thedebtisreal

Gold

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Right, I'm setting myself to be flamed for writing this but there is a great deal of gold ramping and I feel compelled to write a counter point.

Because of the China and India affect we had a decade of historically low consumer prices, which have led to low interest rates, which have led to high liquidity which have led to high asset prices. It is no coincidence that bonds, stocks, property, commodities and gold have ALL risen against cash during such a period because they have all being driven by the same monetary engine. But that engine is reversing.

We now have the early beginnings of a credit crunch which will drop the prices in number of assets. Look at the US situation: gold, property and stocks all down.

Gold is an asset. It is not money and will never be unless a major government enforces it as legal tender and that's never going to happen. From what I see it's driven by the same evil credit splurge as everything else and will suffer the same fate now the rules are reversing.

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Gold is typically not bought with fiat credit - ie debt

Mortgages are and hence why house prices are SO way out of line - they just print more money

Edited by dnd

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Right, I'm setting myself to be flamed for writing this but there is a great deal of gold ramping and I feel compelled to write a counter point.

Because of the China and India affect we had a decade of historically low consumer prices, which have led to low interest rates, which have led to high liquidity which have led to high asset prices. It is no coincidence that bonds, stocks, property, commodities and gold have ALL risen against cash during such a period because they have all being driven by the same monetary engine. But that engine is reversing.

We now have the early beginnings of a credit crunch which will drop the prices in number of assets. Look at the US situation: gold, property and stocks all down.

Gold is an asset. It is not money and will never be unless a major government enforces it as legal tender and that's never going to happen. From what I see it's driven by the same evil credit splurge as everything else and will suffer the same fate now the rules are reversing.

No. Gold is 'real' money. As real as a house is real. But where house prices are at a historical record (in real terms),

gold is still historically low. Now might be a very good time to buy.

Edited by goldfinger

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Gold is typically not bought with fiat credit - ie debt

Mortgages are and hence why house prices are SO way out of line - they just print more money

Not quite true. Many Hedge funds diversify their carry trade risk into Gold. Not to as greater extent as housing though, I grant.

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Right, I'm setting myself to be flamed for writing this but there is a great deal of gold ramping and I feel compelled to write a counter point.

Because of the China and India affect we had a decade of historically low consumer prices, which have led to low interest rates, which have led to high liquidity which have led to high asset prices. It is no coincidence that bonds, stocks, property, commodities and gold have ALL risen against cash during such a period because they have all being driven by the same monetary engine. But that engine is reversing.

We now have the early beginnings of a credit crunch which will drop the prices in number of assets. Look at the US situation: gold, property and stocks all down.

Gold is an asset. It is not money and will never be unless a major government enforces it as legal tender and that's never going to happen. From what I see it's driven by the same evil credit splurge as everything else and will suffer the same fate now the rules are reversing.

No flame - you bring up some good observations. The only thing I will add is that the perceived value of fiat currency is based on trust - if the powers that be do not protect the currency, its purchasing power and its value as a store of wealth they people will lose trust - this will have an impact on the price of gold.

My guess is that people are losing their faith in money - the BOE and the FED are giving the stuff away for god sake - people are buying assets, in fact anything rather than holding cash - if as we all expect western currencies start to slide, we will start to import inflation, then I expect the price of gold relative to those currencies to keep going up.

HAL

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i agree completly, all assets ahve been boosted by a tide of liquidity, and yes gold is bought with leveredge too as are other assets. the inflation of the last 25 years has been a credit inflation, the creation of promises to pay money, not the money itself. When confidence in the economy collapses so do the promises ie>debt ie>money supply. When deflation of the huge credit/debt superstructure will cause huge deflation. Only safe cash will go up in value.

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No. Gold is 'real' money. As real as a house is real. But where house prices are at a historical record (in real terms),

gold is still historically low. Now might be a very good time to buy.

Possibly, but how to you measure the value of gold? It has no yield. What is it's fair value. I suspose it depends on how much money people through at it, but is that going to be a lot when everyone is trying desperately to pay off the mortgage and keep their head above water and money supply has collapsed.

Also, I believe tulip bulbs are historically cheap too.

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Agreed, no flaming for an important point.

The economy can go down in 2 ways:

General deflation, in which gold may well suffer and cash will rule.

Or inflation, in which cash suffers and gold holds its value.

You're describing deflation.

Now only a fool would put all his assets in gold - in case your scenario is right. The usefulness of gold is as a counterweight to cash. So that if cash does go "down the tubes" due to inflation, you still have some assets left.

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Right, I'm setting myself to be flamed for writing this but there is a great deal of gold ramping and I feel compelled to write a counter point.

Because of the China and India affect we had a decade of historically low consumer prices, which have led to low interest rates, which have led to high liquidity which have led to high asset prices. It is no coincidence that bonds, stocks, property, commodities and gold have ALL risen against cash during such a period because they have all being driven by the same monetary engine. But that engine is reversing.

