Business Insider Trolls Against Gold

This post on Business Inisider is an impressive bit of pro-State trolling.  It has a bunch of arguments against investing in gold, backed by charts that misuse statistics.

I found that post, because someone linked to my blog in the comments.  I’ll point out all the errors in that post.

Myth #1: Gold Is An Inflation Hedge

It shows a chart of Gold vs. CPI.

The CPI is a biased and manipulated statistic.  One error is that the chart starts in 1975.  From 1975-2000, central banks dumped gold to push down the price.  That’s the reason gold did poorly compared to the CPI in that time.

That chart shows a *HUGE* spike in the past few years.  That isn’t a symptom of “gold is a lousy inflation hedge”.  It’s actually a symptom of hyperinflation, combined with the fact that the CPI severely understates true inflation.

Myth #2: Gold Serves As A Currency Hedge

It shows the price of gold denominated in various currencies.  Again, there’s bias introduced by starting from 1975.

Actually, this chart shows that gold is an awesome currency hedge, no matter what country you live in.  Why is that?  All the lines for “Price of gold in local currency” are nearly perfectly lined up!

If you buy gold in one country, move to another country, and smuggle your gold with you, then you should preserve most of your purchasing power.  There are laws restricting the ability to take gold out of a country, so you would have to smuggle your gold if you’re serious about moving.

To cover up inflation, various countries inflate in tandem.  If you want to know inflation, it’s foolish to look at dollar/Euro or dollar/yuan.  All central banks are inflating nearly in lockstep.  You only see this when you look at the prices of gold.

Myth #3: Gold Is An Attractive Alternative To Assets With Low Real Returns

Oh boy, lots of innumeracy on this chart.  Superficially, this chart compares Gold to TIPS (Treasury Inflation Protected Securities).

Look more closely.  The x-axis is TIPS.  The y-axis is gold/CPI.  That is wrong.  The CPI is already included in the TIPS price!  The y-axis should be gold, and not gold/CPI.

There’s another huge error.  The chart uses monthly prices.  In a short time period, there’s a lot of fluctuation, leading to a scatter plot of results.  If you draw the same chart with annual prices or 2-year or 5-year prices, then gold is a clearcut winner.

Myth #4: Gold Is A Safe Haven In Times Of Stress

Again, it has the same scatterplot error as the previous chart.  It’s looking at monthly intervals rather than yearly or 2-year or 5-year.  By choosing an artificially short time period for the comparison, you get a scatterplot result instead of a chart that shows gold’s clear dominance.

Myth #5: Gold Should Be Held Because We Are Returning To A De Facto World Gold Standard

Here, they show a chart of US government official gold holdings.  This time, they start from 1870 instead of 1975.  If you look at the chart after 1975, it’s nearly flat.  If you start in 1870, there’s a spike due to growth in the US economy starting from 1870.  There also was a spike in 1933, due to Roosevelt’s gold confiscation order.  There was an increase after WWII due to the Bretton-Woods agreement.

Also, the “central bank holdings” may be a lie.  Allegedly, a lot of the gold was secretly lent to short-sellers, while governments claim to keep it on the books.

Myth #6: Gold Is Underowned

Here, they show central bank gold reserves.  That’s missing the point.  It isn’t “gold owned by central banks” that matters.  It’s gold owned by individuals.

Individuals don’t own much gold, because they’re conned into trusting the State financial system.  If only a couple percent of people converted a huge chunk of their savings to physical gold (not paper), then the price really would skyrocket.

Finally, they look at some prices in terms of gold.  They only use 2 points, one that shows gold is desirable and one that shows gold is undesirable.  They cherry-picked two examples to illustrate their point.

A proper comparison would involve a lot of products.  It would be better to look at gold-denominated prices over the past 10, 20, or 100 years.  If you did that, it would come clearly ahead.

For example, a Model T car cost ~20 ounces of gold.  Now, you can get a very nice new car for less than 20 ounces of gold.  That reflects the improvements in the economy.  In 1900, you could not get a computer or cell phone for any price.  Now, computers and electronics double in quality every 1.5-2 years, for the same inflation-adjusted price.

For example, consider “gasoline/gold” or “peanut butter/gold”.  For those items, the price has crashed in the past few years.  The price in State paper has sharply increased.

“Gold investors are idiots!” is an important lie.  Therefore, that lie must be repeated over and over again.  Similarly, “Support the troops!” is a lie, which must be repeated over and over again.

It is important to keep up the lie, that State paper investments are desirable and physical gold and silver are lousy.  In a Ponzi-based economy, it’s important to keep people fooled.

