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.