Oil zone reads James Turk's reasons to buy gold


Long-Term Reasons to Buy Gold

By James Turk
The Peninsula (Doha, Qatar)
Wednesday, January 3, 2008


With gold now above its record high price of $850, it's a good time to step back and ask: Do I still want to own it? Do I still want to buy it? Is gold still good value? The answer to all three questions is a resounding "yes."

...Still Good Value

Adjusting for inflation, it takes $2,208 today to equal the previous high of $850 reached in January 1980. Comparing gold to the Dow Jones Industrials Average is another useful measure to determine gold's value. Gold is overvalued when it takes only one ounce of gold to buy the DJIA. For example, in the 1930s one ounce of gold at $35 bought the DJIA, and it did so again in 1980 when an ounce of gold was $850. Though this ratio has fallen from over 40 ounces in 2000, it still takes 16 ounces of gold to buy the DJIA, meaning gold is still relatively good value.

...No Counterparty Risk

National currencies depend on the safety of the bank where you have your currency deposited. The Northern Rock crisis has highlighted that risk. National currencies have counterparty risk, but gold does not. As the subprime crisis continues to deepen, the absence of this risk more than offsets any interest income one earns on bank interest.

...Currencies Are Managed

All national currencies are managed by central banks. Some do a better job than others, but all national currencies without exception are being debased by inflation. In contrast, an ounce of gold preserves purchasing power. The following chart of the price of crude oil shows that an ounce of gold has essentially the same purchasing power today as any other time since 1945.

...Central Banks Losing Control

As well documented by the Gold Anti-Trust Action Committee (this research is available free at www.GATA.org), central banks have been intervening in the gold market. Consequently, the gold price is much lower than it would be had there been no intervention. Now that central banks are losing control, the gold price will move toward its free-market price, much like it did after central banks stopped intervening in the late 1960s.

...Monetary System Is Broken

Global imbalances from trade and capital flows have become so huge that colossal pools of "hot money" are constantly looking for a safe home. The movements of this hot money now dwarfs the flow of capital required for global trade and commerce, and has therefore become a destabilizing force. These imbalances did not occur under the classical gold standard, proving its efficacy. I therefore anticipate that in the not too distant future gold will once again be at centre of global commerce.


All of the above factors will increase the demand for gold. This increased demand will cause gold's rate of exchange to national currencies to rise, meaning gold's price will rise. Therefore, gold should still be accumulated, month in and month out under a long-term savings plan. Instead of saving fiat currency, everyone should be saving sound money -- gold.


James Turk is founder and chairman of GoldMoney.com and the co-author of "The Coming Collapse of the Dollar."

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