Gold is not a commodity.

There are ever more "experts" coming out of the woodwork to voice their opinions on gold these days.  You know, people who either had no clue where gold was going four plus years ago or, just as likely, were afraid to say anything about it for fear that the herd would look at them in a funny way.  There are just tons of opinions out there right now that fly in the face of economic fact but the one that I think is the most dangerous for most people is the story that gold is a commodity and thus it should trade like one.  They are saying this even as gold is not trading anything like a commodity.  In fact, gold is trading like cash.  In fact, it's trading better than as if it were cash.  It is outperforming every global fiat currency.  Gold is supercash.  At a time when everyone is worried about getting screwed from every direction, gold is the only thing that hasn't screwed any long term investor.

Here is one such "gold is a commodity" argument.  As is often the case, 80% of the information is true but that final 20% is just painfully wrong.  For example, one of the "experts" named Schenker is quoted as saying, “Industrial metals, precious metals, and energy commodities are all real assets that are consumed”.  He's clearly lumping gold in there as an also-ran.  Well, if he ever read my blog in the past he would know better.  Gold is the only so called "commodity" that is not consumed into nothingness which means that is is not consumed at all but rather hoarded.  Commodities are consumed but real money is hoarded.  Making jewelry from gold is not consumption.  Jewelry is an ancient form of money.  Chains were an invention, much like a wallet or a safe.  Chains were worn around the neck where they could be handy for trade and safer from theft.  Nice, regular links of the same weight each could be easily twisted off to pay for things and then the chain could be repaired by hand given the soft nature of the metal. 

Because gold is not a commodity it is crazy to treat it as if it is one.  Schenker also says, "no matter what happens to paper markets, physical commodities will still be in demand”.  Really?  I wonder if this "expert" thinks that people in the poorest parts of Africa or the far east would agree with him.  They barely have enough to drink and the smart ones pinch pennies today so that they will have something in their old age.  Because they do not have credit gone wild syndrome they gladly forego coffee and cocoa which Schenker acts are like necessities of life.  Dude, those things are for relatively rich people.  If the great deflation settles in then lots of people will not be too worried about coffee and cocoa.  At the same time they will realize finally that government cannot take care of them in their old age and so they will care about having some way to store their excess wealth, little though it may be, in some safe storage mechanism that cannot be stolen by government con men just by making some proclamation or signing some document (which is exactly what has devalued fiat currencies time and again in the past).

Deflation is what we are seeing and deflation will play Hell on commodities.  Deflation destroys consumption demand by reducing the money supply.  Less money in the hand means less to spend.  Everyone is still worried that Bernanke will create immediate hyperinflation but that cannot happen until all of the huge real estate debt has been assimilated by the economy and that could take years.  It has taken Japan well over 2 decades and they are still battling deflation. 

If you want to hear a voice of reason on the current economic situation and how that could easily relate to gold, invest about 90 minutes in this must-watch video from Mike Maloney.  I promise you that the truth of it will bend your mind.  His story is very similar to my own.  I got obsessed with economic study and for several years I spent more than 30 hours a week studying what is going on globally - way more because I had chosen to take an extended break from work in order to study it.  His video is well done and I don't see any bad logic (very rare!).  Now, he does have some sky high views on the potential for gold and silver prices that I would take with a grain of salt but I wouldn't write them off as impossible either.  Remember, the main driver of gold prices rising will likely be the debt based money that keeps getting nipped to pieces in the market.  It is looking for a safe home but there are no safe homes.  In fact there cannot be because there is too much credit based money floating around.  Anything it touches goes up in price.  Commodities like food and clothing and fuel are limited as to how high the prices can go before people start to riot and to take what they want instead of even trying to pay.  But gold will never suffer from this because people don't need it to live.  If gold were $20k/oz today, 90% of the people wouldn't care a hoot because they don't have any and never had any intention to buy some.