We now have the early beginnings of a credit crunch which will drop the prices in number of assets. Look at the US situation: gold, property and stocks all down.

Gold is an asset. It is not money and will never be unless a major government enforces it as legal tender and that's never going to happen. From what I see it's driven by the same evil credit splurge as everything else and will suffer the same fate now the rules are reversing.

I see your point but all money is based on ( or suposed to be based on ) the amount of gold held by the banks. This is no longer the case, so cash (paper) actualy has no value except for the wide-spread but deluded perception of value loaned to it by us, the people.

Once confidence in paper money dwindles ( as it will when the dollar goes pop ). Gold will again be popular as a form of unchangable wealth.

Also the supply of gold is slowing with the worlds gold mines drying up as in south africa ( 84 year low in production ).

Also demand is rising from developing countrys like China and India.

I think that gold and silver will break away from other commodities sometime in the next year or so, after all, would you buy your girlfriend a lead necklace or an iron watch?

Supply and demand.. you'l see.

A farmer is likley to swap a chicken for an ounce of silver but he wont want to look at your bits of paper.

Edited by charliemouse

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With Gold you don't have to trust any currency.

Zimbabwe has 1,729% inflation but if you traded in gold instead of $ZBD you wouldn't be affected.

So you could and buy a loaf of bread for 1/10th gram or whatever, or change your gold into ZBD and take $14,000 down to the store straight away although it might be $15,000 when you get there.

Nobody can print gold like money.

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Not quite sure if that is correct?

Money can be anything and it has been in times gone past. I take it you consider 'Gold' to be money because it is a tangible asset, in limited supply and past civilisations 'value' gold.

Gold however does not make a good item to bargin with surely because of its weight and lack of portability. Surely paper backed by Gold would have been the way forward?

Que the You tube vids, which we've all seen by now. <_<

If we suddenly started valuing Plutonium could that just as easily be thought of as 'Money'? (Obviously not in its radioactive form!)

You should read this here: http://www.financialsense.com/editorials/c.../2005/1123.html

You actually explain it yourself: Plutonium is not god as money, since radioactive.

Just do the following: try to come up with any other commidity than gold or silver that could be money. I am happy to explain why it

won't work or hasn't worked in the past :)

Yeah, gold-backed paper would be the most convenient. It's just not available for now. There's e-gold, though.

Edited by goldfinger

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Possibly, but how to you measure the value of gold? It has no yield. What is it's fair value. I suspose it depends on how much money people through at it, but is that going to be a lot when everyone is trying desperately to pay off the mortgage and keep their head above water and money supply has collapsed.

Also, I believe tulip bulbs are historically cheap too.

I posted that earlier today in the Black Wednesday topic:

RB, some pundits think the theoretical value of gold should still be determined by the amount of all fiat in the world

(as if backed by gold). In this case, the theoretical price of gold should be in the range USD 1000-1200

(there's articles by Paul van Eeden on that).

Since gold has over the last 30 years fluctuated around its theoretical value, I'll expect it to go much higher than

that since its price was by sentiment and central-bank lending too low for a long time.

The rising price of oil (we're simply running out soon, that's no secret) and Heli-Ben will do the rest. smile.gif

Need to get this CC application finished. Short GBP, long gold. Yeah. I love easy credit! It will be over soon sad.gif

EDIT: Hmm, possibly I'll add some tulips bulbs to my portfolio soon. :lol:

Edited by goldfinger

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What this thread seems to boil down to is that 'fiat' currencies are fine as long as people continue to have trust in them as a store of value. A low inflationary environment is likely to foster such trust. IMHO we are a very long way indeed from that trust being eroded. For gold to rise to the levels some on here predict, we would have to see widepsread abandoning of paper currencies. I just can't see that happening other than in some sort of Mad Max style Armageddon environment and frankly in those circumstances I would be past caring.

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IMO, the German & French central banks hold approx 3,000 tonnes of gold as a component of their foreign currency reserves because they believe that gold is a currency, i.e. it is money.

If gold isn't money, then how come lots of central banks hold and own gold as if it were?

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I see your point but all money is based on ( or suposed to be based on ) the amount of gold held by the banks. This is no longer the case, so cash (paper) actualy has no value except for the wide-spread but deluded perception of value loaned to it by us, the people.

Not true. Cash is backed by government fiat. It is legally mandated currency. It also has an interest rate and a yield. Something gold does not.

Once confidence in paper money dwindles ( as it will when the dollar goes pop ). Gold will again be popular as a form of unchangable wealth.

If the dollar goes pop, it will go to pop against cash in other currencies. The value of gold might then rocket in dollars terms, but not in pounds. Which would prove it's worth as an inflation hedge, but not as a safe haven in an economical recession.

