A reader emailed us, to ask a few pointed questions.

Paraphrasing, they are:

He also added:

“Most websites on gold I’ve seen I have no respect for. They are snake oil salesmen trying to sell gold. Yours is not. So in that sense you guys are honest.”

That number, again, is 1-800-GOT-GOLD!

Just kidding. Thank you, sir, for your kind words and now let’s address your questions.

First, we have a general response. It is good to know the truth, for its own sake, even if there is no immediate or obvious practical benefit. The world works a certain way and, speaking for ourselves, we want to know what that way is. As they say, knowledge is power. This is doubly so with gold, where there is so much misinformation, disinformation, and rubbish economics. Some of it is mainstream, such as quantity theory of money. Some of it is unique to the gold market, such as allegations of manipulation.

Perhaps this particular set of truths about the gold market is of interest only to gold theorists. We are gold theorists, so it is of interest to us. Gold theorists number among our readers, too. But we argue that this particular set of truths should be of interest to everyone.

The greatest danger of our era is the coming monetary collapse. It is the inevitable consequence of irredeemable currency, exponentially rising debt, and falling interest. Many know that gold is part of the solution, but how? Is it just something one buys, as a speculation, to sell when its price rises?

We believe that gold is much more than that. And we argue that the belief that one must speculate to increase purchasing power is an inevitable consequence of the Fed’s war on interest. Deprived of the ability to get a reasonable yield, people turn to speculation as a surrogate.

The economic effects of investing for yield are opposite to those of speculating for capital gains. In the former, you finance an increase in production and your return comes from some of that increase. In the latter, you give your capital to a previous speculator who is exciting, and your gain comes from the next speculator handing his capital to you. Speculation converts someone’s wealth into someone else’s income, to be spent. It is a process of eating the seed corn, as Keith discusses in his series on Yield Purchasing Power.

This is one reason why we insist that gold is money, and one must calculate the value of the dollar in gold terms (i.e. 24.3 milligrams) rather than the value of gold in dollars (i.e. $1,280). The lighthouse does not move higher and lower, the steel meter stick does not get longer and shorter, and gold does not go up and down. It’s the sinking boat in the storm, the rubber band, and the dollar which move.