Lepista

Gold strategy in the current economy

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12 hours ago, Peter Hun said:

How about when the Gold Standard stopped and all currencies no longer have any relation to Gold? 

Gold isn't money, its a shiny metal that only has value that is assigned to it by its fans. Hence, Bitcoin is vastly more valuable because  its got more fans.

Although, I must admit that gold is sexier as as a neutron star baby..

Are you sure that you are not confusing money with currency? I would say that money (which for me gold is) can always be currency, but that currency is not always money. Hence when we came off the gold standard it was the currencies that ceased to be money whereas gold continued to be money; I think it is just common parlance that means currency is often called money. By removing the gold backing of GBP we also removed the scarcity of GBP. This in part is why we have such a massive expansion of credit, and hence high house prices; there is no physical impediment to that expansion.

The market cap of Bitcoin is $95 billion. The market cap of gold is $7 trillion. I think gold has 73,684 times more fans. Bitcoin has many good properties that could make it money, but I think it needs wider acceptance and more stability. At the moment it is to new and untested to reliably act as money, even if it is a great speculative investment.

Edited by doahh

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2 hours ago, Errol said:

There are numerous particular reasons as to why is the ultimate form and choice for money - and has been for thousands of years.

The practical reasons why the element is used as opposed to any other are the following:

- On the periodic table gases obviously aren't appropriate.

- 38 more elements get the boot for being too reactive—corroding or igniting when they're exposed to air.

- Two further rows on the table are radioactive and so useless for our purposes.

That takes us down from 118 elements to 30.

- Obviously you want the metal to be rare but not too rare. That leaves five precious metals: rhodium, palladium, silver, platinum and gold.

- Silver is good, but it tarnishes.

- Rhodium and palladium weren't discovered until the early 1800s, so they're out (also they are much too rare).

- Platinum's melting point is over 3,000 degrees Fahrenheit, so you'd need a serious furnace to melt and shape it into coins, a furnace more advanced than one developed by ancient civilizations.

That leaves us with gold.

if we had to replay history from the start, we'd probably end up with gold again today: For the earth, with every parameter we have, gold is the sweet spot.

Thanks Errol, a very succinct post that adds some extra weight to the argument, I will need to remember that for next time.

One additional thing is that gold is also one of the densest elements on earth. Therefore it is very hard to forge as a simple density test will detect it, an accurate scale is really all that is needed. The only elements with a greater density are:

19.32 g/cc Gold Au 79
19.35 g/cc Tungsten W 74
19.84 g/cc Plutonium Pu 94
20.2 g/cc Neptunium Np 93
21.04 g/cc Rhenium Re 75
21.45 g/cc Platinum Pt 78
22.4 g/cc Iridium Ir 77
22.6 g/cc Osmium Os 76

Tungsten is very hard to mill and so getting the necessary detailing to make a fake coin is nearly impossible. Hence you can only really use Tungsten as a core and must have a gold outer. Platinum has almost the same price and probably the only reason it is not used as money is that is much rarer than gold, as Errol previously mentioned. Plutonium, Neptunium, Rhenium, Iridium and Osmium are radioactive.

  

Edited by doahh

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12 minutes ago, sPinwheel said:

Why restrict the list to the individual elements in the periodic table? Seems a bit arbitrary.

There's plenty of compounds...

It seems to me that you are engaging in a logical fallacy, the name of which escapes me. You make a one sentence answer that requires me to have a plethora of knowledge that is unreasonable. Why don't you state the compound that you suggest AND list the reasons why it makes a good form of money AND then state why that means gold is not money? You have also singularly failed to answer any question that I have put to you, instead moving the goalpost to ask another question. This is a poor format to use in a discussion and simply makes you look like a troll.

Edited by doahh

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1 minute ago, doahh said:

It seems to me that you are engaging in a logical fallacy, the name of which escapes me. You make a one sentence answer that requires me to have a plethora of knowledge that is unreasonable. Why don't you state the compound that you suggest AND list the reasons why it makes a good form of money? You have also singularly failed to answer any question that I have put to you, instead moving the goalpost to ask another question. This is a poor format to use in a discussion and simply makes you look like a troll.