Also the supply of gold is slowing with the worlds gold mines drying up as in south africa ( 84 year low in production ).

Also demand is rising from developing countrys like China and India.

They are saying exactly the same thing about land at the moment. Finite supply does not mean price increases, we know this.

I think that gold and silver will break away from other commodities sometime in the next year or so, after all, would you buy your girlfriend a lead necklace or an iron watch?

No. But when this recession hits, luxuries are going to be at the very bottom of the list when it comes to spending.

Supply and demand.. you'l see.

A farmer is likley to swap a chicken for an ounce of silver but he wont want to look at your bits of paper.

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What this thread seems to boil down to is that 'fiat' currencies are fine as long as people continue to have trust in them as a store of value. A low inflationary environment is likely to foster such trust. IMHO we are a very long way indeed from that trust being eroded. For gold to rise to the levels some on here predict, we would have to see widepsread abandoning of paper currencies. I just can't see that happening other than in some sort of Mad Max style Armageddon environment and frankly in those circumstances I would be past caring.

We don't need to get anywhere near a mad max style Armageddon environment for gold to take off. All we need is a crisis of confidence in the financial system (which is already beggining with sub-primes and will spill over into Hedge Funds and derivatives in general). People will run to quality as volatility goes up. At first people will run into bonds, but this makes gold more and more attractive to hold as the bond yields are driven down, with official interest rates following. Already people in the street are well aware that inflation is much higher than the Govt claims. The seeds of distrust are already planted. Once the interest rates start dropping again, inflation will REALLY take off, and when bonds are no longer attractive to hold (below inflation yields), cash is devaluing, and the stock markets are stumbling, there will be nowhere at least relatively safe left else to go..

Edited by drminky

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What this thread seems to boil down to is that 'fiat' currencies are fine as long as people continue to have trust in them as a store of value. A low inflationary environment is likely to foster such trust. IMHO we are a very long way indeed from that trust being eroded. For gold to rise to the levels some on here predict, we would have to see widepsread abandoning of paper currencies. I just can't see that happening other than in some sort of Mad Max style Armageddon environment and frankly in those circumstances I would be past caring.

I think a level of >1000 is very realistic within 2-5 years max. If there is really Armageddon, then gold will just explode.

In 1929, one ounce of gold could buy a block of houses in Berlin (Weimar/hyperinflation).

As I have posted before, I'll then be the first Mayor of Berlin who completely owns it (or London, or NYC, haven't decided yet).

Regarding the trust in fiat issue, I have completely lost it after spending a lot of time on money research.

The USD is backed to 90% by US-government debt. In other terms: the Dollar is green paper that promises

green paper, that hasn't been printed yet. Now, that's a good outlook. Especially with China & Russia slowly

getting out of the USD and buying real things, as long as they still can. China has announced the intention to

go shopping with its 1 trillion(!!) USD reserve (that's $1,000,000,000,000). Anyone honestly thinks that won't erode USD?

Furthermore, our friend the GBP, how is it backed? I don't know. I only know that most of the national gold treasure

was wasted in a vain attempt in the late 1960s to help the (then still pseudo-gold-backed) USD. Labour wasted the little

rest of it. The BoE has foreign currency reserves? USD? Well, congrats! The pound is backed by little sheets of green paper

that get useless soon (read above).

Buy gold. I am serious.

PS: As with everything, be patient. It will take average Joe some time to realize that USD is eroding. Our holidays in the

US are surprisingly cheap though, aren't they? :rolleyes:

PPS: Pundits think the babyboomers retiring will cost $ 60,000,000,000,000. It hasn't been reserved for, which is, why it

has to be printed. Good luck with fiat!

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Right, I'm setting myself to be flamed for writing this but there is a great deal of gold ramping and I feel compelled to write a counter point.

Because of the China and India affect we had a decade of historically low consumer prices, which have led to low interest rates, which have led to high liquidity which have led to high asset prices. It is no coincidence that bonds, stocks, property, commodities and gold have ALL risen against cash during such a period because they have all being driven by the same monetary engine. But that engine is reversing.

We now have the early beginnings of a credit crunch which will drop the prices in number of assets. Look at the US situation: gold, property and stocks all down.

Gold is an asset. It is not money and will never be unless a major government enforces it as legal tender and that's never going to happen. From what I see it's driven by the same evil credit splurge as everything else and will suffer the same fate now the rules are reversing.

The way I see it is gold is a hedge against inflation

No surprise that gold has done well the last few years. we've seen huge inflation but fraudulent inflation figures massively understating it

Now however, we are about to enter a deflationary cycle and gold prices will fall IMO. Cash will be king in the short term (Though not Sterling).

The expansion bank credit has yet to feed into the system. I think we will experience much higher inflation after an initial deflation of the world's economies. All in all, not a bad time to buy gold but I think the price will fall further yet

I don't think there will ever be a return to a gold standard!

