Will Gold Reach $2000 Per Ounce?

photo credit: Contando Dinheiro by Jeff Belmonte

The bad new is that it already did. Gold last peaked at about $850/oz in 1980. Adjusted for inflation, that equals well over $2000 in 2008 dollars (much more according to some measures). Anyone who bought gold in 1980 and has faithfully kept it somewhere safe, has lost at least 50% of their investment if they sell now.

Some may say that is unfair. I have picked an absolute peak from historical data. Why not pick something like the 1983 low of $300/oz? OK, let's do that. Adjusted for inflation according to the Consumer Price Index (which may be conservative), that means we invested $690 2008 dollars.

So with gold at 1000 dollars per oz this year, we made $310. Break out the champagne. Oh, wait a minute, if in 1985 we had bought $300 dollars worth of 8% treasury bonds, we would now have about $1900 in 2008 dollars. We would have made about 4 times as much with the bonds.

Of course, were these calculations widely published, folks could find any number of ways to nitpick them. Math was never my strongest subject. But they would be missing the point. If I get to look back and choose my starting point, I can make most investments (gold, stocks, bonds, real estate) look wonderful. However, when I invest today, I don't know where things will be in 25 years. I am kidding myself if I think I do. And to those who say they wouldn't wait 25 years to cash in, I ask when will you cash in. When will gold (or whatever) reach that wonderful peak price in the next couple of decades? No one knows that either. So one must guess when it is a good time to sell.

I haven't even talked about what happens if you need to draw some income during the term of your investment. Things get much more complicated.

Can't we look at long term trends and extrapolate? Yes, but it will be small comfort when the year to year fluctuations are large. It will always be a wild ride.

Here is one estimate of how gold has performed over the past 400 years:

My precision calibrated eyeball estimates a long term trend of zero interest. Of course, that may be a lot better than this estimate of gold over 600 years (sorry my eyeball can't extrapolate from this):

My apologies to the author of this chart, I can't seem to find my original source so that I can give credit. I will try again soon.

What am I saying? Is there no way that we can judge what is the best investment right now for any given person ? Exactly, there is no way. I comfort myself with all sorts of conventional wisdom, but I can't see that any of it can be trusted.

However, I have found one reference that seems to be holding up very well over the centuries:

¹Now listen, you rich people, weep and wail because of the misery that is coming upon you. ²Your wealth has rotted, and moths have eaten your clothes. ³Your gold and silver are corroded. Their corrosion will testify against you and eat your flesh like fire. You have hoarded wealth in the last days. ⁴Look! The wages you failed to pay the workmen who mowed your fields are crying out against you. The cries of the harvesters have reached the ears of the Lord Almighty. ⁵You have lived on earth in luxury and self-indulgence. You have fattened yourselves in the day of slaughter.^{]" style="font-size: 0.75em; line-height: 0.5em; "} ⁶You have condemned and murdered innocent men, who were not opposing you.

James 5:1-6 (New International Version)

How we use what we have is infinitely more important than how we will get more.

Why Do Kids Take Drugs?

photo credit: Your Face on Drugs by azrainman

There will never be a simple answer to this question. Very likely there are many factors and some play a bigger role than others.

However, I strongly believe that scare tactics don't work to reduce drug use. I talked about that a bit in my post reviewing the documentary American Meth.

Today I saw a piece of research that found that scare campaigns may actually increase drug usage. Of course, since the research supported my point of view, I was quick to give it credence.

However, based on my own experiences, I think I have some idea of why scare campaigns could actually backfire.

If a young person is looking for excitement, they certainly don't find it by following advice from authority figures about how to be safe.

At 18 I had heard all sorts of lurid tales of what drug use could do to a person. The first time someone offered me a chance to try marijuana, I had a strong sense that it might be dangerous.

Danger did not deter me. I think it drew me in. I wanted to do something scary.

Smoking marijuana was scary in 1968 for several reasons. I had been warned that using it could lead to more dangerous drugs. Also, marijuana was illegal in Pennsylvania. I knew that some kids actually wound up in jail for simple possession. Consider, this was an era when a young man sporting long hair was considered to be a dangerous rebel by the mainstream. A number of folks were convinced that sex, drugs, and rock and roll heralded the end of civilization. I hadn't had sex yet, but I sure wanted to. I loved rock and roll. I was already two thirds of the way toward being a major social menace. I was almost compelled to explore that last third.

The high I got those first few times was mildly amusing. When I did not immediate become unhinged and start looking for heroin, I decided that all the warnings I had heard were nonsense. I was actually a bit disappointed that the drug seemed so tame.

