THE PROOF THAT GOLD PAYS INTEREST

Peter Souleles B.Com. LLB.

Statements are sometimes repeated to the point that they acquire the status of truth despite being deceptively false. In my mind I am undecided as to whether the greater morons are those that make such statements or those that accept them. The statement that “gold pays no interest” is one of the finest examples of intellectual bankruptcy and dishonesty.

There will of course be those that will point to the period between 1980 and 2000 when gold went backwards. These people do not deserve a detailed reply in respect of that period unless they can open the doors to Fort Knox for inspection and unless the paper games played by JP Morgan and friends come to a close. We need to be reminded once again of those startlingly clear words of Chris Powell that there are no markets anymore, just interventions.

My interim reply to those that berate gold is that the last decade has punished them with a badly faltering stock market, a hideous real estate market and a laughable rate of interest on their savings. These people are now perhaps more respectful of Mark Twain’s words to the effect that ”I am much more interested in the return of my capital than in the return on my capital.”

As events unfold in Europe, China and in the USA, it may well be that the next decade will be just as punishing and cruel to those that place their trust in money printing and market interference by government.

SO HOW CAN GOLD PAY INTEREST?

In the spreadsheet below I have 11 investors. The first one bought $100,000 worth of gold on January 1, 2000 (or the first trading day), the second one bought $100,000 on January 1, 2001 and so on and so forth until the 11th investor bought gold in January 1, 2010.

On the last trading day of each year, each investor sold $4,000 worth of gold which equates to a fair rate of return on $100,000.

Let us examine how they faired.

So the investor who made his or her initial investment of $100,000 in gold in January 2000, was able to draw an income of $44,000 over 11 years (by selling $4,000 worth of gold each year) and was also able to see his or her investment grow by another $272,654 or 12.7% compounding over 11 years.

SO YOU STILL BELIEVE THAT GOLD PAYS NO INTEREST?

But the spreadsheet above also puts to rest that other piece of misinformation peddled by the fiat fakes, namely, that only the early investors are the ones that made the most. How do they explain the performance of the investor who entered the gold market in January 2006 making an income of $20,000, and a capital gain of $133,919 or 18.52% per annum compounding up to December 31, 2010?

SO GOLD PAYS NO INTEREST? THINK AGAIN AND THINK HARD.

What would you pay for an investment adviser that performed so well?

Even Bernie Madoff could not match such an outcome despite his Ponzi performance.

HOW TO PAY OFF THE LOAN WITHOUT REPAYMENTS

In the Year 2000, Sydney Australia was hosting the summer Olympics. Two close friends from the USA were visiting at the time. Both were avid real estate investors. I will not bore you with the details but their strategy at that time was to buy houses and multi unit type accommodation with a 25% down payment and interest only payments. They felt that the capital gain over a period of time would enable repayment at a later stage.

Well we all know what happened to the expectations of capital gain since that time.

But this story has a twist. Perhaps by nature and certainly through experience I advised against relying on capital gain for loan repayments and instead offered an alternative. The alternative was to put down only a 15% down payment and to use the other 10% to buy gold as a hedge. Each year a small portion of the gold portfolio would be liquidated to cover the interest expense associated with borrowing an additional 10%.

Initially they both thought I was crazy but upon further discussion and reflection, one of my two friends adopted and stuck to this strategy. Look at the spreadsheet above and you will get a rough idea of how that 10% gold investment on the purchase price of each dwelling has grown so as to effectively “pay off”‘ a major portion of each loan.

I am not an investment adviser, but in today’s political/economic climate, it would appear that Americans and Europeans have few options for safe and profitable investing. Retirees need to ponder the above spreadsheet before buying an off the shelf annuity.

The road ahead is bumpy and uneven. Who will you choose to travel with? Your investment adviser and your fiat currencies or your gold and silver?

SO GOLD PAYS NO INTEREST?

DON’T MAKE LAUGH AND DON’T LET ME HEAR THAT STATEMENT AGAIN UNTIL BEN CHANGES STRATEGY !!!

Peter Souleles
Sydney Australia