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.

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

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.

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!)

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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?

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.

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..

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?

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!

Hello Gold Finger,

Yes, I do see where you are coming from. And to be honest, we WILL be purchasing some Gold upon our return to the UK.

As for bars or coins, I'm not yet sure which and will have to look into it more seriously.

Thanks for the article.

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!

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?

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




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..

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.

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.

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.

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.

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.

Lets hope it doesn't come to that.

That's a good one!

I would not sell below USD 1200, which is in my opinion the equilibrium price today.
But I expect it to go much higher, since markets are not rational. Just look at house
prices - another case where it's difficult to call the max. Inflation adjusted maximum
prices for gold in 1980 were around USD 2000/ GBP 900 per ounce. That might give
you an idea. Gold would have to triple from where it is now. But 1980 was not Armageddon.

EDIT: One could think of polluting central bank reserve gold radioactively, driving up
the gold price. But that's just me being Goldfinger, wuahahahahahaaaaa!

Fiat metals can be horrible investments. I sold my cache of gold sovs in the very early 80's when an ounce hit over $830. 30 years on and Gold is not worth $830 an ounce it is worth: $641.30. Almost $200 less. Add in inflation over 30 years and yer gold is next to worthless as a long term investment. The same amount invested in a conservative stock fund would be up 1000's of percent over the same time frame. When you compare gold to stocks since 1980 there is a clear winner and a clear loser. Gold stank.

That said, fiat gold is a good bet if you are a skilled market timer. Ride the huge waves and be lucky.

Gold is worth what the market declares it to be worth backed by the opinions of enough people willing to pay the fiat (or declared) price. Currencies, gold, commodities, services--it's all fiat. How much is a glass of water worth to a man about to die of thirst? More than a fiat metal?

If your a build a bunker, stock up and keep your head down kind of a guy like me (mad as a hatter helps too) then youl want your gold and silver in your hand when "armageddon" hits.

If not then trade on my friend trade on. If thair ever is a masive financial Armageddon then any gold in every bank will be confescated. Even if its stored in a Brinks Vault.

I absolutely agree with RB on that one. Now, here's the good message: gold is in a historical low price phase.
Just look at the graphs, they look like the one on the HPC frontpage, just the other way round. And then there
is also the fundamentals that look rosy. Did I mention that gold is a real bargain today, right this minute?

Realist Bear has a good point and he is always worth listening to.

I wander how much that early eightys $830 spike would be worth if it was to be repeated today?

I did this calculation a while ago. In 2006 £sterling, I made it something like £1200, but I can't find the exact calculation. Sorry that only helps a little!

Edit: Found it. My answer was £1017

Could be right. If you take the silly price of $830 back in, say, 1980 that translates to something around $2400 an ounce today if you add 300% for inflation? We are accordingly about 25% of the irrationally exuberant figure of the 1980's. Cut out the excess froth and lets say 50% of the irrational figure is viable for awhile. That means Gold could peak out at $1200 and not be as extravagant as the 1980's top.

If the preceding is right gold has another 100% to go before it peaks.

Might be worth a punt but I wouldn't put anymore than 5% of my cash holdings into the stuff.

Sold the black gold a few weeks back at 4.98 share after riding it all the way from 1.41 a year earlier. That is 300% for black gold (UKCoal) which was nice. Back down to 4.72 today.

Exactly, I don't think we'll ever get back to that kind of state. But, frankly, what or who would you put your trust in at that point if things became so serious?

If we do, I can see the government putting us back on the gold standard at least temporarily to try and restore a bit of order, but then again, there might not be a government left after everything has worked itself out

As an aside, I know it's been said on here before, but, I think it's worth repeating:- in terms of tangible value, gold has held it's own over the years - you can buy a decent suit for an ounce and, dating from biblical times, you could get it to buy you 400 loaves of bread - that still, as far as I can see, remains the case to this day. So measure gold in terms of goods and services, rather than in terms of FIAT value.

I don't know about building myself a bunker, might get a bit bored - am more tempted to head for the hills or the coast and do the whole Ray Mears/Bear Grylls thing.

In the book, "Goldfinger" by Ian Fleming, Bond goes to see an expert from the Bank of England to learn about gold. "The first thing you need to know about gold", he is told, " is that it is the only commodity in the world which you can take to any town or village anywhere and obtain goods and services in return".

I'm sure some women would beg to differ.

Hear, hear! And still, the BoE sold almost all their gold. They hold 311t today, compared e.g. with Germany that has 3500t.

Regarding Backseat Economist's post, as the 1970-80's proved, no Armageddon is needed to let gold climb to a max.
Also, nothing would be easier than introducing gold-backed money in our time, where everything is electronic anyway.
But then, there is e-gold already. Maybe in the midterm future we will just see several currencies competing. e-gold
is international, and already now people use it to store wealth.

Well said.
The bunker will keep me safe until the riots and hell dies down, then ill read up on Ray Mears and the SAS survival hand book etc and head for the hills. I must get around to buying that crossbow.

Id only give Ray an ounce of silver for his canoe though. I watched him build it.

er, from another thread earlier ...





make yer mind up!

Inert metals don't argue.

IIRC, US pilots are given gold sovereigns in case they eject over enemy territory and need a viable method of exchange (i.e. money)

No joke? I thought the Dollar could buy you anything. But then, in Iraq, Afghanistan, Pakistan, ...

Can't remember where I read it. This Orders and Medals Society of America thread says the practice has been discontinued, although posters affirm that the RAF & SAS used them in the gulf.

http://acoins.com/britsov.html says

Don't know if they still do it. Difficult to find anything definitive on the subject

edit: this seems fairly definitive on issuance to British military: http://www.pandaamerica.com/details.asp?it...=1&categ=10

Think getting a machete and a sharp stone will be a good place to start.

If you're Bear Grylls, why bother with a crossbow? Just catch the animal and eat it while it's still alive!!
He did that on last weekends' show, killing a fish by munching down on it's spinal cord!!!
Now that's what I call survival sushi!!

Sorry this is going off-topic isn't it?

John Prescott did something very similar on an old wrinkled Beaver, apparantly he has suffered no ill effects and says that most of the cabinet have done it also.

sometimes i get so hungry i could eat the ass off of a charging rhinoceros.

Sorry. well off-topic. Funny though.

Ill shut up now.

I have nothing to add to that except:

I dont get the armageddon argument, when people are worrying about where their next meal is coming from, who will care about a shiny metal? If I had 10years of tinned food in my basement, and someone offered me some shiny metal for it Id laugh at them! Gold is only useful as long as people perceive its worth. But its not really that useful to anyone outside the electronics industry. Maybe a 1000yrs ago, any self respecting king had to have a nice big fat crown etc, but thats not really relevant today. Using gold to show wealth died out years ago in Western culture - although admittedly enjoying a small revival in the limited bling bling culture.


Also, yes, you can print more money. But you can also dig up more gold...

OK.... I read somewhere that silver is more likely to rocket than gold due to various reasons like it being actually used in industry etc for circuitry.

I have started to buy more and will be get some more gold soon.

Just exchanged contracts on my house sale! Hoorah, hoping to have STRed by beginning of April so need to dump a few quid into metals.

Regards to all

Frank

Yes, but you think that saving for ten years for a deposit while house prices triple is good economic planning.



From where?