Sunday, 19 June 2016

Gold and Silver – History always repeat itself (Part 3)

Of late, I was totally enthralled by the story of Gold and Silver dated back not just hundreds but thousands years back. This was also narrated in Part 2 of my gold and silver series. While I did my homework and owned this alternative investment since sometime back, it was not until recently that I have dug so deep into unravelling its past.

“The farther back you can look, the farther forward you are likely to see.” - Winston Churchill

So I began to read lots of articles and watched many videos relating to the precious metals. And mind you, when I am engrossed into something I love or believe in, I will always pour my heart and soul into it, and often even in my dream! Just like before this, I was very into Mixed Martial Arts and devoted so much of my free time researching on it. I reckon MMA is going to overtook boxing in popularity going into the future.

Back to precious metals, I came across this guy by the name of Mike Maloney who founded and own GoldSilver.com. There are many valuable videos from Mr. Maloney that are free and in my opinion of great educational importance drilling out facts, without any boastful slogans! After benefiting from all his free videos on youtube, I decided on a win-win strategy. This is to reward Mr. Maloney and at the same time further enriches myself by buying one of his best-selling books "Guide to Investing in Gold and Silver."

In this article, I will like to reproduce one interesting pattern that Mr. Maloney pointed out in relation to our world monetary system and the precious metals. Excerpts from the book as follows:

The 7 Stages

1) A sovereign state starts out with good money (i.e. money that is gold or silver, or backed fully by gold and silver)

2) As it develops economically and socially, it begins to take on more and more economic burdens, adding layer upon layer of public works and social programs.

3) As its economic affluence grows so does its political influence and it increases expenditures to fund a massive military.

4) Eventually it puts its military to use and expenditures explode.

5) To fund the war, the costliest of mankind’s endeavours, it steels the wealth of its people by replacing their money with currency that can be created in unlimited quantities. It does this either at the outbreak of the war (as in the case of WW1), during the war or wars (as in the cases of Athens ad Rome) or as a perceived solution to the economic ravages of previous wars (as in the case of John Law’s France).

6) Finally, the wealth transfer cause by expansion of currency supply is felt by the population as severe consumer price inflation, triggering the loss of faith in the currency.

7) An en masse movement out of the currency into precious metals and other tangible assets take place, the currency collapse and massive wealth is transferred to those who had enough foresight to accumulate gold and silver early on.

Summary

1) Good money  
2) Over spend
3) Growing political influence to fund military
4) Military explodes
5) War funded by currency expansion
6) Loss of currency confidence
7) Hyperinflation

During hyperinflation, gold and silver will always emerge as winner as from the history of mankind.

Do you agree with this pattern?

I shall reserve my thoughts for now. 

13 comments:

  1. Agree, but it have to happen within the next 20 years before my lease expire on earth, If I am lucky enough to live till 90, and it got to happen within your life time to be of meaning.LOL

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    1. Hi Anonymous,

      Agree. Base on current life expectancy, I reckon I still have 30-40 yrs. Even mishaps happened to me, I do have family and kids.

      So sometimes, it's not always about me, myself, as human beings are bornt inherently more selfish, those who can break this inherent nature so far will live a more complete life eventually regardless of the wealth.

      Well, let's see if it is 20 or 10 or 30 yrs time will tell. Only time can tell.

      By the way, the last few times monetary system changes each time only last 30-40 yrs or less. Since 1971 it had been longest.



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  2. by the way, I reckon u did not read part 2 of my post.

    Gold was $35/oz in 1971. What's the price today? close to 1.3k/oz. So it does not need history to repeat itself before its meaningful.

    Guess the appreciation of more than 35x in price can still be meaningful.

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  3. i read somewhere if you don't profit from keeping gold for a long time, at least it will keep up to inflation of the day, in normal circumstances.
    You won't lose out much if any.

    When i went to work in Ho Chi Ming to give training to the technicians on weighing machines for gold, a Singaporean who married a Vietnamese told me, nobody believe or trust the Dongs
    (1 US $ = 22300 VND now).
    So what they trust most?
    Remember the Vietnamese of Chinese descent how they manage to escape as boat people?
    Gold man!
    Gold man!

    i always wonder if No 7 happens how people will use Gold as money?
    i suppose there will only be barter trade but how the market will find or set it's equilibrium value for exchange to things?
    Supply and demand or how desperate you are for the thing, in exchange for your gold.

    If you are buying Gold for insurance in case of NO 7 , what types of physical gold you should buy?
    1gm, 10gm, 20gm, 50gm, 100gm, 1Kg. bars?
    We know for minimum spread, we should buy 100 to 1Kg.
    But smaller 1gm to 50gm are easier to barter trade during No 7.
    In consideration, what would you favour to buy for insurance?
    10gm, 50gm or 100gm....?

