What’s The Best Price To Buy Gold?

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There’s an old photo-bug saying that goes something like this: “what’s the best camera?” and the answer is, “the one you brought with you.”

Applying that same pithy wit to the question posed in this post’s title, the answer could be “the price at which you bought it.” Here’s a chart for the USD price for an ounce of gold over the last 100 years. No adjusting for inflation (because it’s tantamount to a measure of inflation in itself) and no log scale.

…”Just the basic facts can you show me where it hurts.”

historical-gold-prices-100-year-chart-2017-09-15-macrotrends

The post today is what I’ll call a #FridayFreebie. My Patrion initiative, barely a week from launch, is going quite well with 90 patrons and counting. I’ve put out the cryptocoin positions I hold, I post about all trades I make, and most recently, I’ve made available the portfolio I created for this venture (Bitcoin and seven other cryptocurrencies) to patrons with real-time updating.

The next thing to come is my How-To Guide designed for the newbies (or “nobies,” as my wife describes herself in this context) so they can easily get started in minutes, no matter how small, and do so with some confidence that they’re not going to accidentally lose their coin.

Given the news and volatility over the past several days, it’s probably a good thing that it’s taken me a bit longer to finish up the guide than I’d anticipated. The less freak out initially, the better

So let’s talk about “the news.”

I’ll pick two most recent; Jaime Dimon, CEO of JP Morgan Chase, and the whole China deal. Dimon:

It’s just not a real thing, eventually it will be closed…It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed…Currencies have legal support. It will blow up.

It reminds me of drug kingpins and cartels being the staunchest supporters of drug prohibition, which underpins the core basis of their own license to steal. Setting aside the criminality represented by that gold chart above—collusion between guys like Dimon, central bankers, and legislatures… their “legal support”—the ignorance displayed is pretty woeful.

Saying “eventually it will be closed” is tantamount to calling for the “closing” of TCP/IP, the root protocol by which the Internet operates. Blockchain is a protocol. It’s not a database. There’s nothing to “close.”

This is typical thinking for a banker with his license to “print money” and charge interest on it. Banks can fail. Regulators can close them. In cryptocurrency, there is no bank. Or, you can say, everybody is their own bank. When you pay someone in bitcoin, it literally goes directly from your digital wallet to theirs, using the blockchain protocol, which currently runs on 9,275 nodes, globally. And you can bet for sure there are lots and lots of dark nodes, ready to be fired up should anyone get any silly ideas.

So, Dimon’s is about the 160th Bitcoin Obituary from mainstream conventional wisdom since 2010. Hit that link and scroll down. Some real howlers and screamers.

My judgment? Jaime Dimon is dismissed.

On to the China news. First, let’s determine what’s true and what’s not true.

  1. China is going to prohibit Initial Coin Offerings (ICOs) from here out. Apparently true.
  2. China is going to shut down their Yuan –> (x)Coin currency exchanges by the end of September. Apparently true.
  3. China is outlawing Bitcoin and other cryptocurrency and purchase or trading in them. False.

In terms of #1, minuscule impact, if any. There are already like 1,000 different coins, most fraud, garbage, or stupid. And there’s going to be a lot more fraud and garbage to come, ICO wise. Unless you have some specific insight or insider knowledge or know the principals, probably best to stay clear of ICOs anyway—unless you just want to throw 20 bucks at it and see if it goes all Bitcoin on you, someday.

For #2 and #3, people will apparently still be able to buy and trade Bitcoin and other cryptos over the counter (OTC), a fancy way of saying through a dealer or broker. There’s a ton of articles to read about the whole deal but here’s one that at least offered some insight and if correct, you guessed it: they’re totalitarians. Gasp. Shocked. Who knew?

Bitcoin has always been something of an awkward fit for China, which strictly regulates financial markets and limits the flow of funds overseas. Chinese officials have apparently concluded that Bitcoin has become too popular as a way to circumvent those regulations.

