I have reproduced it below in it's entirety:

Get Real

Many of the reasons given for investing in gold are fallacious. For instance:

Investing in gold is a edge against inflation.

In 1980 the gold price hit a record high of $850 an ounce. Over the next two decades inflation mostly ran in the double digits while the price of gold fell 70%. As the late Roy Jastram, who analysed the purchasing power of gold in England and the US from 1560 to 1976 concluded: "Throughout history, both at times when gold was tied to legal tender, and at times when it wasn't, gold has been a poor hedge against inflation.

"Indeed, it has consistently lost purchasing power during periods of inflation, and gained it during periods of deflation."

Gold is a proven asset.

In fact, over the past 25 years, the opportunity cost of investing in gold has been staggering: $1000 invested in gold would now be worth about $700, whereas the same amount invested in the US stock market would be worth almost $10 000.

Gold is a good diversification since it is inversely correlated with the equity market.

Flushing money down the toilet as shares prices go up is also inversely correlated with the equity market, but who'd do that? Besides, you'd have to invest in gold itself, since gold shares have tended to decline during overall equity market declines, and rarely benefited from a flight to quality, even when the value of the product itself has risen.

There is a shortage of gold production compared with that used in jewellery fabrication.

This is irrelevant as there is more than a 50 year supply of gold above ground - an oversupply for production purposes.

Gold provides stability in an uncertain world.

This tends to come from people who still worry about the fact that governments control the money supply. However, there has not been a single major economic upheaval or bank panic in any nation anywhere in the world attributed to Keynesian monetary policies. By comparison, during the Gilded Age of the late 19th and early 20th centuries, depressions and bank panics were common. The historical records is so strong that mainstream economists reject the gold standard almost universally. And, whereas the argument is often used to justify the purchase of gold equities, these can move as much as 20%-30% in price in response to a single digit shift in the gold price.

                                Michel Pireu
                                pireum@bdfm.co.za

Wow! Ouchies! That's what I call hard and fast talking and I appreciate anyone who puts their point of view forward.

The fact that Michel is completely wrong for all the right reasons is almost irrelevant.

Let's take a closer look at what he says and compare it with what we know.

Firstly gold as a hedge against inflation. Since 1920 the US dollar has lost over 96% of it's purchasing power. Since 1980 the dollar has lost more than 50%. In fact, EVERY paper based currency since 1970 has lost purchasing power faster than gold.

But I am NOT interested in buying gold as a hedge against inflation. I AM very interested in buyign it as a hedge against fiat paper currencies, which are backed by.... nothing! The Keynesian experiment is but a babe when compared to economic history - 40 years of Keynesian policy do NOT make it infallible. What it does make is the correction to paper based promises of payment (currency) extremely large and extremely dangerous!

Gold is a proven asset. So is property! The opportunity costs of investing $1000 in Tokyo Property in 1980 have been staggering! The Tokyo property market has been in steady decline for over 20 years.

You need to compare apples with apples Michel! ALL asset classes rise and fall - this is basic economics!

Gold is a good diversification..... All I want to add are the words "when appropriate".

There is a shortage of gold production.... - I agree completely - utterly irrelevant!

Gold provides stability in an uncertain world - this one I want to spend some time on. The first question is do you trust your government, who can print money at whim, to provide you with value for the money you own? In other words, if the government prints $1000 and gives it to you, can you buy $1000 worth of assets? Say you buy 1000 carrrots at $1 each.

Yes of course you can. But what happens when government prints up $10 000 and gives it your neighbour? There is $11 000 in circulation now. What is the asset value of each dollar? Is it still one carrot?

Not bloody likely! This is where inflation starts. If you want zero inflation, turn off the printing presses. When gold was used to back currencies inflation was fixed at the rate of increase of gold production - about 2% per annum. You can't print gold.

And this is the key tenant behind buying gold. When the word gets out that the dollar, euro or rand is in fact backed by.... nothing... the flight to gold will be spectacular and swift.

I have no argument about mainstream economists rejecting the gold standard almost universally. I personally don't know any independently wealthy main stream economists - and I take my lead from that!

What I see is towering trade deficits in the US economy. I see oil posed to be priced in Euros. I see historically low prices for two commodities (silver and gold) and the massive potential for a substantial profit to be made on the metals themselves. I see a world economy based on paper with zero store of value behind it. And I ask myself whether I am happy with the situation or not. And the answer I have is that I am not at all happy with it. There is a LOT more upside to gold and silver than there is to the dollar, pound, rand or euro. And that's the bottom line.

Michel, one of us will be proven right. It is possible that we both may be wrong, but for now, basing one's faith in a valueless store of wealth is not a leap of faith that I can make. The valueless currency experiment floated in 1971 will end. And it will end badly for those that do not have true value in their portfolios. It will be even worse for those in debt. Like America.