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    1. Gold as an inflation hedge? Maybe not.
      http://www.forbes.com/sites/danielfisher/2013/08/08/gold-not-much-of-a-hedge-for-anything-unless-youre-a-centurion/#2c9df6730d92

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    2. O. K. may not be.
      Buy it for CRISIS HEDGE then.
      At the same time, if it happens during your hoarding, the Fear Factors make Gold price shoots up to the sky, will you let go some?
      That is you think the fear factors may not come true.
      It may seems buying it for "CRISIS HEDGE" also can be for "long-term" commodity investment.
      Ha! Ha!
      Have you missed some selling opportunities?
      i think i have stuck to CRISIS HEDGE so far.

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    3. Hi Bigcatblue,

      Always good to have alternative view. I m not asking the public to buy gold! As u can see, it's more for us to understand the history n my blog is educational.

      It will be a long story n very difficult for me to explain every point ur raise.

      I have same doubts as u until I really dived so deep into it.

      But just touch on a few Pts u raised bcos u really have to go back further in the past history of economy otherwise it's difficult to explain. Ray Dalio, Mike Maloney, Robert Kiyosaki, George Soros are those who had...

      War guns n bullets is for those involved in wars. Those not involved who sell to those involved will profit. And this is shown in WW1 n 2, that is how gold is transferred from Europe to US and that also indirectly explains why US is the reserve currency bcos they owned 2/3 of world currency. By the way, today's war is different and not just guns n bullets.

      It's more consideration than that as u have to consider even if u win a war like UK n rest did in WW2, but they did suffer economically.

      It's not about gold replacing currency, it's about the perception of the public in times of crisis, like what temperament said!!!

      If we have not go in depth into the history "really" in detail n I mean in detail, our life time has so far so good, it's impossible we can see. This is typical human being!

      Frankly in the 1920-30, no one in the world will imagine a WW2 will follow so quickly after WW1. And look at Weimar Republic after WW1.

      Yes, u r right abt deflation... as I mentioned many misunderstood about hyperinflation as a concept like inflation. it is not.

      We also ought to know the definition of hyperinflation which is the lost of confidence of the currency which cause price increase. Even today inflation is manipulated, all CPI figures r manipulated n govt control.

      I trusted Sg but do u trust US?

      Normally it's first deflation (like now)... then govt will further pumped in currency (not money) to inflate... then up to certain points when pple lose confidence then it will be the triggering point.

      So now we r going thru the deflation which is already anticipated by those experts I mentioned as early as 10 yrs ago already.

      As for HDB, yes I totally agree it's the best gift that govt give. If I can buy many Hdb, I will do that. Can can u buy 2-3 hdbs?

      I understood Hdb value is 10-15k in 70s n 80s 20k, so the 7k is really cheap as u mentioned.

      HDB is one lumpsum n cannot be broken down as buy/sell as small qty! moreover each puchase n sell had to be in bulk. It's illiquid also.

      HDB is govt regulated n leasehold n it does not really belong to u?

      HDB is value in currency n in history of mankind currency not backed by precious metals always fail. N failing period is not as long as we thought!

      It's not about gold n silver worth how much money. It's about in times of crisis, (imagine usd loss value 30% or more), how will perception go. Precious metals is a store of value.

      The articles by Forbes n bloombergs r written by academics from Keynesian economics study which is in fact a flawed theory in my opinion! Fed reserve is privately owned n our monetary system is manipulated by a small group of pple since 1913 when the federal reserve was set up.

      Anyway, it's good to exchange views n as I mentioned all these r educational. I respect ur decision n view. :-)

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  4. One great use of gold as a currecny is during period of war and conflict. My friend who is military spec ops, jokingly said, guns and bullets will be the real hard currency during that time. I said I will let him know who has gold and we can split the loot.

    Perhaps my lack of imagination cannot see how gold will replace paper currency, because one glaring fact is the massive money printing has not spiked inflation. Japan, Euro and US are struggling to prevent deflation.

    While some people have concern with hyper-inflation, I have the opposite concern. A decade of low growth dragged down by aging labour force. Demand is weak because growth is unevenly distributed and companies are just doing financial engineering. A hard landing in China will pull demand down so much, inflation is not something we will need to worry.

    http://www.bloomberg.com/news/articles/2016-06-16/world-economy-flashes-hint-of-1937-38-redux-says-morgan-stanley

    On history. Gold was $35/oz but it is now $1300/oz. My neighbour paid $7000 for his HDB flat and it is worth some $350k. Does it mean that these asset classes are great asset to buy now? Maybe. But I stay away for now.

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  5. Hi Temperament,

    I agree totally it's crisis hedge, but it will mostly in countries that over printed.

    I have confident that Sg will be strong. LKY definitely knows monetary history well n he is not a grad from economics (lucky Singaporeans). Modern economics teach us Keynesian which I also studied in the university.

    After I read the economic principles by Ray Dalio n listen to all the rest of the macro investors, my perception changed. I was blown away.

    China is secretly shipping gold all over to their vault n they wanted history to repeat itself that whoever owns the most gold in the world will have their currencies as world reserve currencies.

    I m confident in my life time I still be able to witness the collapse in value of usd.

    And it's always the same, spend on war (USA in 90s and 911 time in 2000s, deficit spending by lower interest rate, real estate boom, then crash like GFC, then QE QE QE, boom again in stocks, then certain point deflation..... then govt inject somemore n may even hand money to u n me to spend... then inflation...then a dictator like hitler will appear. until certain point.. pple lose confidence in currency, n that country currency collapses!