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Is it best to buy gold through one of those websites that give you the deeds to the gold and then store it for you or actually getting a bar of gold and jamming it under your pillow?

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Not true. Cash is backed by government fiat. It is legally mandated currency. It also has an interest rate and a yield. Something gold does not.

Interest rates and yield are of little use to you if they are below inflation.

If the dollar goes pop, it will go to pop against cash in other currencies. The value of gold might then rocket in dollars terms, but not in pounds. Which would prove it's worth as an inflation hedge, but not as a safe haven in an economical recession.

ALL currencies in the world right now are inflating thier currencies. Money supply in pretty much every country right now is in double digits. Make no mistake, the pound is being inflated almost as fast as the US dollar! Its lost something like 97% of its value over the last century and what remains is dropping faster than ever. Noones' got any choice. One country alone could not stop this. With noone to buy their goods, their economy would be ruined..

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I see your point but all money is based on ( or suposed to be based on ) the amount of gold held by the banks. This is no longer the case, so cash (paper) actualy has no value except for the wide-spread but deluded perception of value loaned to it by us, the people.

Not true. Cash is backed by government fiat. It is legally mandated currency. It also has an interest rate and a yield. Something gold does not.

Once confidence in paper money dwindles ( as it will when the dollar goes pop ). Gold will again be popular as a form of unchangable wealth.

If the dollar goes pop, it will go to pop against cash in other currencies. The value of gold might then rocket in dollars terms, but not in pounds. Which would prove it's worth as an inflation hedge, but not as a safe haven in an economical recession.

Also the supply of gold is slowing with the worlds gold mines drying up as in south africa ( 84 year low in production ).

Also demand is rising from developing countrys like China and India.

They are saying exactly the same thing about land at the moment. Finite supply does not mean price increases, we know this.

I think that gold and silver will break away from other commodities sometime in the next year or so, after all, would you buy your girlfriend a lead necklace or an iron watch?

No. But when this recession hits, luxuries are going to be at the very bottom of the list when it comes to spending.

Supply and demand.. you'l see.

A farmer is likley to swap a chicken for an ounce of silver but he wont want to look at your bits of paper.

A, Cash is backed by govenment fiat? cash IS govenment fiat and is backed by nothing atall

B, If America's dollar collapses it wont be like Argentena, it will envolve the whole world. The dollar isnt just any old cash. (a bit vague but i tryed)

C, Luxuries will be scarce but weading rings will always be gold and India loves the stuff

Sorry dont know what your on about with the land argument.

:rolleyes:

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Answer to thedebtisreal:

Not true. Cash is backed by government fiat. It is legally mandated currency. It also has an interest rate and a yield. Something gold does not.

Exactly! I don't know about you, but my trust in Blair, Brown, Bush and Heli-Ben has never been higher. :blink:

If the dollar goes pop, it will go to pop against cash in other currencies. The value of gold might then rocket in dollars terms, but not in pounds. Which would prove it's worth as an inflation hedge, but not as a safe haven in an economical recession.

See my previous post. USD pop -> GBP poppppp! Only chance for GBP will to join the EUR. But it might be too late by then.

They are saying exactly the same thing about land at the moment. Finite supply does not mean price increases, we know this.

Yeah. But the real demand for gold hasn't even started yet. I recently read that if only 1% of german assets would pour into gold,

several years of gold world supply would be sucked up. Now, if only 0.01% of world-wealth will head for gold, the price will add a few

digits. That's sure.

No. But when this recession hits, luxuries are going to be at the very bottom of the list when it comes to spending.

Rich people will always be rich. Furthermore, in a recession the last thing you do is getting rid of your gold, i.e. supply

vanishes. This does not apply to houses, because houses are mostly owned by banks (mortgages!), whereas there are

no mortgages on gold out there. There is no liabilities on gold.

Convinced? Buy some today. It's cheap.

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Is it best to buy gold through one of those websites that give you the deeds to the gold and then store it for you or actually getting a bar of gold and jamming it under your pillow?

Hello there - first post, just wanted to respond. I've got a small amount of physical just in case armageddon's round the corner, but the majority is held with Bullion Vault. Same in proportion to Silver, but that's at Goldmoney. I hope I never have to draw on it.

For me, it's a hedge against inflation, a partial reader of credit expansion (if you believe what GATA and others say) and a store of value, nothing more, it's there for you to maintain your purchasing power. You shouldn't look to make money from it, if that makes sense. :blink:

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It does make me chuckle when you hear goldbugs bang on as if they are the only ones astute enough to sidestep the effects of a global financial meltdown. If you're a gold hoarder, at what price would you ever sell? If you take it to its logical conclusion, not until all your neighbours had died of starvation. A true goldbug would probably let himself starve before selling an ounce. Nutters.

Lead might become more useful though for protecting assets.

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