Overall, that post on Business Insider is an excellent example of statistics abuse.  They make a lot of Math errors, to produce a chart that supports their propaganda goal.  They pick charts that have nothing to do with the conclusions in the text.  They selectively pick the date range for the x-axis, to prove their point.  They used gold/CPI instead of gold on the y-axis.  They looked at monthly returns instead of 1-2+ year returns, to exaggerate volatility.  When performing a comparison of prices in gold, they cherry-pick two examples to illustrate their point.

20 Responses to Business Insider Trolls Against Gold

  1. Robert Ferguson July 19, 2012 at 2:16 pm

    Great post FSK! You kicked banker ass today. People need to see the pro-state banker propaganda on precious metals dismantled piece by piece, as it is offered. Fancy statistics, bogus charts, and complex, euphemistic terms like “quantitative easing” are used to promote the State financial system, just as they are used to discourage using precious metals. It is always interesting to see the new tricks being used. The most important truths in life are straightforward and consistent, like sound math. It should be a red flag to people when the banksters constantly change their terms and change their analysis formulas. That should be a HUGE red flag that they are full of shit!!

    • I was offended by the flagrant statistics abuse on that Business Insider propaganda article. I know that gold crushed all other investments over the past 10-15 years.

      Another example is the Black-Scholes formula and other derivatives calculations. A big lie is hidden by complex Mathematics.

      However, it doesn’t do much good, if I’m only educating my 200-500 regular readers.

  2. For #1, people are confused because calling gold an inflation hedge means gold is a linear inflation hedge in their minds. So if they print 10% more currency then the price of gold should rise 10%, but that simply isn’t the case. Gold’s price is linearly correlated with “Currency Confidence.” Its non linearly correlated with the number of dollars.

  3. Anonymous Coward July 19, 2012 at 5:19 pm

    I will believe what FSK says about gold on the day he/she goes out with a big gold medallion around his/her neck.

    And while we are talking about precious metals, I should mention the silver Mexican Libertad. It simply a very detailed beautiful coin. The mountains on the coin represent two lovers that killed themselves when they thought the other was killed. The man went off to fight a distant tribe.

    See

    http://en.wikipedia.org/wiki/Libertad_%28coin%29

    The Royal Mint has produced some interesting new coins of late. It is a pity, I can’t find images of the 2011 Britannia Masterpiece in gold anymore. Only the silver one is shown now.

    Shame I can’t afford any of them.

    See

    http://www.royalmint.com/discover/britannia/britannia-masterpiece

    http://www.royalmint.com/shop/r/rmm12gp

    • If you do invest in gold, don’t let other people know you have it. Otherwise, you risk being robbed.

      I am going to invest in physical someday, but not yet.

      For #1, the main error of their chart was that CPI != inflation.

      “Rate of money printing” does not equal “inflation”, because the velocity of money can change. In a hyperinflationary spiral, the velocity of money goes to infinity, as people rush to spend money as soon as they get it.

      Also, real growth in the economy can hide monetary inflation. If the real growth in the economy is 10% and 10% more money is printed, then prices will remain approximately the same. Insiders still stole 10% of the value of the economy by printing money, but real growth helps hide the theft. (If there was no inflation, people would have been rewarded with a 10% price decline. Instead, insiders stole the value represented by the growth.) In the present, the economy is crashing, exacerbating inflation.

  4. Robert Ferguson July 19, 2012 at 7:59 pm

    That last comment from “Justin” was clearly spam, complete with a link to a merchant web site. “wearing a gold medallion” around your neck is completely missing the point of both the post and my comments. I know you know that FSK, but I appreciate your humble, benefit of the doubt consistency with posters of comments. I have seen people leave very nasty comments but you never get flustered. Back to the issue of precious metals, storage and protecting them from criminals wearing a mask and criminals wearing a badge, with a strong emphasis on the latter in my opinion. Any new thoughts on that? Safe buried underground somewhere?

    • You mean “Anonymous Coward” and not “Justin”, the link to the royalmint website. I gave him the benefit of the doubt. There is some really bad spam that I filter out.

      If you want gold or silver, generic bullion/rounds/bars is best. Never pay a premium of more than 5%-10% to spot. There are some costs associated with minting and selling coins, so you never should expect to buy for spot.

      The worst comments were on the node.js posts! The more hostile the comments, the more important the subject.

      One possibility is buried underground somewhere. That isn’t foolproof, if the criminals know you have it. Ordinary criminals can hold you or your wife and children at gunpoint, demanding you give up your stash. Police can search your home at their leisure, so they can find your stash. Police can demand you give up your stash, or hold you in prison indefinitely if you refuse to give it up.

      I’ve heard stories of a guy who had his gold carefully hidden. Criminals threatened him and his wife at gunpoint, demanding he give up his stash. The criminals obviously knew about the stash, because they weren’t satisfied when he gave them a little.