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  6. agree this. "It's not about gold replacing currency, it's about the perception of the public in times of crisis, like what temperament said!!!"


    so many conspiracy theories in this comment thread!

    don't put too much belief into maloney's words.

    fed is private, yes. world control by a few people, unknown.

    basically the idea of money as a store of value no longer exists in the modern banking system. it is replaced by the idea of 'credit' (stolen from ray dalio)

    think about it.

    what is the true meaning of money?
    can anything in contemporary times represent money?

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    1. SMK,

      I think u think too much. Here r just open comment box for everyone/public to comment freely. No undermining, no insult, definitely no hidden agenda, just to learn from each other! It's just comments n no conspiracy theories!!! hahaha

      I agree that we cannot believe in Mike Maloney alone. No one should believe in just one or two pple. Frankly reading alone is quite hard to form a belief. Belief is formed by individual exposures n experiences, n it's impossible to form just by reading alone.

      If we read financial experts, incl. Ben G, WB, Soros, Ray Dalio, Jim Rogers, Carl Icahn, Robert Kiyosaki, Marc Faber, n now Maloney, then one should filters n find his own beliefs he/she can gravitates towards!

      I agree with u that basically the idea of money (in fact it is currency) as a store of value no longer exist after 1971.

      Hmm... if gold and silver also cannot represent money, what do u think can? Of course it's not just gold n silver, but real estates, commodities etc, but maybe not currency!

      As for credit, the biggest credit in history only started after the setting up of fed in 1913. And also because it's not backed by gold n there is reserve banking system.

      To be honest, Ray Dalio, Soros, Kiyosaki, Faber, Rogers, Maloney have beliefs close to one other! I tend to gravitate my own believes towards them but does not mean I believe every word they say.

      For me, I will only judge if I believe or dislike a person after finish reading his articles, videos n most impt at least one book, before I can conclude. This is to have a big picture n be fairer to the person.

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    2. please don't get agitated
      "conspiracy theories" is said with a dash of fun.

      "I think u think too much. Here r just open comment box for everyone/public to comment freely. No undermining, no insult, definitely no hidden agenda, just to learn from each other! It's just comments n no conspiracy theories!!! hahaha"


      the striking nail on a board difference amongst this group are maloney and kiyosaki.

      "If we read financial experts, incl. Ben G, WB, Soros, Ray Dalio, Jim Rogers, Carl Icahn, Robert Kiyosaki, Marc Faber, n now Maloney, then one should filters n find his own beliefs he/she can gravitates towards! "

      there is some truth in what maloney says but not the whole truth and may be not nothing but the truth too. but sometimes you can wait a lifetime or more for the whole truth.

      "As for credit, the biggest credit in history only started after the setting up of fed in 1913. And also because it's not backed by gold n there is reserve banking system."

      goods. goods are the only real money. but money fluctuates just as goods and perishable goods can perish. and barter trade is just leh cheh so people take gold to represent money just like fiat currencies now. (of course this is due to some inherent qualities of gold) the idea and all implementations of money are not perfect systems but all forms of money throughout has never had a fixed value that can be calibrated through time and space. yes real estate and commodities..

      "Hmm... if gold and silver also cannot represent money, what do u think can? Of course it's not just gold n silver, but real estates, commodities etc, but maybe not currency! "


      you realize money just happens to be whatever the consensus of store of value happens to be at that particular point in time. why not crypto? maybe. in time, perhaps. but too many loopholes and problems.
      one of the many qualities about currency is the lack of intrinsic value relative to its market price.
      and gold is a currency too.


      agree.

      "For me, I will only judge if I believe or dislike a person after finish reading his articles, videos n most impt at least one book, before I can conclude. This is to have a big picture n be fairer to the person.
      "

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    3. Hi SMK,

      My apologies, some misunderstanding. No agitation whatsoever, but I reckon it's just that typing (esp on phone) is just like talking n oftentimes words r not good representation of the tone n body language.

      Honestly, I agreed the difference is Maloney n Kiyosaki. Books read n videos watched, I concluded that I m not biggest fan of Kiyosaki but as for Maloney, my instinct tells at least he speak with his heart n to do/provide so much work/data sharing free for the public is not an easy feat even if he only want to take our money or have any other hidden agenda. Hence, regardless of whether he is correct or wrong, I appreciate the effort, even if he meant to increase his gold/silver dealer business!

      If we wait a lifetime for the whole truth, isn't it good news? To me, it is. This means at least the economy is still intact n pple should be still doing ok. If what Maloney n many others said do happen, at least we r hedged in the right direction. So either outcome, I m happy!

      Crypto money, I m not sure! Maybe in time as u say? But given additional choice of gold and silver, I prefer to fall back to history when the latter always becomes the backup alternative when currencies fail. In bible, Silver was already used before Christ when Jacob ask his sons to exchange for food in Egypt!

      Anyway, thanks for your views of substance. Can tell!

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