I did wind up progressing to more addictive drugs in the decade following that early experimentation. I don't think it was the power of marijuana that led me on to new experiments. On the contrary, I wanted to up the ante. To see what it would be like to do something truly dangerous. I tried LSD and found that it was anything but tame. I snorted cocaine and felt like superman. Ditto for methamphetamine. I tried various opiates. Needles scared me too much (mostly because they hurt when you stick them in). So I decided needles really were for losers. That was pretty much the only boundary line I knew: if it hurts too much, don't do it.

I knew there were other, more socially approved ways of achieving a thrill. However, it would be a long time before I had a chance for international travel, rock climbing, or diving off high cliffs. The drugs were immediately available. It was actually easier for me to buy marijuana rather than beer.

By the time I was a sophomore, I had befriended any number of drug users and even drug dealers. The boundary between the two is vague. One quick way to get money for more drugs is to sell part of what you have for more than you paid. I liked the idea that I was part of an underground. A dealer fearing possible arrest asked me to store some hashish and hundreds of hits of acid for him. I did so. I thought it very clever that no one would ever suspect Kent, the clean cut engineering student, would have a small fortune in drugs in his desk drawer.

It is quite possible that by now you wondered, "WHAT WAS HE THINKING!". The answer is simple. I wasn't thinking. I wanted thrills and this was a quick and easy way to get some.

Remember those scare tactics? They are essentially an incentive for many young folks to try drugs.

Eventually I learned that drug use really did have serious negative effects. It took more than a decade for me to arrive at that conclusion. Meanwhile, I wasted a lot of time. I probably injured myself, and I was passing lots of money on to some very unsavory people.

I wish I had known that there really are a lot of positive ways to get thrills. I'm not talking about rock climbing or motorcycles. I came to love the thrill of accomplishment. I loved the thrill of marrying and starting a family.

Eventually I realized that the biggest thrill of all is knowing God and inviting Him to make me more like Jesus. The irony is that at 18 I would have thought that would be one of the most boring and completely foolish things I could do.

Well, I got part of that right. I am a fool for Christ.

How Much Do We Care

Photo Credit: Food crisis in the Horn of Africa by IFRC

I read an article recently that claimed an expenditure of $60 billion dollars on basic health care and education would be enough to effect an enormous change in child mortality rates and eliminate extreme poverty and hunger.

If that is true, it would amount to about .1% of the World Gross National Product. If the estimate is 10 times too small, it would really take 1%. It would seem that the cost of eliminating the worst of the world's poverty is not an economic issue. If we could all give up 1% of our luxuries, or if we could all be 1 % more productive in our work, there should be plenty for everyone.

I don't think most of us can even measure our personal wealth accurately to plus or minus 1%. And certainly not to plus or minus .1%. Fluctuations in real estate prices, stock prices, or even the value of goods are enough to hide a per cent. The recent hiccup in the U.S. economy wiped out about $8 trillion dollars of personal wealth (or at least, of our wealth "on paper").

Out of all the things I care about, do I care about starving people and sick children with at least 1% of my capacity for caring? I'd like to think so. In fact, I'd like to think that most folks can easily muster 1% of their caring towards such issues.

Things look easier on the macro scale. It has been said that the devil is in the details, and that certainly seems appropriate here. I can think of an example close to home that indicates that more than money is required. A lot more. I volunteer at an outlet for free kids clothes. We have a selection of free adult clothes nearby. We are across the hall from the Food Bank and Gleaners. They provide lots of free food. Those are good things, but I have no illusion that free food and clothes means that all kids in our town will be warm and well fed. There are lots of other problems besides the material resources: substance abuse, depression, dysfunctional families, and the list goes on and on.

Sin is the big obstacle. It seems that worldwide, men in particular are snared by alcohol, gambling, and prostitution, just to name a few. Fighting wastes lots of energy at both the personal and the national level. Substantial changes in those sorts of behavior could have a huge impact.

Of course, we try to engineer changes in behavior with laws, taxes, and social and cultural strictures. It is rather disheartening to see just how ineffective things like laws against drug use have been. Ditto for taxes on cigarettes and disgrace for public figures discovered to be involved with prostitution.

I will continue to give some of my resources toward eradicating some of the worlds nastiest problems. I will vote for laws and support positions that may have some effect in changing behavior. However, I think these are the least of my contribution.

I am convinced that by far the biggest impact I can have is by seeking to be more like Christ. And let it be clear that I don't believe I have the will or the strength to change myself much. More and more I see how dependent I am on God for those changes. This is spiritual warfare at ground level. It is personal and immediate. I don't have to wait for anyone else to do anything.

I simply have to seek God and obey him.

If I don't do what I can, why would I expect others to do something?