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Monday, July 27, 2015

A GOLD HUCKSTER GETS SMELTED. ALL THAT GLITTERS DOESN'T YIELD PROFITS IN THESE TIMES.

On Friday, July 24, 2015, a popular blogger cut and pasted a story from Bloomberg about hedge funds betting on a decline in gold prices, a first for hedgers.

In the Disqus comments, a comment by a guy named Doug Eberhardt caught my eye. That Doug Eberhardt seems to be the same Doug Eberhardt who writes gold and silver blog and who has written a book.

So in the comments, Doug claimed this:
Gold maintains its purchasing power over time. Silver too. Speaking of real rate of return, how about 51 years ago and how a quarter could buy you a gallon of gas and today that same quarter exchanged for the "scrip of the day" can still buy you a gallon of gas in most states except the left coast (up until a few weeks ago) at $2.65. Meanwhile a 1965 quarter can buy you 25 cents worth of gas today. 
Not one to believe anyone's boldface claims and already knowing that against many things, gold has lost buying power, I decided to look up Doug's claim about gasoline. The facts easily refute Doug's claim.

According to the DOE, the average price of a gallon of gasoline in the USA in both 1964 and 1965 was 30¢. At face value, a 1932-64 Washington quarter has been quoted to sell at $2.6566 (the quoted price on July 25 , 2015).

So in either 1964 or 1965, at face value, it would take 1.2 quarters to buy a gallon of gasoline.

Today, in all other states, except Washington, Nevada, Hawaii, Alaska and California, you could buy more gasoline with that same coin first sold to coin collectors than you could with that coin at face value in 1965. However, in Washington, Nevada, Hawaii, Alaska and California, every 1932-1964 quarter lost buying power with respect to a gallon of gasoline purchase. 

It never dawned on Doug that rather than any 1932-64 quarter keeping its buying power, oil production and refining become more efficient since 1965 thus letting sellers accept lower winning bids.

All should note there are storage, discovery and transaction costs associated with holding coins, finding buyers and transferring property as well as possession of the coins for today's legal tender. So the net gain anyone gets for selling gold or silver spot will be less than the spot price times quantity. It is this net gain that counts.

Also, if everyone rushed to sell his collection of 1932-64 quarters, the price for those quarters would fall. That said, nothing would preclude anyone from melting his coins, illegally of course, extracting the silver and selling that silver spot. As well, there are costs associated with smelting that would reduce the net gain upon sell.

After I presented Doug the facts, Doug accused me of being a nitpicker. Ironically, by his doing so, Doug revealed himself as one doing nitpicking. What Doug believes is nitpicking is what I call  prudent businessman reckoning.

After which, Doug engaged in a bit of ad hominem by writing, "Smack, if you knew anything about this industry, people don't rush out to sell their 90% silver quarters and dimes, they hoard them."

Of course, I never made any claims about what anyone actually does. However,  if people hoard their silver quarters and dimes, as Doug claims they do, what is the point of holding silver coins at all? Doing so is like hoarding a 1980s VHS porn collection or a collection of 1960s TOPPS baseball cards.

Doug then asked as if he believed he had something, "Did they [hoarders] rush out and sell them when silver as $49.50 an ounce in 2011? No."

Of course, stupidly, anyone who hoarded, lost out. Being paper rich is useless.

Like Bitcoin collectors, Doug seems to miss why anyone buys collectibles. If anyone sold his silver-laden coins at the top in 2011, he would have bought cash or other bank credit denominated in dollars. At day's end, collectibles are worthless until sold and what people want when they sell their collectibles is cash or other bank credit denominated in dollars.

Of course, Doug's beloved hoarders could spend their silver-laden coins for everyday products right now. However, they could only get 25¢ of buying power for each quarter, regardless of silver content.

Doug's livelihood seems to be tied into price appreciation for gold and silver. In the comments, Doug made this boldface claim: Gold maintains its purchasing power over time. Silver too.

Yet, I have shown many cases where Doug's claim is quite false. You can see proof in charts that Doug's claim is false: 
So, after being showed facts vs his mere claims, seemingly agitated, Doug began a campaign of bragging and more ad hominem  — "Smack, I'll put my reputation on the line of understanding this market better than you or anyone else...... Congress ... asked me to testify before them in 2010." Further, Doug accused me of committed the fallacy of the strawman argument.

Comparing gold and the S&P 500 isn't a strawman. Doug doesn't seem to understand what the strawman fallacy is.

Doug's position is this: "[G]old and silver hold their purchasing power over time."

My refutation of his position is direct: Against many things, gold has lost buying power. For my argument to have been a strawman, I would needed to have argued something like this:
You say, gold and silver hold their purchasing power over time. But I say, so what! FDR banned gold ownership with Executive Order 6102. You could buy gold today and have the government take it tomorrow.
Doug made this boldface claim: "Gold maintains its purchasing power over time. Silver too."  For his claim to be true, there could be no instances where gold and silver lose purchasing power against other commodities, other products and other vehicles of speculation.

The S&P 500 is one such vehicle of speculation. Gold has done poorly against the S&P 500.

As anyone can buy a share of the S&P 500, for your claim to be true, someone with gold would have needed at least to buy the same number of shares of the S&P 500 today as he could have done so many years ago.