Reuters quoted a Friday comment by a senior Chinese official that may explain the Chinese government’s thinking:

Li Lihui, a senior official at the National Internet Finance Association of China and a former president of the Bank of China, told a conference in Shanghai that global regulators should work together to supervise cryptocurrencies.

“Digital tokens like bitcoin, ethereum that are stateless, do not have sovereign endorsement, a qualified issuing body or a country’s trust, are not legal currencies and should not be spoken of as digital currencies,” he said. “They can become a tool for illegal fund flows and investment deals.”

He said there should be a distinction between digital currencies, which were being studied and developed by authorities such as the Chinese central bank, and digital tokens such as bitcoin. Digital currencies developed by authorities could be used for good, with the right regulation, he said.

The Internet finance association was set up by China’s central bank, and according to Reuters, it “urged members to abide by Chinese laws and not deal in cryptocurrencies.”

Well, that says it all, if that’s policy. It’s not official Chinese Totalitarian State currency, but merely a “token,” and it shall not even be spoken of as currency.

So shocked. ;)

So we’re still left with the question, how to handle the news or “trade the news?” To explore that, let’s draw a distinction between investing and trading. If you’re an investor…say, you have a 401K, perhaps a brokerage account where you buy some stocks or ETFs you like, here and there, you probably don’t care about the news, nor should you.

If you’re a trader; meaning, in and out of positions frequently—sometimes multiple times in a session—then you’re both a market maker and a market taker, depending. How you trade the news is going to depend. You can, for instance, sell (short, or a position you hold) on bad news, in anticipation that’s what everyone else is going to do. Then, you buy back in after the selloff once trading volume cools down.

You can always take the contrarian view which is, generally speaking, that good news is a sell signal and bad news is a buy signal.

But let’s come full circle and back to the question in the post’s title. If the price at which you bought it is the best price to buy gold, then why would you be overly concerned with news events? Well, perhaps maybe on news of something like FDR’s Executive Order 6102 in 1933 which was basically an Eminent Domain action on a commodity, not real estate. Americans were required to surrender their gold for $20 per ounce. Once the surrender period concluded, the Gold Reserve Act of 1934 set the “market” price at $35. Ha, a 75% fiat profit to the state.

I ignored the news about Bitcoin. In fact, I made a buy after the first round of news created a selloff. The portfolio I began creating only 12 days ago—fresh, in order to simulate what will happen to folks just now getting into the market—hit its low point (so far) at 4:20 am PDT this morning. In less than 12 hours, it has gone up 36% from that low. What a ride!

Otherwise, gold has a strong track record of being an excellent hedge against all and various fiat currency cartels throughout world history. But it has its drawbacks. It’s not easy to get physical gold to the other side of the globe (Bitcoin can do it with peer-to-peer smartphones, even SMS, in minutes at near zero transaction cost). Moreover, gold and silver in circulation have inflation problems of their own, since it trades at face value and not by weight. Ever heard of “coin clipping?”

But people say, “Bitcoin has no intrinsic value.” They complain that it’s not tangible. They ask, “how do you value it?” To those objections, complaints, and questions, I have a challenge of my own: value TCP/IP for me, please. Can you identify a proper “unit” of TCP/IP and give it a value? Please ensure that you account for all valuers; that is, integrating the value an American household with two computers, three smart TVs, two iPads and three iPhones places on it compared to say, a dude in a mud hut in Somalia.

People get hung up on the “ridiculously high, bubble price” of a Bitcoin. But, each Bitcoin is already divisible by 100 million units, or Satoshis. It’s built into the protocol. At this instant, one Satoshi trades for USD $0.0000373507. From that perspective, Bitcoin sounds pretty cheap. See, in part, we’re dealing with scales and semantics here.

…So there’s my 532 Satoshis on the matter (as of the time of this writing).

Last, I urge everyone to take less than an hour and watch this marvelous speech by Andreas Andropolous, The Stories We Tell About Money.

