Declaration of Independence

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. - That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.

Wednesday, January 13, 2010


My husband and I have discussed buying gold on numerous occasions over the years but never actually purchased any. I am wondering lately if we made a very bad mistake in not buying it. The dollar is in serious trouble due to the overspending by our government, and I am wondering if the dollar can be saved. When a representative of a gold investment firm called last week, I began to think about maybe buying gold again. After a discussion with my husband, I decided that I really needed to know more about gold. I learned a few new things about it and will share what I know with you. The metallic element known as gold (chemical symbol, Au) was one of the first known metals. Those who possess this bright yellow metal have been for thousands of years considered wealthy. No one knows when gold was first discovered, but there is evidence that people in Ur in Mesopotamia (now Iraq) and in Egypt were using it as early as 3500 BC. The artistry in the cups and jewelry found in those countries suggests that people had been working with gold for several hundreds of years before the objects were made. Gold is valuable chiefly because it is rare, but it is also valuable because it can be made into fine wire (ductile), hammered into sheets (malleable), or formed into any desired shape. It also has resistance to rust and other chemical changes that would cause tarnishing. Gold's beautiful yellow color and soft metallic glow make it highly valuable as jewelry and other ornamentation. It is also easy to work with because of its softness. Gold must be combined with some other metal when it is made into a hard object such as jewelry or coins. This type of mixture is called an alloy. Gold alloys are measured in karats (or carats), which are divided into 24 parts. Pure gold is 24 karat (24K). The number equals the amount of gold in the item, such as 18 karat gold means there are 18 parts of pure gold plus 6 parts of some other metal. Copper and silver are common metals to be alloyed with gold, such as in gold leaf. White gold is made from gold alloyed with such other metals as nickel, palladium, or platinum. According to scientists, gold is formed from gases and liquids coming up beneath the earth's surface through cracks or faults in the surface of the earth. Gold can be found in several different places: 1) lode or vein deposits where minerals have filled fractures in rocks, resulting in thin, sheet-like deposits; 2) placer deposits are larger particles like nuggets and grains of gold that have been washed into streams; 3) Some gold as a minor element is found in copper deposits called porphyry copper deposits; 4) There is some gold in solution form in all seawater - about one grain of gold per short ton. Pure gold is not often found. It is often mined as a by-product of quartz, calcite, lead, tellurium, zinc, or copper. Gold mines produce about 40 percent of the US-produced gold. Gold is obtained in a two-step process: 1) get the gold ore; 2) separate the gold from the ore. Gold is used by nations as an international form of money and is acceptable in all countries as payment of debts. When a country is on the gold standard, it is willing to redeem any of its money in gold and it has a set price to buy and sell gold. Some of the advantages of being on a gold standard are that it checks inflation, restrains government spending, and stabilizes currency exchange rates among countries. A disadvantage is that it prevents necessary adjustments in domestic currency supplies as well as in international exchange rates. Until l933, when the US abandoned the gold standard, a stated amount of gold could be obtained for most paper money. The gold value of a dollar was reduced in 1934, but gold remained the standard of measurement until the mid-1970's. The US was officially on the gold standard when Congress passed the Gold Standard Act in 1900 but went on and off the gold standard several times before abandoning it completely in 1971. The official price of gold in 1973 was $42.22 an ounce (about the size of a silver dollar). The government stopped setting the gold value of the dollar in 1976, and the price of gold now rises and falls in relation to the demand for gold. The demand for gold must be high at the present time because I was quoted a price of $1100 an ounce last week. I should have bought gold in 1973! The United States has not minted gold as legal currency since 1933, but it does issue gold coins for collectors ($50, $20, $10, and $5 pieces) as well as bullion coins for investors. Most of the nation's gold has been stored underground at Fort Knox, Kentucky since 1937. The Federal Reserve Bank of New York stores the gold reserves of many nations. Facts for this post came from articles by Harrison Ashley Schmitt and Irving Morrissett in World Book Encyclopedia, Vol 8, pages 249-253, 254.

1 comment:

  1. The problem with gold is that it is shiny, pretty, and every now and then, has rather spectacular gains in price in a short period of time. Because of this, people start thinking of it as an investment. But the reality is that gold has no real (after-inflation) return. It pays you nothing. In fact, it costs you money to store it. Not to mention the fact that it is a huge speculative instrument, and just as it has spectacular rises, it also has spectacular falls. There are now dozens of companies out there trying to buy your jewelry (for pennies on the dollar, BTW) then melting it down and selling it on to the next sucker. It reminds me of just a few short years ago when there were dozens of real estate "investing" companies specializing in "flipping" properties. I suspect the same outcome will occur. In 1981 gold was worth $1417 per troy ounce (2008 dollars). Today, after its spectacular run-up over the last few years, it is worth $1143 per troy ounce. Nearly 30 years and it still has a negative return. Why was no one talking about buying gold in 2000 when it was $273 per troy ounce? Because they were caught up in the bubble of the time, internet stocks. Buy into a bubble at your own peril, and buy assets that have no historical real return at your own risk.

    If you want to hedge against weakness in the dollar you're better off holding a good selection of international stocks and TIPS than a shiny metal you have to secure. If the world melts down and people are burning bundles of $100 bills for firewood you'll be better off with lots of canned food and ammo than gold.

    Doesn't mean gold won't double from here, my crystal ball is cloudy, but I certainly wouldn't be standing in line to buy it when there are people cold calling you trying to get you to buy it. Where were they in 2000?