I think the logically fallacy you are looking for is ad hominem, and you are using it right now. I simply stated that gold was not money but simply an investment. If that makes you upset perhaps you need to find a safe space where such questions are never asked.

However if not, you can continue having a rational conversation. For example why why does money have to be a physical? Is anyone allowed to ask this or shall we just call everyone who disagrees with you a troll.

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I believe that Gold is money but my current favourite economist, Steve Keen, does not.

His argument is that, although Gold has previously been used as money, it is not any longer since it is completely impractical for the modern world. 

He points out that if you gathered all of the world's Gold in one place it would be enough to fill a couple of Olympic sized swimming pools therefore there is no way in which it could be practically be used as money for a population of 7 billion people. 

What he acknowledges is that it is a store of value that can be used to peg the value of a currency but that - in terms of using as a basis of conducting trade in any country on the planet it is impossible to practically use as such. Of course a "gold-backed" currency has wiggle room to distort its real value (as we are seeing currently with ETFs)

He therefore defines Gold as "a speculative asset that does well in times of economic crisis" rather than "money".

Gold, if it were actually used as money, would crash the entire global economic system for the same reason that Bitcoin would - ie it is inherently deflationary and it's true value becomes rapidly distorted once people start using it as money. For example why would you pay for a pizza or a car in Gold or Bitcoin when it is likely to be worth twice as much the following year as it is now?

Since the fundamental point about money is that it is used as a basis of trade rather than destroying it, Gold, by definition, can no longer be thought of as money.

Or so the argument goes.

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1 hour ago, sPinwheel said:

I think the logically fallacy you are looking for is ad hominem, and you are using it right now. I simply stated that gold was not money but simply an investment. If that makes you upset perhaps you need to find a safe space where such questions are never asked.

However if not, you can continue having a rational conversation. For example why why does money have to be a physical? Is anyone allowed to ask this or shall we just call everyone who disagrees with you a troll.

To be an ad hominem attack I would need to be attempting to discredit you in order to discredit your argument. You haven't provided an argument and therefore it can not be an ad hominen. You have simply made a statement that you think gold is an asset rather than money without providing an argument as to why. You are welcome to your opinion but your only defence seems to be to ask more questions rather than to take a reasoned stance on why gold is not money.

I have not stated that money needs to be physical, I have stared that I think that gold is money. You seem to be attacking a strawman, please prove otherwise. I get the impression that you really want to talk about BitCoin, there's a thread for that :lol:.

 

Edited by doahh

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44 minutes ago, ThePrufeshanul said:

What he acknowledges is that it is a store of value that can be used to peg the value of a currency but that - in terms of using as a basis of conducting trade in any country on the planet it is impossible to practically use as such. Of course a "gold-backed" currency has wiggle room to distort its real value (as we are seeing currently with ETFs)

Gold, if it were actually used as money, would crash the entire global economic system for the same reason that Bitcoin would - ie it is inherently deflationary and it's true value becomes rapidly distorted once people start using it as money. For example why would you pay for a pizza or a car in Gold or Bitcoin when it is likely to be worth twice as much the following year as it is now?

That is a good answer, and is a similar stance to Bill Still in his film The Secret of Oz. I had always assumed that the rate of gold mining was enough to fill the need for the expansion of the money supply, baring the rather large over-expansion of credit that we have recently engaged in. As I say, this is an assumption rather than a researched argument.

You mention that you think gold is money, would you have an answer to Steve Keen's argument? If I am wrong about the rate of mining being sufficient to grow the money supply, then Steve Keen's argument is quite persuasive.

Edited by doahh

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40 minutes ago, doahh said:

To be an ad hominem attack I would need to be attempting to discredit you in order to discredit your argument. You haven't provided an argument and therefore it can not be an ad hominen. You have simply made a statement that you think gold is an asset rather than money without providing an argument as to why. You are welcome to your opinion but your only defence seems to be to ask more questions rather than to take a reasoned stance on why gold is not money.

