, but because the
prices of most other assets have increased less.
The gold price simply doesn't matter. Gold's value as measured in a fiat
currency is arbitrary. Sure, adept traders can take advantage of short term
price fluctuations, but bullion owners invest for the long term, and they do
so to protect their wealth.
Some are calling for $5,000 (or even $10,000) gold. It might happen. Who
knows? But if all other assets grow at the same rate, the sum gain is zero.
Gold growth in dollar terms does not guarantee increased wealth.
On the contrary, it is wholly conceivable that the gold price could fall and
you could make a fortune! If gold settles at $1,000/oz, but the DJIA,
S&P, home prices, car prices, etc, all fall at a greater rate, your net
gain is the difference to the downside. In other words, your net purchasing
power would increase!
Purchasing Power
The real statistic worth
measuring is purchasing power.
The graphs below depict what I mean. Gold's real value is determined not in
the price of a fiat currency, but as a ratio to other assets, and this is
where gold has really shined over the past decade.
During the "lost" decade, in which the Dow and the S&P 500
flatlined, gold's performance became all the more significant for owners who
had the foresight to hedge against a deadening economy.
*Gold divided by DJIA
*Gold divided by S&P 500
Despite the incredible housing bubble in the middle part of the decade, gold
consistently rose against home values. In 2000, it
took 705 ounces of gold to buy the same house you can purchase today for just
253 ounces.
*Reference for average new home prices here (24k pdf)
Are food prices rising? You bet. But not as much as gold, according to the Bureau of Labor
Statistics.
*(Bureau
of Labor Statistics, US City national average composite of prices: Pasta,
Flour, Bread, Ground Beef, Turkey, Milk, Butter, Cheddar Cheese, Apples,
Bananas, Potatoes, Lettuce, Broccoli, Sugar)
In 2001, it took 95 ounces of gold to buy the same car you can purchase
today for just 25.5 ounces, according to the National Automobile
Dealers Association.
*Source National Automobile Dealers Association, www.nada.org
Sure, for gold bulls it can be an obsession waking up every morning to check
the Kitco spot price. But in the long term, the move to gold holds far more
significance than a ten or twenty-dollar price swing. If you can keep your
head (and shirt) when all about you are losing theirs, that in itself will be
a great triumph.
History will record our age as the time of the greatest economic meltdown the
world has ever known. In the end, it won't matter if gold is selling for a
trillion dollars or fifty dollars. What will matter is what you can buy with
it.
'Til next time,
that's my Saab Story.
Tarek Saab
Guardian Commodities
Tarek Saab is the President of Guardian Commodities and a former finalist
on NBC's "The Apprentice" with Donald Trump. He is an international
speaker and syndicated author.
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