In this talk, Andreas recounts the history of Bitcoin and what it represents, building upon all the stories we’ve been told over the centuries about what ‘money’ is, how we perceive its value, and why the old answers have changed as we adjust to this new world of digital peer-to-peer currencies. He also discusses global threats to economic stability and trust in the financial system, including demonetization and wealth destruction through inflation.

Alright, enjoy the weekend patrons, and soon to be patrons…


Memberships are $10 monthly, $20 quarterly, or $65 annually. The cost of two premium coffees per month. Every membership helps finance the travel to write, photo, and film from interesting places and share the experiences with you.

25 Comments

  1. thhq on September 15, 2017 at 18:11

    Looking at bitcoin as an asset rather than a currency, it’s interesting to look at gold vs bitcoin for the last year:

    https://www.goldbroker.com/charts/gold-price/btc

    Bitcoin has had a 4x appreciation vs gold in 12 months. IMO this indicates that it is still a speculative asset, similar to my dad’s old royalty trusts.

    In terms of stable world currencies, gold has been relatively flat for the last 5 years. Once bitcoin performance stabilizes relative to gold it will achieve its currency function.

    • Richard Nikoley on September 15, 2017 at 18:33

      “Once bitcoin performance stabilizes relative to gold it will achieve its currency function.”

      Nope, the opposite. It’s already a currency, because millions of people have mutually agreed to use it as such.

      Remaining to be determined is whether it will be a reasonable value store relative to fiat and the continual theft via inflation.

    • thhq on September 15, 2017 at 19:12

      If bitcoin functions as a currency it has to be stable. I compared gold because a 4x change in value relative to gold is WAY beyond any reasonable rate of currency inflation. It’s more like Venezuela. While this is going the right way for bitcoin investors, eventually bitcoin HAS to become flat and boring to be a currency.

      Look at in terms of flatscreen TV’s instead of gold. If you could get four of them with a bitcoin today for what one cost a year ago, who would build TV’s? Commodity markets can’t stand this rate of deflation.

    • Richard Nikoley on September 15, 2017 at 19:54

      “If bitcoin functions as a currency it has to be stable.”

      LOL. You are SO out of your element, here. Stable relative to what, fiat dollars. Why ought it be “stable” against a constantly inflated and stimulated currency? Isn’t that the point?

      It is already functioning as a currency, worldwide, for millions. You’re just dollar prejudice. Understandable, but you ought to resist making dumb comparisons.

      Gold is not a currency, it’s wholly a hedge against fiat inflation. It’s not even in coinage, anymore.

    • thhq on September 15, 2017 at 20:16

      I’ve been in Venezuela and Colombia and watched how people and businesses cope with hyperinflation. Commodity prices, salaries, foreign exchange and imports all are set up to adjust to the rapid inflation. If bitcoin were functioning as THE currency right now, EVERY nation in the world would be running like Venezuela and Colombia.

      But it’s not. It hasn’t made the jump from asset to currency. It’s a medium of exchange.

    • Richard Nikoley on September 15, 2017 at 21:31

      ” Commodity prices, salaries, foreign exchange and imports all are set up to adjust to the rapid inflation.”

      Dude, I just can’t get past your conflationary ignorance.

      Inflation of WHAT?

    • thhq on September 16, 2017 at 05:20

      Inflation of commodity prices in the local currency. In the 1990’s I travelled to Colombia a lot for business. In that period inflation was about 25% a year. Something that cost 10,000 pesos in January cost 12,500 pesos in December.

      https://tradingeconomics.com/colombia/inflation-cpi

      In the company I worked for employees got salary adjustments twice a year to cope. The money was spent as soon as they got it. Pesos were not something I saved for the next trip.

      Venezuela was worse. On most trips there was no official currency exchange. I had to buy Bolivars from Venezuelan employees.

