Gold as a Productive Investment   Leave a comment

Why Gold is a Love Based Investment

by Jas Malcolm

I’m going to reproduce a portion of an article that Fortune Magazine printed of an interview with Warren Buffet. As the reader knows Warren Buffet is one of the richest men in the world and has achieved this through very successful investing. I believe anything he writes is worth reading and reflecting upon.

Allow me to set the stage. The article in its entirety suggested that people avoid investing in bonds/paper savings and such.  It then went on to tell us why gold was not something he believes in (excerpt reproduced below), and Warren concluded that an investor’s best investment is in producing assets. As you know I’ve been an advocate for investing in gold and silver for some time so clearly Warren and I don’t see eye to eye on this. Let’s give him the first opportunity to talk shall we.

 Excerpt from Fortune Magazine article by Warren Buffet:

“The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else — who also knows that the assets will be forever unproductive — will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce — it will remain lifeless forever — but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truthfor a while.

Over the past 15 years, both Internet stocks andhouseshave demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof ” delivered by the market, and the pool of buyers — for a time — expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?


Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers — whether jewelry and industrial users, frightened individuals, or speculators — must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops — and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold.

In effect Warren posits that gold is a less than ideal investment because it is based in fear and it is not creative or productive.  He suggests that an investment in ‘productive’ companies such as members of the S&P would be preferable investments, and he uses as examples some of his large investments: Coca Cola, See Candy and Exxon. I would add that Warren is also a large owner of insurance companies.  Now, I concede that Warren is probably one of the greatest investors of all time and has generated huge wealth.  If that is the sole goal of investing than his track record is beyond question.

His comments on gold lead one to question what are productive assets?  On the one hand we could use a definition of investing in people who do productive things, but in fairness there are many gold producing companies that have great people that are productive within the context of their industry.  Warren seems to really be relying upon the concepts of supply and demand to define ‘productive’. In this regard a productive use of gold would be for jewelry and dentistry presumably, but not for investing.

The second strike against gold, according to Warren, is that it is fear based investing, ie investing to avoid loss of capital from currency inflation or government insolvency.  I agree that probably a good many people invest in gold for that reason. In point of fact it was the gold holdings of families in Indonesia and Thailand and Korea that preserved those families fortunes amidst the Asian crash. It was their ‘insurance’ for their life savings, preservation of their wealth. Hey, wait a minute, Warren has huge holdings in insurance companies. I would suggest that insurance companies, of all varieties, are about fear. I predict that insurance companies will become something of the past, however, that would take me far off topic. I just wanted to point out that Warren is intellectually inconsistent in his presentation.

I also feel it is unfair to the reader to present long term ‘bubble diagrams’ that infer that the S&P always grows greater than an investment in gold. There have been long term bear markets in gold, but there have also been long term bear markets in stocks. Stock investors never seem to wish to acknowledge this for some reason. In 1929 ‘productive’ stocks lost 90% of their value (gold stocks soared), and if you were to look at the Dow Jones top 50 stocks most of them never returned to their old highs pre-1929, and the ones that did took 30 years! The notion that one can simply buy and hold ‘productive’ stocks is a distortion of history.

I would like to examine this concept of ‘productive’ a bit more deeply. Warren’s perspective is that gold is not a ‘productive’ asset. Even under his definition it is at least benign, which is more than I believe you can say for his investments in Coca Cola and See Candy. After all, Coca Cola, the consumption of which exceeded that of water in the United States some 30 years ago, IMO, is one of the most destructive non-alcoholic beverages imaginable for the human physical. See’s Candy is based upon white sugar, commonly referred to as ‘white death’; certainly the most imbalanced and destructive substance man consumes. A portion of a teaspoon shuts down the human immune system for 4 hours. So are Warren’s investments in Coca Cola and See Candy ‘productive’ or ‘destructive’ for society. Just because a product is produced that is in demand does not mean, in my view, that it is productive. If we simply rely upon supply-demand characteristics to qualify a product as ‘productive’, than pornography is also more productive than gold, presumably.

So by my definitions Warren holds many fear based investments (insurance) and many non-productive, in actual fact, destructive, investments (Coca Cola and See Candy). We can debate the merits of oil production on our ecosystem, in 2012: Shifting Towards Greater Empowerment I explain why humanity is reaching the end of oil as an investment.

I would like to supplement Warren’s perspective about gold.

