The Real Reason Billionaire Investors Buy Gold, and Why The Sky is NOT Falling - SPOILER ALERT: @dollarvigilante is wrong!

jaredcwillis (60) in investing • 8 years ago (edited)

Americans are constantly bombarded with fear-mongers claiming that the "collapse is coming", the "end is near", that something bad (and very ambiguous) is on its way. We hear it from the right and the left, about everything from the economy to Swine Flu, from CNN, Fox News, MSNBC and every media outlet in between. Right in the middle of this spin cycle, is the topic of gold.

One of the things that we're told on a consistent basis is that we should put our money in gold. Gold is the only safe haven in the coming collapse; it's the only way to ensure our kids aren't fighting for scraps in the streets!

Another thing we're told is that when big investors start investing in gold, we're headed for certain disaster and imminent collapse. The most recent news, that British Billionaire Crispin Odey has invested heavily in gold, is posited as yet another sign of the end of days.

What's Really Happening?

In late 2015, there was speculation from HSBC (an investment bank) that gold would see a recovery in 2016 from prices that were at 5-year lows.

At the end of 2015, gold had fallen by about 45% (priced at $1060.84/ounce) from it's high in 2011 (when it was priced at $1910.78/ounce).

So, billionaires like George Soros (who liquidated a good portion of his gold holdings in 2011 and again in 2013) and Stanley Druckenmiller invested in gold, betting that the prices would rise. This bet paid off quickly, with gold prices rising 16% in the first quarter of 2016.

Meanwhile, as prices continued to rise, in May 2016, another prominent billionaire, John Paulson, disclosed that he sold off 17% of his gold holdings. Note that Paulson is one of the few investors that successfully predicted the housing crash in 2007.

Does this sound like an impending collapse, or just market speculation?

Going back to Crispin Odey, what you have is a British investor seeking to recoup losses from the Brexit crash, coping with the reduced buying power of the British Pound, and using a stable commodity which is showing bullish growth. This reduced the losses of an already poorly-performing fund with a loss of 24.8%, as of June 15 and as of the writing of this article has put the fund back on track.

Currently, the price of gold has seen wild fluctuations amid speculation on whether the Federal Reserve will raise interest rates.

What we have here is not a sign of the end times, but a price recovery of a commodity and both buying and selling as a result. This is no different from the buying and selling in 2013 or 2011.

So What's With the Gloom and Doom?

Fear-mongers are making a safe bet when they preach gloom and doom. So long as they manage to stay ambiguous. There will always be fluctuations in the market and there will always be a crisis somewhere. All they have to do is wait and say, "SEE! I told you that would happen." With the way news is presented (instantaneous and available 24/7), it is very easy to prey on people's fears that the world is going to hell in a handbasket. There will always be an audience (just ask Glenn Beck) of suckers who will gladly read and listen along.

Gold Isn't Even a Good Investment for the End of Days!

Let's say there is a devastating crash that leads to the end of days, an EMP goes off, or aliens invade. Gold will not help you. Not at all. It will become relatively worthless. If you are struggling to survive, would you rather have a can of beanie weanies or a sparkly gold necklace? That's what I thought. If you truly believe that the end is nigh and are playing that R.E.M. song on repeat (kudos if you know what I just referenced), stock up on things that will actually save your life; solar panels, livestock, a cabin with no cell reception, a fallout shelter. Gold will be useful during a reconstruction period when things are being put back together, but it will not keep you alive and safe if SHTF.

Even better are the companies that sell you gold and store it for you. What?!? So if the grid goes down and the market crashes, maybe the postal service will still be running and the company holding your gold will send it to you via priority mail? Good luck with that.

Conclusion

You are being ripped off. Your media heroes are living in Argentina "off-the-grid" because you paid for their latest ebook series, added to the hundreds of thousands of unique visits to their websites, and retweeted everything they've written or said for the last 5 years; not because they're convinced of an impending crash.

They're smarter than you, but not in the way you think. If a crash or crisis does happen, it will likely be manageable, and will not lead to total collapse. It certainly won't be due to a bunch of billionaires sitting around plotting a conspiracy around a couple of occult calendars. Either way, your fearless leaders will tell you that they told you all along it was going to happen.

As a side note, you will also see below, in my sources, that the media is not, in fact, ignoring the recent buying and selling of gold.

The links below are great resources to start from. Do your own research. Think for yourself. I may be wrong, but I've informed myself and have drawn conclusions from my own research, not some pundit. As always, I am happy to engage in constructive, substantive debate on the subject.

If you like my content, follow me and stay tuned for my new Steemians Talk Survey series. In this series, I will be polling users of Steemit and publishing my findings. Please check out the first post in the series here and take the survey!

EDIT: USD 10yr Chart

@aenor made a great observation. If you look at the USD over time, it is on an uptick. Here is a 10-year chart:

Source: tradingeconomics.com

Sources:

8 years ago by jaredcwillis (60)

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aenor (64) · 8 years ago

Good article.

Gold is one of the most manipulated assets there is.

And the dollar isn't falling. Take a look at the dollar on a fifty year chart. It bottomed out in 2011, after falling for 30 years, and is on an upward trajectory.

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gamgam (55) · 8 years ago

"And the dollar isn't falling. Take a look at the dollar on a fifty year chart." The dollar isn't falling in compared to what? Other devalued, over printed currencies? How about comparing it to your grocery list? Devalued currencies cause the price of purchased goods to go up. That is, it takes more dollars to purchase those goods today than it did fifty years ago.

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jaredcwillis (60) · 8 years ago

I added a 10-yr graph to my article to illustrate your point.

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aenor (64) · 8 years ago

Thanks!

