Hey Twi

That is one of the best explanations on gold I've ever read! Several years ago Warren Buffett had his own explanation and it as far less charitable towards the yellow metal!

I wonder what his feelings on gold would be, if asked today!

The problem with any CDS or insurance policy is the slippage between it's sale price and the value on any given retail day! Not unlike an insurance policy there is a portion which covers the risk factor and the precieved "funded" portion that is to be used to cover the overhead of administering the policy.

in other words, the cost of discovery and mining is the administrative portion.

and the "funded" risk factor of insurance is the same as the speculative part of a gold play. The problem with his analogy is the fact that the "funded reserve" with insurance, still remains theoretically at risk with gold because a speculator takes that portion. In an insurance policy the insurer keeps that as a reserve to cover future liabilities.

That is the part of any gold play that bothers me. The exuberance that follows value increase in precious metals that can't be backed by an industrial use. That risk is also not backed by a reserve.

I like this guy's description but he doesn't explain properly the risk factor of speculation in gold that doesn't exist in insurance. Why does this matter? Because the very "exuberance" he talks about with the overall economy also applies to gold! Sometimes to an extreme! That is why we need to be constantly vigilant of gold's value exceeding the actual risk that the economy requires to be covered by gold's "insurance"

That is the toughest question to answer? .................because the answer exists only the moment gold collapses!

..............carry