From Q3 1976 to Q3 2011, True Gold grew at less than 1% a year, coming in at a scant 0.5% a year for a total of 19.6%, from $87.11 to $104.18. In the same period, True S&P 500 grew almost 4 times as fast, albeit at 1.8% a year for a total of 95%, from $78.12 to $152.33.

All can enjoy the facts right here on Bizarro Theater: IS THERE EVER REASON TO BUY GOLD?

As anyone can buy a share of the S&P 500, for Doug's claim to be true, someone with gold would have needed at least to buy the same number of shares of the S&P 500 today as he could have done so many years ago.

The exact opposite has happened. It has taken ever fewer shares of the S&P 500 to buy the same weight of gold. Said another way, it has taken ever more gold to buy one share of the S&P 500. In short, gold has lost buying power to the S&P 500 as it has to many things.

Against many uniform contract commodities, gold has lost buying power. Such comparisons are valid. Since demonetization, against many things, gold has lost its buying power.

If Doug believes his claim, he doesn't understand the reality of commerce. If Doug doesn't believe his claim but says it to get others to buy from him, Doug uses questionable business practices. 

Gold and silver have been demonetized. The price of gold, the price for silver as well as anything else conforms to the one, true, infrangible law that governs all of commerce, the Law of Prices.

The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price. Unlike man-made law, this law is inescapable.

Back in 2014, I showed readers of Bizarro Theater the future of gold. If you have not done so, you should read this: LOSING ITS LUSTER. THE SECRET FUTURE OF GOLD REVEALED.

Under the current state of the economy, bank credit and interest rates, the time to buy gold long has long gone. There are no drivers to buy gold. None.

Doug's livelihood seems to be tied into price appreciation for gold and silver. Doug said, "All my company sells are bullion coins as opposed to all other gold dealers," which seems that Doug is in the business of selling rounds. Selling gold rounds is a business predicated on finding buyers who believe people like Doug and who hope for a rise in the price of gold.

The worst bit are all the gold and silver hucksters preying upon gullible who suffer from end times delusions and thus feel compelled to become preppers for a future. It never dawns on them that if there would be worldwide financial collapse and reversion to money — coined metal by weight and fineness — even a small weight of gold and silver would make anyone rich.

Under total collapse, there won't be credit. Without credit, there won't be massive edifices of capital. Without capital there won't be products or wages.

It will take little gold to buy much of the few things that can be had.

UPDATE:

Today, 7/28/2015. a day after I wrote the above work, Doug couldn't resist himself. At the end of debate, one day ago, Doug wrote:
"I'll give you the last word and ignore you as you have your own agenda."
Doug lashed out recklessly, engaging in ad hominem. Some of Doug's gems were these:

  • "You wouldn't make a good attorney."
  • "I have now classified you as a troll who sits in their underwear at his computer and has nothing better to do with their time."
  • "Next you used a strawman to make a point in bringing up the S&P 500 and not sticking with the 'issue.'"
  • "#troll"
It seems Doug has stewed on everything I've written and having become enraged, Doug had to lash out it what seems to be little more than a childish tantrum. 

And yet, Doug Eberhardt wants adults to enter into purchases and sales with him by selling them gold or silver and buying from them their cash or bank credits. Doug's behavior should give anyone pause before considering entering into contract with him to buy gold or silver from him.

Doug still does not seem understand the fallacy of the strawman argument. Idiotically, Doug claimed "gold and silver hold their purchasing power over time". Whether or not Doug believes that to be true or Doug says such a phrase to wheedle others into buying gold and silver from Doug lacks relevancy.

It is not a strawman argument to compare things directly to which anyone would have lost their purchasing power had they bought gold and silver. It's a direct counterclaim. Producing a factual direct counterclaim so refutes your false claim, easily. 

One of those things is the S&P 500. Anyone can buy a share the S&P 500. The S&P 500 is one of those factual direct counterclaims.

I gave Doug a perfect example of what would be a strawman argument:

Doug's premiseYou say, gold and silver hold their purchasing power over time.
StrawmanBut I say, so what! FDR banned gold ownership with Executive Order 6102.
Knocked down strawman: You could buy gold today and have the government take it tomorrow. 
Ironically, Doug Eberhardt of buygoldandsilversafely.com's (that is the site Doug who commented put into the Disqus comments) argument against me is an example of the strawman fallacy. To wit:
After Doug Eberhardt said all should buy gold and silver because "gold and silver hold their purchasing power over time," Smack MacDougal showed factual instances where gold and silver lost purchasing power against other things.
Doug Eberhardt responded by implying that he was surprised that Smack hates anyone speculating on gold and silver so much that he wants them to become bankrupt by losing out on going long gold and silver. 
Doug Eberhardt of buygoldandsilversafely.com ought to prove to the world that he can time the market for gold and silver, exactly. His publicly-accessible writing on his blog alludes to Doug having such skill. However, Doug's publicly-accessible writing on his blog seems to be a whole bunch of gibberish masquerading as experience.

In True Dollars™, which is what counts, gold and silver will be going down for years, not months, but for years to come. There are no drivers for gold, none.