I have not stated that money needs to be physical, I have stared that I think that gold is money. You seem to be attacking a strawman, please prove otherwise. I get the impression that you really want to talk about BitCoin, there's a thread for that :lol:.

 

This stuff is just more as hominems. This is why goldbugs are confined to just one thread on the main forum. Logic just goes out the window...

I simply felt that golds' historical use shouldn't matter. After all why don't we use salt as money. Do you know where the word 'salary' comes from?

 

Nevermind, keep stacking dude. The S will hit T F one day...

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1 hour ago, ThePrufeshanul said:

He points out that if you gathered all of the world's Gold in one place it would be enough to fill a couple of Olympic sized swimming pools therefore there is no way in which it could be practically be used as money for a population of 7 billion people. 

This is completely wrong for a start. It depends entirely on the price of gold. The gold itself can be divided up into very small parts indeed, so if the price was $50,000 an ounce there would no issue at all. Practicality is irrelevant as if (if) we were on some kind of true gold standard there would be vaults maintained around the globe and no actual gold would move around (much) - there would merely be ledger alterations. See Goldmoney, for example, which works perfectly well now.

Naturally, such a system could also be interlinked with silver money, paper currency or indeed bitcoin playing a role (or all three!).

Edited by Errol

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I suppose my counter argument to Steve Keen is really a pifflingly small technicality which is simply that a substance or item can still be regarded as money somewhere even if it is not regarded as money everywhere, and at the same time. 

This small detail actually accounts for how Gold acts in the real world. In truth, Gold is both an asset AND it is money and the proportion of either depends on time and economic circumstance.

For example, with the upcoming deflationary crunch (if it happens) you would expect Gold, if it is an asset, to sink in value along with every other asset. However, there have been times when it has risen in deflationary cycles because, at those times, its is regarded as a "safe haven" money supply. And if people regard it as money then, it's money.

In fact, during those times, if fiat currencies (or what most people traditionally regard as money) collapse in value, it may ONLY be Gold which is regarded as "real" money by which trade is facilitated.

Keen dodges the issue a bit by saying that "it is a speculative asset which does well in a financial crisis". Sure - but why? 

Because, in certain circumstances it is regarded as a superior form of money. And therefore (for me) case closed.

Just my thoughts but I'm not an economist.

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4 minutes ago, Errol said:

This is completely wrong for a start. It depends entirely on the price of gold. The gold itself can be divided up into very small parts indeed, so if the price was $50,000 an ounce there would no issue at all. Practicality is irrelevant as if (if) we were on some kind of true gold standard there would be vaults maintained around the globe and no actual gold would move around (much) - there would merely be ledger alterations. See Goldmoney, for example, which works perfectly well now.

Naturally, such a system could also be interlinked with silver money, paper currency or indeed bitcoin playing a role (or all three!).

I think the point he was making is that - if you are "interlinking" with ledger systems or paper currencies etc you have a system that is BACKED by Gold but it can easily be distorted since you are not using the Gold itself as money.

Or in other words a system that uses Gold somewhere in it to peg value is not the same as using Gold as money. Ergo he is arguing that Gold isn't money.

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9 hours ago, Errol said:

This is just completely inaccurate. 

And as an aside, gold is right on top of the asset list for the IMF - Tier 1 (zero risk). And as to 'its fans', these fans currently include 85% plus of humanity (who mainly reside in India/China and the East). There's a reason why Russia, China and a whole host of other nations (including Germany) are massively ramping up gold purchases.

No it isn't. there is not a single currency in the world that is Gold backed. Gold is an asset, a material, but it is not money

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22 minutes ago, Peter Hun said:

No it isn't. there is not a single currency in the world that is Gold backed. Gold is an asset, a material, but it is not money

How do you think the move of the Suadis, Russia and Venezuela signing contracts with the Chinese to convert oil almost directly into gold fits into this scenario? It seems that a reasonable argument could be made to say that the Chinese are setting up a gold backed currency. They may not be quite there yet, but am I missing something in thinking that they are setting up a gold backed currency?

