The Latest Financial Scam

[Chris Fleming]

"If cash is good; might as well have it."

I think we are talking about two different kinds of events. If we're talking about a utter collapse of any economy we could think of, then sure, you'll be able to trade your gold for something big or your silver for something small. At that time though, you ought to have used some of your metals to get the most important metal in a time like that, lead.

I'm talking about something like a hyperinflation. In that case, your cash won't be good, you're savings will be gone and you would have wished that you traded in those greenbacks for something real. THEN you go and take that to cash it in for the dollars which would have long since been devalued by the government in an attempt at keeping some kind of order.

"People who are really concerned buy "stagecoach" gold and silver that comes ready to be broken into 1/4 ozs or even 1/8s."

You could do that I guess but you are paying an extra premium for such a small amount. That's right, to my understanding it actually costs MORE to mint a small coin like a 1/10 so why not get an ounce. Some of the old European gold coins like the francs and sovereigns are nice though.

"Anyone who diversifies will probably have some invested in metal."

You're ahead of the game then, as damn near everyone I've ever come across thinks metals are just a hobby, a foolish bet, a relic or knows a brothers cousin's friend that lost money buying at the top back in the 80's. People seem hell bent on holding their stocks and bonds until they drop to the very last penny. Most likely because the working class has been quite effectively conditioned to believe in the dollar, that the government is saving for them, and that stocks will go up forever. I would say though, that simply having an old coin collection doesn't count for much, and I don't include people like that as those who see commodities as an investment idea and diversify in them.

[Michael]

The point was that gold wasn't good for trading, and the higher its value, the more difficult it becomes.

Okay, gotta nitpick one little thing from your post here. The value of gold is very stable, it's the government IOU's whose value change in relation to gold and other commodities, but of course carrying gold is usually less convenient than carrying paper. Anybody seen my wheelbarrow?

[Steve James]

You could do that I guess but you are paying an extra premium for such a small amount. That's right, to my understanding it actually costs MORE to mint a small coin like a 1/10 so why not get an ounce.

What I mean is that you can buy ounces that have grooves allowing you to break them up in quarters or eighths. They're called "stagecoach" bars.

If you're talking about hyper-inflation, that also means that you will need more physical gold too. Either way, imo, it's not going to be what is traded; and, just as in a poker game, sooner or later "someone" will gain control of most of it, if it "is" used as a commodity.

Secondly, the issue in an extreme case is not how much one has to spend, but how much one can produce to live. Sooner or later, whatever we "have" will run out.

[Teazer]

Okay, gotta nitpick one little thing from your post here. The value of gold is very stable, it's the government IOU's whose value change in relation to gold and other commodities, but of course carrying gold is usually less convenient than carrying paper. Anybody seen my wheelbarrow?

In no way shape or form is the value of gold stable. It is a pure investment asset which has no practical use for anything except maybe jewelry. As such it is at the whims of supply and demand. It's advantage as an asset is that those whims tend to be countercyclical and it has a limited supply.

[Michael]

It's been used for thousands of years as money. I think you're confusing the abstract value of gold in a speculative market with the real historical value of gold over time and in countless economic systems. It's only been very recently, the past 40 years for the USA & 9 years for Switzerland, that the value of currency has not been fixed to gold reserves.

Try to be consistent with your time perspective. You said 3% annual inflation averaged over 100 years is fine and refuse to acknowledge the damaging effects of the spikes, and yet now you focus on the day to day fluctuations of gold and refuse to acknowledge its long-term, sustained value, which is what I was referring to.

My conspiracy therapy prescription for you is an ingestion of mono-atomic gold. It will cure all your ailments.

[Chris Fleming]

Read an article the other day regarding George Soros, the guy who is always saying how useless gold is and how it is the "ultimate bubble" (oh the irony). As it turns out, he's a closet gold bug, buying gold on APMEX and using promotional coupons to get a little discount on his purchase! Hilarious.

[Teazer]

I'll raise you a wiki article.

"Factors influencing the gold price

Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand. Unlike most other commodities, the hoarding and disposal plays a much bigger role in affecting the price, because most of the gold ever mined still exists and is potentially able to come on to the market for the right price.[10][11] At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes.[12] This can be represented by a cube with an edge length of just 20.2 meters.

At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves.[13] Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production.[14] According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes.[15] About 2,000 tonnes goes into jewellery or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds.[15] This translates to an annual demand for gold to be 1,000 tonnes in excess over mine production which has come from central bank sales and other disposal.[15]

Central banks and the International Monetary Fund play an important role in the gold price. The Washington Agreement on Gold (WAG), which dates from September 1999, limits gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 400 tonnes a year.[16] European central banks, such as the Bank of England and Swiss National Bank, have been key sellers of gold over this period.[17] Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005.[18] In early 2006, China, which only holds 1.3% of its reserves in gold,[19] announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks. India has recently purchased over 200 tons of gold which has led to a surge in prices.[20]
Bank failures
When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This is what happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and to outlaw the ownership of gold by US citizens.[21]
Low or negative real interest rates
If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals.[22][23]
War, invasion, looting, crisis
In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises"

So, sure, inflation is one reason for the price change, but only a very small part particularly in countries where inflation tends to be low and stable (like over here). As an example, inflation over the last year has barely changed over the last couple of years but gold prices have shot up not only in terms of all different countries' currencies but in the purchasing power of other commodities. IE you can trade gold for a lot more stuff this year than you could a few years back.

[Steve James]

fixed to gold reserves

That was the initial point, no? It's not about the actual gold that people carry, Sure, it'd be possible to just use pure gold coins with flecks for dollars and grains for fives. But, I think that Teazer's point was different. He was suggesting, iinm, that the "value" of gold is not stable. Moreover, the reason it's not stable is because it's (relatively) useless and so it's value is tied to other things. Ok, I'd say that oil and water have "value" but gold doesn't. (Yeah I know, in the zombie apocalypse ... which would ... never mind). Otoh, iridium is 4 times more valuable --in terms of price-- than gold and many times that more useful (for satellite communications and cell phones, for ex). There's no big public run on iridium (except by the slicksters who want to rape Haiti again). Iow, it's the advertisers of gold (and the speculators) that are making money by encouraging people to buy gold. It's the same advertising motive as any of the "get rich" infomercials or "magic" anything (though magicjack does work fine).