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#1 thedebtisreal

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Posted 14 March 2007 - 12:01 PM

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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#2 dnd

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Posted 14 March 2007 - 12:05 PM

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, 14 March 2007 - 12:07 PM.

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#3 Goldfinger

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Posted 14 March 2007 - 12:08 PM

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, 14 March 2007 - 12:09 PM.

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#4 thedebtisreal

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Posted 14 March 2007 - 12:17 PM

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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#5 IMHAL

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Posted 14 March 2007 - 12:18 PM

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.

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#6 domo

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Posted 14 March 2007 - 12:24 PM

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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#7 thedebtisreal

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Posted 14 March 2007 - 12:26 PM

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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#8 Selling up

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Posted 14 March 2007 - 12:27 PM

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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#9 Charliemouse

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Posted 14 March 2007 - 12:29 PM

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, 14 March 2007 - 12:36 PM.


#10 Nicholas Cage

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Posted 14 March 2007 - 12:35 PM

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.

#11 Goldfinger

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Posted 14 March 2007 - 12:36 PM

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.financial.../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, 14 March 2007 - 12:36 PM.

"...finding a buyer at a high enough price is like ``grasping an eel...'' -- William Hill link
"Looking at house prices now ... - they are priced in yesterdays credit market and not today's ..." -- Munimula

Gold AND property, currencies, commodities charts
CTT ContraBoost™ can help you to overcome DDDS.

#12 Goldfinger

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Posted 14 March 2007 - 12:39 PM

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, 14 March 2007 - 12:41 PM.

"...finding a buyer at a high enough price is like ``grasping an eel...'' -- William Hill link
"Looking at house prices now ... - they are priced in yesterdays credit market and not today's ..." -- Munimula

Gold AND property, currencies, commodities charts
CTT ContraBoost™ can help you to overcome DDDS.

#13 Willy Weasel

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Posted 14 March 2007 - 12:46 PM

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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#14 LargelyIgnorant

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Posted 14 March 2007 - 12:47 PM

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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#15 thedebtisreal

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Posted 14 March 2007 - 12:52 PM

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.
"It should, but we don't live in Shouldland! Ah, Shouldland, where clean-cut kids cruise Shouldland Boulevard, and the Shouldland High football team gets their optimistic asses kicked by their crosstown rival, Reality Check Tech."




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