Your Feedback on Gold and Silver

Last week we took Ben Bernanke to task for his dim university lecture on the gold standard. Soon after, a few readers took us to task for our own apparent dimness and for ‘promoting’ gold.

Sorry Greg,

I really have to take exception to the myths you are promoting – gold is a commodity and a store of “wealth” in relation to the money supply of a society, but it is definitely not “money” – certainly not the quintessential essence necessary to create a supply of “MONEY TICKETS”, whose principle purpose is to facilitate trade.

The purpose of “Money” is to provide a convenient and flexible medium of exchange, and even though gold has been used for this purpose in the past, it really has no bearing on the number of “money tickets” needed for a growing economy. The real criteria is the productive capacity of an economy that can serve the consumption demands of that economy. There is absolutely no purpose in producing anything if it is not going to be consumed.

We would argue that credit facilitates trade more than money – and credit and money are distinctly different. The provision of credit, without some sort of monetary anchor (like gold) can go on ad infinitum and completely dwarf the productive capacity of an economy. Which is exactly what has happened in the past 40 years.


You mention the parabolic rise in AAPL (Apple), look at a chart for gold for a comparison, also rose in a parabolic fashion, as did silver, followed by a decline. Many other shares and commodities have risen in similar fashion, AAPL is no exception, singling them out is unfair unless comparing to other similar rises, including gold and silver which you promote the investment in.

There is a major difference between gold and Apple. Since bottoming in 2001, gold in US dollar terms has increased by around 550 per cent. Since bottoming in 2003, Apple’s share price has increased…more than 8,000 per cent! And half of that gain has been delivered since June 2011.

But no one is talking about a bubble in Apple. That’s when you know it probably is one.

When Bernanke and his coterie of world improvers thoroughly destroy peoples’ trust and faith in the currencies they manage, sending gold and silver prices to absurd levels, we hope we have the courage and foresight to know it’s a bubble and tell you all about it.

But we think it will be quite a few years before we get there.


Greg Canavan
for Markets and Money

From the Archives…

Gold Money: A Once-in-a-Generation Buying Opportunity
2012-03-23 – Greg Canavan

A Question Australia Might Have to Answer
2012-03-22 – Joel Bowman

Australian Tax: Running Government at a Profit
2012-03-21 – Nick Hubble

China: Why All Feasts Must Come to An End
2012-03-20 – Satyajit Das

Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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The provision of credit has never had a “monetary anchor.” Not during the gold standard, and not now. This is why credit cards and loans are not part of the money supply (see definition for M1, M2, and M3). Credit cards and loans do not create money, they create obligations to pay (i.e. essentially a contract). Seriously, your answer to the reader’s AAPL question is to say that AAPL is in a bubble because nobody is talking about it? That’s it? First, there are several people who consider AAPL to be in a bubble. Run a google search to see… Read more »
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