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By Pete Moore On September 12th, 2011

For the better part of a decade, bearded survivalists holed up in places like Idaho have been telling us that paper money is finished, and that we should buy precious metals, while sophisticated economics graduates who write for the FT have been insisting that gold is massively over-valued. It turns out that, if you’d listened to the snaggle-toothed mountain men, you’d have made a packet. Yet again, the ‘experts’ got it dismally wrong.

– Hannan

Not just Idaho, but Essex too dear boy. Needless to say, do read it all.

3 Responses to “ATW QOTD”

  1. And not just for the better part of a decade but for 3 decades or more. Of course that wouldn’t have worked out quite so well.


  2. “For the better part of a decade, bearded survivalists holed up in places like Idaho…”

    isn’t that somewhere near Troll’s yard?

  3. “I think back to the third year of another Democratic president, who also began his tenure with sky-high favorability ratings and who also had an overwhelming Democratic majority in Congress at the start of his term: Jimmy Carter. At the beginning of 1979, interest rates on the reinstituted 30-year Treasury bond were 9%. Gold was about $220/ounce. Epochal financial changes were coming, but the markets had not priced them in yet.

    The CPI rose about 25% in aggregate in the two years beginning Jan. 1978. So, even ignoring the high tax rates of the day, the 9% interest rates present on 30-year Treasurys in January 1979 appeared to be an inadequate return. And of course, interest rates were to go much, much higher- and soon. So Treasurys did not look too inviting for the long haul if one knew what was around the corner for interest rates and inflation the next few years.

    On the other hand, gold was about to quadruple in price over the next year to a spike high of about $875. Let us say you had investable money in the beginning of 1979 and knew the above. And let us say that you also knew that gold was never to be so cheap as it was in early 1979 (at least until now), and you further were to know that gold would rise about seven times from 9/11/01 to 9/11/11.

    Knowing all the above, it would have been reasonable to assume that gold, not Treasury 9% paper, would have been the better buy-and-hold investment from then until now. Gold had the momentum, it would never be lower in price, it was about to quadruple in only 12 months, and in contrast, the prices of the Treasury bonds were about to plunge. But . . .

    That reasonable assumption that gold was the better place for capital as of January 1979 till now would have been very much incorrect. If you grant me the liberty of projecting the compounded annual return of a (theoretical) 32-year Treasury bond at 9% from January 1979 till now, then a $220 ounce of gold should have risen to $3652 to have kept pace.”

    Link here