Gold not only is a superior way to repair teeth (versus mercury fillings) but it’s also the purest element in the entire Periodic Table. That means it’s the most pure element on our planet. The purity of gold is what holds your non-physical in your physical. To round this off for the uninitiated, gold holds your energy in your body. In the absence of gold, then, your physical body could not even exist. As a person increases their energy their blood will actually precipitate gold to hold that energy in their body. If you study Ormes forms of gold you’ll find that this form of gold was found in the Pyramids. I cover this topic in my book Change is Natural.  David Hudson’s experiments with Ormes (white powdered) gold indicated that stage 4 cancer could be cured with gold of this form. Mr Hudson was ‘shut down’ by the government. I’m simply pointing out that Warren is not currently informed of all of the uses for gold. Similarly, he has overlooked that gold purchases are not solely motivated by fear, but that, in fact, the largest purchasing motivation for gold and silver is for ‘love’.

India is the largest consumer of gold on the planet. In India love is expressed and celebrated through the purchase of gold for the person you love. Diwali is an annual celebration during which this custom is practiced. Similarly, in China, the Chinese New Year is celebrated by purchasing gold for those whom you love. Of course, in part, in both of these countries purchasing of gold is also seen as a way to preserve wealth generation to generation. You see China was the first country to attempt an unsuccessful experiment with paper money, and it failed miserably.

I would suggest that Warren chose to conveniently skip 5000 years of history when presenting his case for gold. You see, to my thinking, you can’t understand gold and silver unless you understand their primary function within a society, and that is their function as money.  Yes, I know that all sorts of things have been money in past societies including dung, sea shells and tali-sticks, but gold and silver (predominantly silver) have far and away been the predominant form of money.  Why?

There are many reasons and I’m not looking to write another book here so suffice it to say that gold and silver are chosen as money because of their rarity and their energetic function. Because they are rare they preserve their value, yet there’s something far more important at play here.  Man has been able to split the atom but man cannot make a molecule. That’s right, man cannot make gold and silver* and for this reason governments hate it. It constrains their spending and makes them be responsible, and we know how government people hate to be responsible. Unlimited control over money is unlimited control over other people. So, Warren, I would suggest that the real value of gold is that it is not controlled by the government. This means gold and silver enable people to live outside of a manipulated and distorted financial system.

If we are really going to seriously look at fear, which has been the predominant emotion generated on Earth for thousands of years, then we should look at how the government’s financial system creates it. Holding gold and silver is about being outside of that capricious system. Gold and silver is about independence, it is about freedom. It is about freedom of choice, and that, I suggest is what the government really seeks to take away from you and me.

Warren is a very successful individual as Society measures success today, however, he is aligned with government. Some of his outlandish returns have come by working with the government to ‘save’ Solomon Brothers and in the 2008 crisis, Goldman Sachs.

So, in closing I would suggest that gold and silver are predominantly investments, not of fear, but of love, and they are investments which are extremely productive because they curb large irresponsible governments. They are about freedom.  One way to bring the end to big irresponsible government is to not support big irresponsible government. Purchasing gold and silver to be outside the capricious financial system of government is going to contribute to the end of big government, and don’t think that government doesn’t know that. It’s for this reason that you can track the management of the price of gold and silver by the government down through history. Paul Volker publicly stated that the only mistake he made was ‘not controlling the price of gold’. If gold were to sky-rocket people would leave the fiat money system and governments would have to become accountable. Now that’s productive investing.

I would also like to return to the energetic function of gold and silver. We all know that silver is a superior (though unpatentable) anti-bacterial, but do you really think that all the major ancient religions of the world incorporated gold into their places of worship because it was simply ‘pretty’?  No, they knew more than us, they knew how gold carries an integrative energy.

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*Sea water contains an immense amount of gold and when man learns how to separate it there will be an almost limitless supply of gold. Today gold and silver are produced with significant effort. Some of man’s greatest engineering feats are within the mining sector.  It is true that through fusion there are elements produced, including copper and some precious metals. I believe that mankind is on the brink of using fusion which will revolutionize energy systems on Earth, however, it will be some 30 years before we can use fusion to obtain the metals we require for industry … and, we should also acknowledge that even then man would not be the creator, simply the benefactor of a by-product of the creator.  Tom Bearden and some other scientists in working with alternative energy have found that gold can be a by-product, however they have been cautioned by government about actually seeking to produce any.

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Posted February 13, 2012 by Pure Leadership in In this moment, Jas Malcolm

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