I also believe that Mrs Yellen is gearing up for an interest rate rise, and lots of gold-bugs will be caught unawares by it. She has to move in Sept if she is going to do it, as because otherwise it will be too close to the election.

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jaredcwillis (60) · 8 years ago

It has already seen some fluctuation just due to speculation over the Fed rate.

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subc (25) · 8 years ago

There is no way Janet Yellen will raise rates before the election. I don't know if you recall but, the FED has been vocal about raising rates multiple times last year. The only time they raised it was at the end of the year, the stock market crashed in January to it's lowest point in years!

Following the stock market crash, the precious metals have rallied due to loss of confidence in the US economy. If the FED raises rates, it's going to implode the market, and shoot Gold and Silver to the moon. I presume the FED will drop helicopter money before changing the interest rates. Which I think it will be dropped another .25 or even to negative territory.

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jaredcwillis (60) · 8 years ago

Good observation. Thanks for joining the discussion!

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thylbom (55) · 8 years ago (edited)

Gold is NOT an investment. Gold is MONEY, pure and simple, and one of the oldest and durable forms money there is. It does not pay interest, because there is no counterparty risk. In a world where financial assets have negative yields, gold actually has a yield in real terms for the first time in the history of the world. If you can't explain why that might be, you really have nothing to say. Something is very wrong...

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jaredcwillis (60) · 8 years ago

Webster defines money as follows: something generally accepted as a medium of exchange, a measure of value, or a means of payment.
I'm not sure what your argument is. Yes, gold could technically be called money, though you couldn't take a block of raw gold (which is what is being traded on) to Walmart and buy your groceries with it. In order for it to feasibly be money, it would have to be in a form that had a recognized denomination of value. A more accurate term, is "commodity". It is a relatively stable commodity, but a commodity nonetheless. Its value is driven by supply and demand. Its current value is driven by higher demand on a harder-to-mine supply. Gold has been traded for yield on multiple occasions in history and has been rising and producing a yield since 1971 (I reference 2011 and 2013 when George Soros traded at profits). Any commodity can achieve a yield based on price fluctuations and when it is bought and sold. So yes, it is an investment, and yes, I suppose you could also call it money. You're arguing semantics, but I'm still not sure what the argument is.

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norene (36) · 8 years ago

Interesting post @jaredcwillis. I follow a few SHTF blogs and it IS common belief that gold is the way to go. It's good to get another perspective.

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jaredcwillis (60) · 8 years ago (edited)

I'm not in any way saying that gold is a bad investment. It is commonly considered to be a safe hedge investment in uncertain markets. My main point is that big investors buying into gold (especially considering the recent price changes) is not a sign of the end times, and it is not an investment that will save you if the end times do come. Additionally, I believe it is very probable that the recent rise in gold prices is due to large investors buying in (which is not uncommon).

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subc (25) · 8 years ago

You're right on one thing. There is a ton of money coming into the sector because of the uncertainty in the US economy. Which is driving the prices up. Gold and Silver has always been money, and monetary policy and it's paradigm is cyclical. If you know history, each empire had it's reserve currency that eventually met its demise. We're at the last leg of the Dollar's life. China created a gold backed yuan back in April, and you got Russia, and other major countries hoarding precious metals to hedge itself from the greenback. It's only a matter of time before the dollar is dethroned, and a new currency will rise. I believe it's going to be something tangible.

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sharper333 (48) · 8 years ago

Okay, but like, thr amount of gold China would need to back the valuation of yuan currently hasn't even been mined. In history. So, ever. The U. S. still holds more gold than China. I'm not going to check for this post , but its something like 7x what China holds. And at this point the U. S. is still the world leader in gold reserves.

Do you have a link to an article about the gold backed yuan?

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jacksteem (40) · 8 years ago

Nice research - objective view. Let's keep in mind the GDP growth global is still 3%. Still there is too much QE - at some point some value will need to be destroyed.

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telos (57) · 8 years ago

Well said, too bad so few around here will listen...

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outchemy (44) · 8 years ago

Nice post... Appreciate the share

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gamgam (55) · 8 years ago

All historical currencies, every one of them, have gone to zero. Gold and silver is an exception. The only reason the dollar isn't zero is that it hasn't been in existence long enough. I suspect that is about to change and gold and silver will still have value.

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steemitpatina (59) · 8 years ago

Excellent discussion... and love the beanie weenies reference. Oh, and thanks for that REM ear worm.

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jaredcwillis (60) · 8 years ago

Glad you enjoyed it!

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rucoin (67) · 8 years ago

At the same time it is necessary to remember also that growth of positions of dollar in the foreign exchange market provokes increase in the price of gold.

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am-13l4ze (25) · 8 years ago

What we are dealing with is not an investment spike in gold but rather the end of a currency cycle. You canNOT print your way to prosperity. In fact every fiat currency that has come to existence has gone back to its intrinsic value. ZERO. Buying gold and silver right now is a hedge and a store of value outside of the dollar currency. Gold is money, not a currency. Know the difference my friend.

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jaredcwillis (60) · 8 years ago

Technically, gold is a commodity. A relatively stable commodity that is often used to back currency, but a commodity nonetheless. It's value is based on supply and demand like other commodities. Currently it's value is based on increased demand on a limited supply.

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hamadryad (25) · 8 years ago

Technicaly maybe, but in very large parts of the world it is currency, albeit undercounter/culture. You wouldnt send your secret service men into the desert without a few gold coins.

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hunterisgreat (56) · 8 years ago

On a similar note, silver just dropped like a rock to the lowest USD price in almost 2 months. Anyone have any idea why?

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knoble (32) · 8 years ago

Manipulation comes to my mind. Its another "gift horse" Buy, Buy and Buy some more. Selling stuff you dont need and converting to physical silver is getting harder each day as people in my area are using their fiat for more practical purposes.