Undoctrination.org

There was a time in the not too distant past when I was a real fan of investing in gold. Over the past several years, gold has proven to be a commodity that has risen in value and provided a tremendous rate of return. But then, I started reviewing history, and recognized that over time, there have been many items that had the same stature at one time or another.

Salt bars were used as currency of exchange for more than 1000 years. Travelers report that some are still circulating among the nomads of the Danakil plains in Africa. In ancient Greece, slaves were traded for salt, and an unruly slave was deemed not “worth his salt”. 

Humans have (and still are in some parts of the world) been used as currency.

Pieces of twisted iron called “kissi money” have been used in regions of Western Africa as money. The value of the bar was dependent on the length, which ranged from nine to fifteen inches. If one broke, it was deemed worthless until a ceremony could be performed to restore its value – usually by the local witch doctor with a blacksmith assisting (to re-join the broken pieces).

Weirdly – shaped rocks, some with holes in them or carved with images, have been used as a form of currency in many regions of the world. The larger ones were declared more valuable than the smaller ones.

Colored beads, blankets, and trinkets were reportedly used by the colonists to acquire the island of Manhattan from the indigenous people of the “New World.”

Today, as the economy fails to show signs of real recovery, gold investing has become the newest trend for many (rightly) concerned about the enduring value of our paper currency here in the USA. Late night infomercials hawk gold as a “sound investment.” Sure, it’s true that “gold has never been worth nothing,” but really, everything has some value to someone, so that’s an easy claim to make. Houses in Detroit for instance, which at one time had sold for over $100,000.00 can now be purchased for less than $10,000.00. Many models of used cars have gone up in value because of the disaster of the “Cash for Clunkers” program which effectively took thousands of perfectly good used cars out of the marketplace – displacing thousands of buyers (younger buyers mostly) who can’t afford a new car.

The difficulty in understanding and investing in gold is that there’s no good way to measure its value.  There’s no cash flow or earnings, and the rate is primarily determined via buyers and sellers.  There’s also no intrinsic value to gold – no utility or usefulness (besides looking at it).

The value of gold is simply what someone will pay at a certain period of time. That’s the “value” of anything else, for that matter. “The Rule of Value” should read: “Anything is worth exactly what what someone will sell it for, and what someone else will pay for it.”  Sure, for centuries gold has been used as a measure of value and has assisted people in transferring value. 

While gold has never been worth nothing, it’s important to note that this statement is true because society will always use something (like gold, food, or paper) to transfer value between parties.  Gold has been used because of its scarcity and difficulty to imitate/counterfeit.

Before you invest in gold, I’d suggest you ask yourself this simple question: Why?  Are you counting on something to store value in, or are you looking at it as an investment?  If you’re viewing it as a store of value, be careful to realize that it’s only as valuable as someone will pay at a given time.  If your fear for society is truly great, you might consider storing items that truly provide value – like nonperishable foods, water, clothing, medicines, ammunition, guns, even alcoholic beverages, etc. 

If you think of gold as a good investment, I’d caution you to think back to the internet boom, tech bubble, and housing bubble that we watched over the last two decades.  If something seems too good to be true, it probably is.

So investing in gold (or any other commodity) is not necessarily a bad thing, but one mustn’t view it as a “savior plan” for any impending doom. View it for what it is – an investment that needs to be cashed in when you feel you’ve reached a peak value comfort zone: Profit.

 Then take the profit to the store and buy beans, rice, dried and canned foods, clothes, tools, blankets, medicine, ammunition, and even some booze.

If the “end of the world as we know it” becomes reality, those items will get you much more return on your investment – when it really counts.