      When you buy gold from a State-licensed dealer, records are kept and that information may be leaked.

      Unfortunately, there’s no safe investment. With State paper, you’re guaranteed to be robbed. With physical gold and silver, you also are at risk for theft.

  5. Anonymous Coward July 19, 2012 at 9:19 pm

    My last post was so clearly over-the-top that I hoped nobody would take it seriously.

    When I was a teenager, there was a television comedy programme called “Three of a kind”. One of the characters wore a gold medallion on top of a hairy chest and open shirt. He was called The Medallion Man. Obviously this character amused me and I wanted to resurrect something of him on this blog.

    The links I gave are to the Royal Mint. Obviously I’m not associated with the Royal Mint. The coins I referenced are particularly beautiful gold and silver coins.

    Although it is not the topic of this blog, colloidal silver is thought to be effective in killing bacteria, fungus (including yeasts) and viruses.

  6. Anonymous Coward July 19, 2012 at 9:24 pm

    I hear China and Russia are buying up gold.

    If there is ever a currency collapse and something new resurrected, Russia may have a strong hand. Russia, of course, has plenty of oil and gas as well.

  7. Anonymous Coward July 19, 2012 at 9:27 pm

    If Robert looked at the last two links I gave, he would realize it is unlikely they are spam.

    The coins referenced are too expensive to buy. They are very limited editions in gold and one of them has already sold out.

    It is only millionaires that could buy these type of coins (at 25, 000 GBP) and I doubt millionaires would provide huge volume sales that warrant spam.

  8. Anonymous Coward July 19, 2012 at 9:48 pm

    A SENSIBLE COMMENT FROM ME AT LAST
    ====================================

    I should post a sensible comment, but now I guess FSK will be getting frayed by my multiple comments.

    1) I believe that gold and silver are a store of value. Silver has many industrial uses as well. They have a place in a diversified portfolio. One Kitco poster recommends 1/3 cash, 1/3 gold/silver and 1/3 shares.

    2) Gold as a currency never worked. There just isn’t enough liquidity. Gold and silver stand a better chance of working as there is more silver.

    3) The solution to our problems is to take banks out of the money creation business. Government should create debt-free money. The exponentially growing debt will never be paid off. There isn’t enough money in the world to pay off the debt and even if you did pay off the debt, the loss of circulating money would crash the economy.

    4) Governments should create money from thin air at a small amount every year.

    5) Banks get a free ride on loaning money to government as it is created from thin air.

    6) The real economy always grows slower than exponentially increasing payments on debt.

  9. Yes I just saw it was “anonymous coward” and not “Justin”! His post was actually meaningful, sorry Justin! Lol. :) In life there are always risks, but the impending collapse of the State is inevitable and it forces us, in my view, to make some kind of choice. There may be no “great” choice, only the “best” choice.

    • Government-issued gold and silver coins tend to be more expensive than generic bullion. Right now, American Eagles are a 5%-10% premium compared to generic bullion. When the State collapses, that premium may disappear.

      Gold as money only failed due to State manipulation. That’s an important lie, that “The free market discredited the gold standard”.

      The Federal Reserve printed more gold-redeemable paper than gold they had, guaranteeing an eventual default.

      In 1929-1932, the Federal Reserve tried inflating to bail out the banksters. The gold standard limited their ability to inflate, so it was abandoned. That probably was the goal from the beginning, via the usual “Problem! Reaction! Solution!”

      On a gold standard, politicians rack up government debt, which cannot be repaid if gold delivery is required.

      With gold as money, people can vote “no confidence” in the banking system, by holding physical gold. If you hold State paper money under your mattress, you still get robbed via inflation. Even if every single person in the USA cashed out their bank savings into paper money, banksters could still inflate and steal.

      With metal as money, gold is used for large transactions, silver for medium transactions, and copper for change. You can get 1/10 or 1/4 or 1/2 oz silver coins from APMEX, which is good if you’re using silver as barter money. APMEX fractional silver is a better deal than Shire Silver.

      People who say “WTF? The economy is much large than the gold supply!” miss an important point. That assumes each ounce of gold changes hands once per year. One ounce of gold can support much more economic activity. Gold is a benchmark for price. As long as people have the right to convert to gold, that enforces honesty. People can always use other metals, based on supply and demand.

      Silverware used to be made of silver, precisely because of its antibacterial properties. If you drink powdered silver dissolved in water, that always seemed pretty silly to me.

      • “You can get 1/10 or 1/4 or 1/2 oz silver coins from APMEX, which is good if you’re using silver as barter money. APMEX fractional silver is a better deal than Shire Silver.”