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1 hour ago, doahh said:

How do you think the move of the Suadis, Russia and Venezuela signing contracts with the Chinese to convert oil almost directly into gold fits into this scenario? It seems that a reasonable argument could be made to say that the Chinese are setting up a gold backed currency. They may not be quite there yet, but am I missing something in thinking that they are setting up a gold backed currency?

That's barter

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14 hours ago, Peter Hun said:

No it isn't. there is not a single currency in the world that is Gold backed.

Not yet.

Although China is imminently introducing what is effectively a gold/petro-Yuan - with a Yuan denominated oil contract convertible into gold.

It's also worth noting that both Russia and India have been documented using gold directly to pay for oil and other goods (generally with Iran).

Edited by Errol

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Peak Gold Output Is Looming for World’s No. 2 Producer

Gold output in Australia, the world’s second-largest producer, will peak in 2021 and more than halve by the mid-2050s as aging mines close, according to Melbourne-based industry adviser MinEx Consulting Pty.

1200x-1.png

 

https://www.bloomberg.com/news/articles/2017-10-16/peak-gold-output-is-looming-for-world-s-no-2-producer

Edited by Errol

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This is a bit worrying ... don't want the vampire squid sniffing around - 

 

Goldman Sachs Says Gold Is Better Than Bitcoin

“Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” analysts including Jeffrey Currie and Michael Hinds wrote. “They are neither a historic accident or a relic.” 

http://investmentresearchdynamics.com/goldman-sachs-says-gold-is-better-than-bitcoin/

Edited by Errol

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22 hours ago, doahh said:

Great posts Prufeshanul, well rounded and thought out. I will need to ruminate!

Oh cheers - likewise!

I'm just glad to have discovered a great site with interesting threads I can contribute to :)

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16 hours ago, Peter Hun said:

That's barter

I was really trying to get a conversation going as to whether or not the Chinese are setting up a gold backed currency. Their system while not a gold backed currency, as their is no peg between the Yuan and gold, is also not barter. Barter does not use a means of exchange and the Yuan is serving that purpose in these transactions.

I found this interesting snippet in a ZH article today:

Quote

On the wealth angle, the good news for gold was that “as economies grow, they tend to go through a rapid gold accumulation phase at around per capita GDP of $20,000-$30,000, following a ‘hump-shaped’ relationship between per capita income and gold demand.

So, is the Chinese accumulation of gold simply following in the footsteps of a rapidly growing economy or are they moving towards gold-backing; why do they want all that gold they have accumulated? I think one should be careful in thinking that they are trying to gold-back their currency as it seems there are other valid reasons such as hedging economic downturn and in China's case, destroying the petro-dollar.

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China is probably simply hedging its dollar exposure.However thats still good for PMs.

China has just bought another South African gold mine from Anglo gold Ashanti.

Harmony (one of my favourite plays for a future cycle) has also announced they are buying Moab Khotsong from Ashanti.Given id consider Harmony have the best experience and team for mining shaft pillars it looks a very nice deal for them as they will probably also ramp up Great Noligwa by going after the high grade pillars.Those mines also produce close to a million lbs of Uranium as a by product and contain a calcining facility.Likely those are only breaking even at the moment as id expect calcining to cost around the spot price for Uranium (Sibanye roughly produce at todays spot from their tailings so assume its close),but they could be very profitable once Uranium gets back up to $80 early next decade as i think it will.

If the rand gold price stays where it is i expect Harmony now have big enough free cash flows to fund Wafi Golpu,probably the best Copper/gold project in Asia.Gold miners are always risky,but the risk reward looks explosive on some in this unloved sector.

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I bought some miners around 2012 (Pretium, Helio Resource, Great Panther and Granada) and they promptly got hammered, I have been wary of my skills to pick winners since then. That said, all of the miners that I have looked at since then have taken a beating including the GDX which has lost ~40%. Timing is everything, Medusa Mining did a 10 bagger between 2008 and 2011 before loosing it all by mid-2014. Live 'n learn, maybe in the next cycle I'll do better :lol:

 

 

Edited by doahh

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I admire your perseverance doahh. How ever as the thread is about strategy not rhetoric i would just ignore them 

It's like football managers arguing over what is or isn't really a ball rather than what to do with said ball 

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