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Gold is essentially a rock. So why is it so valuable...?

just a rock, writes the Mogambo Guru for The Daily Reckoning. So why is Gold so valuable? Why do people always turn to gold in the end?

   The answer is that there is nothing else to take its place as a store of wealth that does not rot, corrode or disappear. And as Ty Andros of says, the "Crack Up Boom" of soaring inflation and sinking asset prices "is unfolding as predicted by Ludwig von Mises."

   But on the other hand, "It's hard to predict a down stock market when they are printing money at this rate! Purchasing power is crumbling in terms of all currencies which provide a natural buoyancy as the assets re-price higher to reflect the lower purchasing power of the currencies in which they are priced.

   "Can you say 'Zimbabwe here we come'?"

   Zimbabwe has been printing money for so long that inflation there is now approximately 300,000% a year. This apparently prompted Junior Mogambo Ranger (JMR) Phil S. to say that with all the creation of money and credit, we seem intent on "Chasing Zimbabwe to success." Hahaha!

   And the situation is just about as bad in South Africa, which has sunk so low from mismanagement, stupidity and corruption that it can't even keep the electricity flowing, and which caused a wag to comment, "What's the difference between South Africa and the Titanic? The Titanic sank with its lights still on."

   All this economic misery is due to the pernicious effects of inflation, which is all due to the central banks producing too much money and credit. And in that regard, an interesting article in the Wall Street Journal that was titled "Inflation May Be Worse Than We Think" by David Ransom shows that rising input costs always "filter through" to final prices (regardless of what Ben Bernanke of the Federal Reserve perversely thinks).

   "Commodity prices, far from reverting quickly back to the mean, are early-warning indicators of the future," says Ransom. Now the government's "official" figure of inflation is already a staggering 4.3%, and as bad as that is, Mr.Ransom says, "worse may be yet to come.

   "While commodities like energy and food are leading indicators of the Consumer Price Index, precious metals like Gold are, in turn, leading indicators of energy and food", which is really spooky when one remembers that the Gold Price over 40% from a year ago. Yikes!

   Even more interesting, his research shows that, over the last several decades, "There is a remarkable parallel between annual CPI inflation and the cumulative change in the Gold Price measured from eight years before."


   In fact, he says, to gauge how high inflation will get, you can simply, "Divide the percentage change in the Gold Price from eight years in the past by 80, and add three."

   I groaned aloud at this, as the last thing I want in this world is look up the price of gold eight years ago, or subtract it from the Gold Price now, or divide that by 80, or add his damned three at the end. And I was just getting ready to tell him so when he surprised me by saying that he has already done the work!

   Ransom says that "in the last eight years the price of gold has risen 225%. The rule therefore comes out with an answer that puts inflation a lot closer to 6% than 4%."

   And it is not even necessary to look at dry statistics and analyst reports, as one can merely take the easy way out and just read the subject line in an email from Junior Mogambo Ranger Azvitt, namely that "Let them eat...well, not bread or cake." The reason for the cryptic line is the observation that "There's a store near me that sells 50 pound bags of wheat. Months ago they cost $8 on sale. Today, TWENTY SEVEN DOLLARS!!!"

   Careful Mogambo Linguistic Scholars (MLS) will note the use of the triple exclamation point to indicate particular emphasis, which seems appropriate when looking at 338% inflation in just a few months.

   And even then, that estimate of inflation may be too low, as John Williams at – who does this kind of thing for a living – figures that inflation in prices (measured the old fashioned way of looking at actual prices) is running somewhere between 10% and 13%, right freaking now!

   And what does one do when looking at inflation that is that high? Buy Gold of course!

   And in that regard Shayne McGuire, of the Teacher Retirement System in Texas, reveals that he has acquired an appreciation gold, and has actually just written a book that apparently contains no subtleties or excess verbiage; it is titled Buy Gold Now.

   Mr.McGuire says "any MBA holder, who has been taught to value almost any asset, hits a stone wall when faced with Gold: it pays no dividend or coupon, and without deriving a cash flow, the basis of most assets defined as being financial, there is no conventional way to determine its Dollar value. Ultimately, it's just a rock, right?"

   Yes, it is! Gold is essentially a rock! So why is it so valuable? Why do people always turn to gold at the end?

   The answer is that there is nothing else to take its place as a store of wealth that does not rot, corrode or disappear, is divisible, is universally accepted as money, is small enough that you can stash a lot of wealth in a small place where government tax collectors cannot assess it (unlike the equivalent amount of land or buildings), and it is entirely portable. So you can take your wealth with you to some other country where the people and the government are not so crazy with desperation, where you can start over with a new name, and new identity, a lot of money and no family to nag, nag, nag you all the time just because you are a terrible father and husband and make absolutely no effort to change.

   Now, perhaps, you have a new appreciation for Gold! Although perhaps not so much for me, The Mogambo Guru.


The Mogambo Sez: Oh, gold! Oh, silver! Oh, oil! Thank you, thank you, thank you! A soothing haven in a world gone completely freaking bonkers!

If this little phrase means nothing to you now, rest assured that it will increasingly become more meaningful to you as time goes on, and on that one special day you will achieve Complete Mogambo Enlightenment (TME).

The only question then will be "Is it too late to finally get off my fat, dead butt and Get Gold, silver and oil so as to try and save the last little bit of my money?"

Again, it's just a matter of time...

The angriest guy in economics, the Mogambo Guru is Richard Daughty, general partner and COO for Smith Consultant Group, serving the financial and medical communities. The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it – has been quoted frequently in Barron's, The Daily Reckoning and other fine publications.

See the full archive of Mogambo Guru articles.


Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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