        If you’re talking about investments, yes using APMEX is a better deal than Shire Silver. But Shire Silver isn’t meant to be used as an investment. Its meant to be used as a currency or barter tool.

        No one except hardcore gold/silverbugs are going to use traditional bullion for trade. Its too inconvenient, bulky, heavy, and the smaller coins are difficult for people to use. For example, how many times have you dropped a penny or dime on the floor only to have it roll under the store counter?

        The masses moved to paper because for most purposes it is superior to coins. They don’t really care about inflation as long as its low and relatively consistent – even if in the long term it is very harmful. And even if we could temporarily get people back to using coins during a SHTF scenario, as things settle out people will desire a return to the convenience of paper. And of course, the typical “Problem! Reaction! Solution!” solution of the banksters would have everyone returning to a system that gives them control. That is where Shire Silver really shines. It breaks the cycle of control by giving the people a precious metal based currency that is approximately as convenient as paper.

        And seriously, ounces are retarded.

        • There are lots of defects with Shire Silver.

          Silver rounds are a much cheaper cost per ounce than Shire Silver. I don’t see the point of paying the substantial premium for Shire Silver.

          Shire silver still is based on FRNs as money, according to this link. 1 gram = $2, 5 grams = $10. That is wrong thinking. The exchange rate from silver to FRN should be floating and not fixed.

          1 troy ounce is 31.1 grams. 1/10 fractional APMEX round is $4.67 right now. To get 3.11 grams of shire silver, that costs $6.22. Shire silver is 33% more expensive than generic silver rounds.

          It isn’t that hard to convert from grams, troy ounces, or FRNs. I know how to multiply and divide and use a calculator. Fortunately for you, the people who use Shire Silver are mathematically and economically illiterate. They are idiots for paying such a huge premium to generic silver rounds.

          Shire Silver is another scam like the Liberty Dollar, charging people ridiculous premiums compared to generic silver rounds. You’re exploiting people who want to use gold and silver as money, and charging ridiculous markups.

          I don’t see the advantage of cards vs. rounds. I could always laminate or protect my rounds. Even if cards are better, it isn’t worth a 33% premium.

          1/10 of an ounce is small enough to make change for most transactions.

          And seriously, you are retarded and anyone who uses Shire Silver is retarded. Shame on you for overcharging people for silver. Shame on the people who use them, for getting fooled so easily.

    • There was lots of pro-State trolling on that article.

      Hyperinflation is the cause and not the effect. You buy gold to protect yourself from inflation and hyperinflation. However, in a SHTF scenario, food and lead may be more valuable than gold. Depending on how hard the crash is, gold helps you preserve your purchasing power.

      Presumably, total chaos would only last for a few weeks. If you can hang on and you have gold and you don’t get robbed, then you preserve most of your purchasing power.

      You shouldn’t try to time the market, buying high and selling low. It’s better to gradually accumulate gold, minimizing your exposure to price volatility.

      Gold also is useful to use as barter money.

      In the late 19th century, the banksters made a ton of money off of adopting/abandoning the bimetallic standard. Before it was adopted, banksters bought a ton of silver. They sold all their silver just before it was abandoned. The bimetallic standard was a failure, because the gold:silver exchange rate was set artificially low. In a real free market bimetallic standard, the gold:silver ratio is allowed to float. Any contract must specify if payment is in gold or silver or other.

      The State gold standards fail due to government manipulation, and not any other reason. A government gold standard fails due to the inevitable fraud, printing more gold-redeemable paper than available gold.

      That article was a horrible bit of pro-State trolling. It sort of advocates buying gold, but is mostly nonsense.

      I’m getting very good at glancing at a post, and telling if its useful or nonsense. I read a lot of blogs, and it really helps to be able to instantly evaluate if something’s worth reading. That was pretty obviously nonsense.

      The original Wizard of Oz was advocating for a bimetallic standard. The “ruby slippers” were originally silver slippers. The yellow brick road is an obvious reference to gold.

      • Anonymous Coward July 21, 2012 at 8:08 am

        Thank you for replying to my comment.

        It is always interesting to have another viewpoint on an article I’ve (mostly) read.

        I try to stock up on long lasting food at the supermarket, but over the past 6 months most of them have been consumed at a very slow rate. Actually some canned food at our supermarket was selling at dirt cheap rates.

        If you live near open water or a river, investing in a water filter is a good idea (for the SHTF scenario). Water filters get rid of the pond life. I think a drop of bleach is needed to make sure all the water-borne viruses are killed off.

        It all seems good here in my country at the moment, apart from the news items about Libor and unemployment. Do you think when things go bad, it will happen quickly or will it happen slowly?

        When do you think the State will break down?

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