This, Part I of GOLD: A Rediscovered Investment explained why logical thinking persons might buy gold now and why it made less sense to do so in past decades.

A queasy stock market (especially the speculative NASDAC), continuing Wall Street scandal, inflationary loss of buying power and general fears about all kinds of violence are among the “gut feel” elements that have awakened the slumbering interest in gold ownership.

But there is also a more basic reason.  Recent low world interest rates favor gold investment.  According to the Gold Anti-Trust Action Committee (GATA ) and other King Midas investors are believed to have soaked up as much as half of the known world supply, accumulated over 5000 years of mining.  Among the new huge accumulators of gold are the billion Chinese who are becoming consumers and savvy savers.  Several veteran gold experts, who claim to study the figures from morning till night, state that hoarders are fast overrunning the historical supply.  WHTT is inclined to believe them for two good reasons:  low interest rates make gold purchases appear logical and the cost of serial wars makes it all too obvious that the dollar is being destroyed by dilution in front of our eyes.

The figures for gold sales by central banks--the world's largest holders--are well-hidden by these huge hoarders and impossible to verify, because the hoarders are not obliged to tell anyone more than they choose.  Determining who owns the supply of gold accumulated over 5000 years of history is not the precise science some tell us it is.  The availability of inflated currencies to buy gold is much more critical than the central bank’s supplies or any government statistics.

Consumption for jewelry and investment by individuals is thought to have exceeded new production of gold for each of the last several years.  The new production and current consumption figures are documented by industry sources such as mining companies who brag about their production and generally tell the truth, and most new gold comes from a handful of big producers.  New production is dwarfed by one month’s U.S. federal deficit, which is headed for 500 billion dollars this year alone.  To put it another way, there is not much gold compared to the money supply.  It is a pea compared to an orange.

There are natural gold consumers that buy as a method of savings…they have no other choice.  Gaza City in occupied Palestine is a very poor place where this writer visited.  When you bank in Gaza City, you might wonder if your bank will be there the next morning, and because Gaza Arabs are literal prisoners of the State of Israel, they are forced to use Israeli currency.

My Arab friend took me to the gold market in Gaza City, and there I stayed for a few hours, talking to two of the businessmen who make their living converting Shekels--the money used in Gaza--into 22 and 24 karat gold jewelry for people who are fortunate enough to accumulate paper money.  Gaza craftsmen pound the near pure gold into bracelets, necklaces and other jewelry, and because there are few jobs in Gaza, their labor is very cheap.  Gaza gold jewelry sells at only a small premium over its gold value.

One of the gold buyers was a well-dressed young Arab businessman in a western suit and tie.  His wife wore traditional Muslim attire, covering all but her face.  They sat next to me in the small stall where the gold trader kept his inventory on hooks in a little bay window off his cubicle that was just large enough that his right arm could reach all of its corners.  There was just room for four of us to sit on the L-shaped wooden bench.  I waited while he did business.

The parties negotiate quietly for a few minutes, the buyer discussing the several handcrafted bracelets with his wife.  He quietly settled on three bracelets, each about a half ounce, which he paid for with thousand Shekel notes.  The young Arab businessman slipped the purchased bracelets onto the arm of his lady where they disappeared under the black sleeve of her garment.  They departed, having converted fast-decaying and hated Shekels to wealth that they could carry and that would not decay.  The lady looked pleased; there is not much wealth in Gaza, and the family’s savings account on her arm is safe against dilution; it is portable wealth that requires no banker and that “moths cannot eat.”

A steady stream of buyers moved through the Gaza gold market.  Ordinary people buy gold in Gaza, if they are lucky enough to have any paper money to exchange for it.

IS GOLD AN INVESTMENT?

So enormous has been the fall of the dollar in world markets as to convince many substantial investors that it is suffering from serious dilution wounds that may never heal.  Gold has risen about 60% in value since September 11, 2001, to over $413.00 per ounce.  Platinum and Palladium have risen even more.

The Gaza Arab has real problems.  He might have to leave his home or see it destroyed at a moments notice.  He is subject to search, and his house could be bulldozed with no recourse available to him.  His bank could be blown to bits by a missile.  But even if none of these things happen, he knows the Israeli currency loses 20% or more of its value every year.  He is a natural gold buyer.

What about those who live in safe and war free countries?  With savings accounts returning two percent per year or less, some savers have figured out it is logical to accumulate gold in place of bank deposits, T-bills or CDs.  While gold yields zero, anyone can see there is an upward trend, while savings accounts yield so little that the sacrifice in income is nominal.  A teenager buying cokes can tell you that dilution is many times more than 1% a year; regardless of what the government tells us about stable prices, most know otherwise.

During much of the 1980s the income sacrifice to own gold was 5-10% per year or more.  In other words, you had to forgo 10% of annual income to own gold.  This may be the cheapest time in American history to convert savings to gold.  It also may be the period of highest dilution prospects in recorded history.  As long as interest on savings remains low and inflation is present, gold makes perfect sense.  Citizens around the troubled world know this and are buying.  Americans are still beguiled by what their stockbroker tells them.

The dilution (commonly know as inflation) loss in the U.S. is three or more times the return on savings accounts, depending on whose numbers you listen to; in most developing countries it is much worse.  Dilution in Israel is more than 20% per annum, year in and year out.  Wherever this is true, there is little sacrifice in accepting a zero return on gold in exchange for the hope of a price rise that will at least keep up with dilution .

The current gold price is 50% above its lows of two years ago, but still less than half of the 1984 high water mark of $800.00 plus per ounce.  Gold reached these heights at an illogical time when interest rates were at strangulation levels in the U.S. and returns available on savings and bonds were at a record 10% or more.  In the following decade, the rising stock market caused investors to delay all worries about dilution and gold.  This trend of disinvestments in gold continued for 20 years.  Overt manipulative selling by “central banks,” which will be discussed later, and a once-in-a-lifetime bull market in stocks caused most investors to forget all about gold. Not so today.

Today economic conditions are very much the reverse of the 1980s.  Central banks are printing money in unheard of quantities to finance the American Empire’s serial war policy. Frightened and savvy investors see through the war scam and realize how much is costs; gold was rediscovered as an investment when the stock market turned lower at the turn of the 21st century.  The fundamental reasons for a gold rise are present and the upward trend is apparent.  Our purpose is not to predict gold prices, but to explain the dynamics of the market and urge Americans to take the falling dollar market in dead earnest.  Neither is a fluke and each goes hand in glove with the other.

CONCLUSION

The young businessman in Gaza City put his ounce and a half of pure gold savings on his wife's covered arm for security.  This man has an advantage over the American, for he could have no illusion over the crumbling values of the Shekel, nor could he be so foolish as to not recognize the tenuousness of his life; he wisely thinks of survival.  He must live in a state of financial reality, and he instinctively knows the Shekels in his wallet are intrinsically worthless and lose value as surely as soda water loses its fizz.  He has no illusions about the money in his pocket; it is money issued by Israel, his enemy, who he distrusts, if not despises, so he is wary.  The Gaza man has this advantage over the American.  He labors under no illusion of honest money.

Americans do not know enough to mistrust the issuer of our money.  They have been trained to trust those who issue their dollars.  The coins and bills they hold contain the now lost motto, "IN GOD WE TRUST."  But like the bracelets in Gaza City, the dollar was once made of precious metals.  It was worthy of trust.  If we practiced “In God We Trust,” we would do as the man in Gaza City does.

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