    • Richard Nikoley on September 16, 2017 at 08:19

      You are conflating price increases with monetary inflation. Increases in prices for goods and services is an effect of monetary inflation, not a cause.

      What causes inflation?

      https://mises.org/library/what-you-should-know-about-inflation

    • thhq on September 16, 2017 at 09:24

      I’m telling the story of why I’m a skeptic. I’m not an economist.

      IMO debt drives inflation. Currencies are set up to inflate. The world economy runs on this. It may very well collapse as a result, in which case we fall back on stores of value. I use precious metals on a relatively small scale. I have no faith in zero asset bonds such as MBS, but I will invest in munis.

      From my experiences and the dialectic here I’m piecing together a narrative I can use re bitcoin. Right now I see it as a volatile commodity, like oil but not as stable as metals.

    • Richard Nikoley on September 16, 2017 at 10:01

      “IMO debt drives inflation”

      Well, what “drives inflation” isn’t a matter of opinion.

      But anyway, how does a fiat monetary system “drive debt?”

    • thhq on September 16, 2017 at 11:05

      The fiat money system doesn’t drive debt. It’s only the instrument the government uses to incur debt. Inflation results as the debt-driven fiat money rots away. Like it’s supposed to.

      Johnson’s war had to be paid for. France was demanding specie. And so Nixon opened Pandora’s Box by abrogating Bretton Woods.

      Every president that has tried to turn back the clock gets their hat handed to them. Carter, Bush I, Clinton. If the borrowing machine even slows down economic malaise results.

      Since the 1990’s gold has tripled in price. I could buy $10 eagles for $200, now they’re $600 plus. I started paying attention to this potential off-the-books piggy bank when I liquidated my dad’s estate. The coins he collected were worth peanuts except for the gold.

    • Richard Nikoley on September 16, 2017 at 11:34

      “The fiat money system doesn’t drive debt.”

      Sorry dude. Your ignorance is woeful and palpable. This isn’t even in dispute by lefty economists. You don’t even understand how the money supply is primarily inflated.

    • thhq on September 16, 2017 at 12:09

      How is that relevant to bitcoin richard? Explain in simple terms why it is better than gold as an asset first. Then explain how it could possibly function as a world currency. “Millions of users” gets you Botswana.

      The company I worked for went bankrupt. I don’t know how. It just did. And I was out of a job a year later. Maybe it was because of the $5 billion in junk debt it was carrying that earnings couldn’t cover. But I’m not going down a precisionist rabbit hole to find out.

      Or just call me a fucktard and we’ll leave it at that. No hard feelings.

  2. thhq on September 16, 2017 at 09:34

    Currencies like the Bolivar and Peso were inflating because of increases in money supply. There was no shortage of goods in either country in the 1990’s. Colombia reduced their inflation problem to a US or Euro level. Venezuela did not, with a resultant shortage of goods. What distributor would ship a TV or car there now?

    • Richard Nikoley on September 16, 2017 at 10:03

      “increases in money supply”

      Describe the ways a central bank increases the money supply. There are two principal means.

    • thhq on September 16, 2017 at 11:08

      Printing press and T bills.

      Venezuela doesn’t even have the presses to print their own money anymore….

    • Richard Nikoley on September 16, 2017 at 12:09

      Nope, and I don’t give a shit about dogshit countries. What is a principal means 1st world counties expand the money supply?

      Everyone knows that dogshit countries just monetize their debt.

    • thhq on September 16, 2017 at 15:03

      As I said in the first place, t bills. Treasury creates them out of thin air and sells them to the Fed. This sale releases the fresh fiat currency in exchange for the notes. Yellen’s holding about $2.5 trillion, along with another trillion toxic asset MBS’s.

      https://fred.stlouisfed.org/series/TREAST

      An earlier analog to bitcoin is trade credits. My former, now bankrupt, company used to sell them to corporate level departments, who went looking for hotel rooms they could buy with them.

      https://travel.activeinternational.com/FAQs#BestWay

      I had to drive a purchasing agent from LAX to the one hotel in LA that took them. Cheapskate didn’t even buy me dinner.

