Friday, June 17, 2011

Gold Assignment: Finished

I have the pleasure to write to and receive emails from FOFOA himself from time to time (disclosure: I donate to him).  His material is not easy to grasp, but I find him to be compelling in his view on gold.

A few days ago, I had a question on the Euro for him.  "Another", FOA and FOFOA all believe that the Euro is a sound currency mostly because it is not built on a false premise of being somehow linked to gold (as the dollar WAS explicitly linked and still is "sort of" linked to gold).  With all of the problems in Greece and elsewhere in Europe, I asked him why the Euro was so great.  I then asked him that if the ECB starts BUYING gold, what would that mean?

He answered by giving me an assignment.  Namely to read the first half of this very long page (no, he wouldn't do that would he?  Make me read something long?):

The above is part of FOFOA's extensive archives of the writings of Another and FOA.  I had only done a cursory job of rooting around in the archives, although other commentators at his blog have suggested many times that it was worth the intellectual effort and time to do so...

I still do not have all of my questions about the Euro answered, but I do have a better understanding of the principles of its design and the philosophy of NOT linking it to gold in any way.  The ECB's gold is a Reserve Asset, it just sits there, it does not "back the Euro".  Every three months, the ECB issues its balance sheet, and the gold is marked to market, while our gold is marked to $42.22 / oz.

So, OK, I still wonder about the Euro with its problem PIIGS members and how it will weather the storms most of us see coming...

Nonetheless, I picked up two nice tidbits from my reading of FOA in the above link:

1)  The value of crude oil is MUCH higher than its price (in 2000), I would hazard a guess that is still correct today.

2)  FOA picked a bottom: $930.  This would be the bottom once things started to move fast (I believe most of you would agree that things are moving pretty fast now).  I will go to ASAP to see how his prediction held up, but it looks very accurate from over 10 years ago...  Gold was about $300 then.

EDIT: I just looked at a 5 year chart on gold at Yahoo.  $930 was a very good call.


One last thing, this did not come from the link.  Gold has always seemed to be "very expensive" to me.  I always feel like I am paying a LOT for it.  Even the gold I bought at under $500 (wish I had bought more...).

Maybe that's part of the point...  Maybe it SHOULD be expensive.  Reader thoughts by comment or email very welcome on this notion.

1 comment:

  1. I will post this but because some of my posts on your blog have gone poof it won't be a long one.

    The EU is playing a balancing act between the German position that states "all inflation is bad" and the French position that states that "inflation is a necessary evil if one can generate jobs and consumption". This is to put it simply.

    The key point is that the Germans WANT a low value euro. It increases their exports which are I believe 2nd in the world. They may scold club med but all the while they are smiling on their way to record export profits.

    I personally am long the euro and have accounts on the continent. I also hold dollars and yen as well.

    When I make a purchase I use whichever currency is strongest at that time.


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