Be wise. Be brave. Be tricky. (slithytove) wrote,
Be wise. Be brave. Be tricky.

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Silence and tears, diamonds and rust, and gold

If I should meet thee
After long years,
How should I greet thee?—
With silence and tears.

—George Gordon, Lord Byron

This post is about silence and tears, and diamonds and rust, and gold.

Mainly about gold, though. The rest is interstitial. Keep an eye out for it.

A couple of days ago, when I posted about a German firm selling gold through vending machines, dagoski expressed shock over the 30% mark up.

30% is on the high side, but that's always been the curse of the retail investor—that's you and me, Flippo—who tries to invest in gold. We buy at retail prices, and sell at wholesale, and the moment we've bought it, we've got a loss, unless the spot price of gold rises to what we actually paid for it. Plus yearly storage charges for the bank vault. Because if you want the kind of security that owning physical gold brings, are you really going to keep thousands of dollars of it in your underwear drawer? Gold is annoyingly expensive, even when it's sitting there doing nothing.

Even the little bit of it around your left ring finger.

1980. Gold was hitting $850 an ounce, an unheard-of price. I was living in Greensboro, North Carolina, where I had spent the past nine years, five of them married. The marriage had collapsed, my wife had walked out, straight into the arms of another woman. Khomeini was raising hell in Iran, Carter was in the White House behind sandbags, the Russians were invading Afghanistan, inflation was ten to twenty percent a year, everything was at sixes and sevens. My plan was med school, figuring that when the shooting started, they'd be crazy to shoot a doctor. Wouldn't they?

I went out to sell my wedding ring.

The retail gold market was hopping. Before the age of, tiny storefront gold-buying operations had popped up in every city. Greensboro must have had a dozen or more. I hit about half of them, getting competing bids for my ring. They were insanely colorful. One storekeep, who outweighed me by a hundred pounds or so, wore a cowboy hat and had a holstered revolver on a leather strap across his chest. He looked like an NPC out of the Fallout games.

I finally got $50 for the ring. Which was exactly what I had paid for it in 1975, when the price of gold was a quarter of what it was in 1980. Of course, jewelery is marked up even more than bullion.

Although, actually, I didn't even get what I paid for it. Inflation, as I have said, was insane in the late 70s, and $50 in 1975 was worth only about $34 in 1980. In a time of soaring gold prices, I had actually managed to lose money. Along with the other things I'd lost.

This is, of course, an extreme case of the problem of having to buy retail and sell wholesale, whether one is talking gold or connubial bliss. But buying gold as an investment has some of the same qualities. I've never done it, I probably never will. The world in which physical gold becomes necessary is a world in which what you really need is not the gold, but a couple score of khat-chewing young bravos riding pick-up trucks rigged with with .50 cal. machine guns. So someone else who also has these things doesn't use them to take your gold away from you. I don't think I'm ever going to have my own posse of technicals (my plan for the apocalypse is to be some warlord's eminence grise, or failing that, his jester), but I suspect the US will not resemble that world within my lifetime, so owning physical gold has never appealed to me.

An alternative is to own gold mining stocks, which should go up if gold goes up. Should. Here's what the GDM, an index of gold and silver mining stocks did over the last year, while gold remained high. Right, they crashed, like everything else, Actually, they did worse than a lot of stocks, losing two-thirds of their value. You would have been better off in consumer durables. GDM has bounced back. But so have a lot of other things.

These, then, are my thoughts about gold, and my own experience with the dismal economics of consumer gold transactions. I notice, BTW, that Barrick Gold, a major producer, is now taking down its short hedges. It is the last major producer to do so. I.e., Barrick had bought insurance, so to speak, against the possibility that the price of gold would fall drastically, and it would be unable to sell its output at today's high prices. Barrick is now convinced that gold will only go up from here.

In other words, the last gold bear has capitualted.
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