This is a guest post from my friend Katie, at Oakhill Organics. She isn’t a “goldbug,” but she has some interesting counter-arguments to my last post about gold, the most interesting one is that we’re not seeing a gold bubble, but rather the crash of the value of the US dollar (which makes it look like gold is relatively worth more). This would make investment in gold a way to at least preserve the value of your stash.
Take it away Katie…
I haven’t personally invested in precious metals (we’re on the “100 acres of farmland” model — literally!), and I tend to think cigarettes, coffee, and alcohol will be most valuable “currency” when the shit truly hits the fan. BUT I’m not sure that gold fits the same “bubble” model as houses and tulips. The housing bubble (and most bubbles, including dot-com, etc.) are generally created by artificially low interest fueling unwise investment choices. If you have to pay a lot in interest, you really think through your borrowing choices — on the other hand, if it seems gravy and borrowing is easy-peasy, then why pause? (especially if there’s wide-spread hype)
I think the current bubble-about-to-burst is higher education. An undergraduate college degree has already lost a ton of value at the same time that the price of that degree has skyrocketed, and I think we’re going to see a day when a basic college degree is almost worthless (ESPECIALLY in comparison to the extreme debt loads people are acquiring to attain them right now — with a few exceptions, you literally can’t get a job out of college that would even begin to pay off a 100k debt).
Graphs don’t always tell the whole story. Gold and silver were the original historical currencies and have held their value amazingly well — really, they’ve just held their value, while the dollar has lost its value. Most investors of gold are not trying to increase their monies — they’re just trying to hold on to liquid assets in an era when interest rates are low and all other cash type investments are losing traction! Right now we have over $10k in the bank and only earn about $0.57/month in interest.
Not many people are concerned with the 100 year timespan for their investments — they want to have money in 5, 10 or 20 years — and they want it to increase in value to at LEAST keep up with the rate of inflation (impossible right now from what I can see for cash type investments — we feel great about investing in land and our farm). The stock market is no longer a safe place for these shorter-term holdings. I’m not an expert on this subject, nor even a real “believer,” but I do think it’s fundamentally different, especially since people are buying gold with cash and not with easy-to-get loans.