    • hap on September 16, 2017 at 18:00

      Ray dali of multibillionaire founder Bridgewater has a YouTube video on economy and debt cycles…simple and straightforward

      Fed does buy government debt created by treasury. Gov spends the money injecting into economy inflating money supply with all their programs,giveaways, stimulus packages. Of course politicians don’t want to audit fed….no one wants to reveal the hidden trillions in their accounts.

      Also can adjust interest rates through discount window producing cheap money that’s hard to resist borrowing. Doesn’t always work as bank lending restricted by regulations and fewer credit worthy borrowers. But if money cheap and anticipation rate rises……..Katy bar the door?

      A lot of money has been injected into our system. But there are substantial deflationary forces…..mostly focused on my fees…75to 80 %down since mid 80s.

      A lot of

    • Richard Nikoley on September 17, 2017 at 09:57

      thhq:

      Sorry, I really don’t have time for this anymore. Plus, hitting the road soon for a couple of days R&R in San Fran.

      Not once have you mentioned fractional reserve banking, which is a principal if not THE prime principal means for increasing the money supply, via interest-rate manipulation. When banks lend money, they are creating new money via journal entry, increasing the money supply. Factor in reserve requirements, and you have a multiplier effect. So, a $100 deposit can create $90, can create $81, and so on. Not necessarily all the time, but as a maximum in a 10% reserve requirement.

      Without integrating this, discussions of FED expansion of the money supply, creating inflation, is pretty useless.

      I do not principally object to FRB, incidentally. I do not object to the notion of creating new money backed by debt, soundly managed, and with MARKET interest rates. It’s the fiat and manipulation that I object to, “stimulating” the economy via debt-based spending, inflating the currency.

    • thhq on September 17, 2017 at 13:30

      I dismiss fractional reserve banking as a source of fiat money because of its long history. Fiat money as we know it today dates to the end of specie payments.

      https://economics.stackexchange.com/questions/6970/when-was-fractional-reserve-banking-introduced

    • thhq on September 17, 2017 at 14:51

      “Fractional reserve banking does not cause inflation”

      http://www.thesavvystreet.com/does-fractional-reserve-banking-cause-inflation/

      The money banks create to make loans is secured by assets. When the loan is repaid the created money is destroyed. Fiat money created by governments is secured only by faith, and there is never any intent to retire it. Deflation is always the enemy.

    • Richard Nikoley on September 17, 2017 at 16:50

      No, you’re just wrong. I did not say that it’s an imperative and indeed, it doesn’t have to, and hasn’t always, which is why I am not opposed to it on principle. But it can and in recent decades, it certainly has. Loose lending, both in terms of below market interest rates and unworthy loans (high credit risk, no collateral, etc.).

      The money supply can expand in order to avoid deflation, and FRB is a good way to do that naturally, but through sound lending at market and not fiat interest rates.

    • thhq on September 17, 2017 at 18:58

      Fiat money is certainly not the only tool in the government’s bag. Loose lending is also in the hands of the Fed and politicians. The trillion in toxic MBS assets the Fed bought, and is still holding, represents money that should have been destroyed if FRB had been left alone. The Fed and other central banks decision to hold interest rates down is also artificial and political.

      Left alone to itself fractional reserve banking does not inflate the currency. It’s zero sum provided the collateral is sufficient. Agreed it has been gamed.

  3. Hap on September 16, 2017 at 09:54

    this is all very depressing. Watch china. The totalitarian state can tolerate only so much freedom and especilly unsanctioned money. Cryptocurrencies will face severe headwinds and society…..much turbulence.

    Nixon did not do us huge favor by abandoning gold standard.

    When bitcoin is accepted in the souk, I will believe it is a viable currency.

    As someone approaching years of decreased income and potential reliance on savings and forced government run programs (Medicare)…….see my first statement above.

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