Friday, Jan 23, 2009
Gold stays solid as currencies soften
MoneyWeek: Gold stays solid as currencies soften
In the current economic slump, no country wants a strong currency. Every central bank may be tempted to inflate away their debt. That's good news for gold, the ultimate store of value.
Posted by damien @ 03:45 PM (828 views) Add Comment
20 Comments
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1. bellwether said...
Actually from its peak in March 2008 gold is down nearly 15% against the dollar and more against the yen so not actually proving a very good store of value over that period.
That said the recent moves up are looking interesting and break above $875 and then $900 an ounce would be very interesting .
2. mountain goat said...
The Disconnect Between Gold and Inflation
3. jackas said...
Bellweather - do the same for every other asset class - from peak. Then you will see gold's value. Particulary if you bought using sterling.
4. rumble said...
@Bells: Does it make sense to measure it's general behaviour from a single point of extreme?
5. d'oh said...
What is it with gold haters (I'm not a gold bug, but own some gold)...I just don't get it. I just don't understand why some people seem to get so offended by it acting as money, when they gladly accept electrons and pulped wood.
It is one of the few things that is more valuable this year than it was this time last year, in both USD, AUD, and GBP - the three currencies I am interested in.
6. bellwether said...
Sorry I was simply pointing out you would have been better in the USD or Yen rather than gold over the past nine months. It was never a statement about the essential worth of gold which is a philosphical debate that doesn't interest me that much.
7. bellwether said...
Sorry I was simply pointing out you would have been better in the USD or Yen rather than gold over the past nine months. It was never a statement about the essential worth of gold which is a philosphical debate that doesn't interest me that much.
8. D'oh said...
bellwether - I wasn't necessarily having a go at you in particular, just the attitude that is so prevalent on here sometimes. It isn't really fair to compare a peak with average performance. The general trend in gold has been upwards the last 7 years or so. Whilst other commodities have boomed and busted heavily, gold has behaved like money. Few other investments have done as well.
The yen is relatively strong at present, but Japan has problems too, and there may be a rebound from where we are now. We are at a strong historical resistance for the USD/JPY pair.
Last year, I was in both yen and gold, and have been happy with the performance of both. All I am interested in is trying to at least preserve the purchasing power of my hard earned savings in the face of an economic disaster that I saw coming many years ago and have (obviously) been powerless to do anything about. What frustrates me is that it seems impossible on this site, and many others, to have a rational discussion about gold. People seem to either love it or hate it, and this strikes me as being completely irrational. Gold, historically, has a dual role - as money and as a commodity - and this makes its behaviour interesting, yet most debates seem to involve those who view it as a pure commodity slagging off those who think it is money and vice versa.
9. d'oh said...
bellwether - I wasn't necessarily having a go at you in particular, just the attitude that is so prevalent on here sometimes. It isn't really fair to compare a peak with average performance. The general trend in gold has been upwards the last 7 years or so. Whilst other commodities have boomed and busted heavily, gold has behaved like money. Few other investments have done as well.
The yen is relatively strong at present, but Japan has problems too, and there may be a rebound from where we are now. We are at a strong historical resistance for the USD/JPY pair.
Last year, I was in both yen and gold, and have been happy with the performance of both. All I am interested in is trying to at least preserve the purchasing power of my hard earned savings in the face of an economic disaster that I saw coming many years ago and have (obviously) been powerless to do anything about. What frustrates me is that it seems impossible on this site, and many others, to have a rational discussion about gold. People seem to either love it or hate it, and this strikes me as being completely irrational. Gold, historically, has a dual role - as money and as a commodity - and this makes its behaviour interesting, yet most debates seem to involve those who view it as a pure commodity slagging off those who think it is money and vice versa.
10. jackas said...
d'oh,
I think its because conspiraloons, who are strongly berated on here, are nearly always gold bugs. The mistake people make on here is they tend to assume that means gold bugs are nearly always conspiraloons.
11. drewster said...
Jackas,
You're quite right. Gold appeals to the self-sufficiency crowd with their rural farm, arsenal of shotguns, and cellar full of tinned food.
D'oh,
Gold is 95% currency and 5% commodity. Its price pattern supports this view. The traditional disadvantage of gold as money is the 0% interest rate. However you now get effectively 0% on dollars, yen, or pounds. Gold is no longer at a disadvantage.
12. techieman said...
i have no truck with people holding gold (have done for years) although i think the performance of late is pretty poor and not what most of the peeps were forecasting. [ the market price is in $ if you want to make an issue with how much its risen in £ terms, then please just shut up and trade the currency - i do actually find that quite annoying and it demeans the argument ].
The issue i have is people saying we should go back to a gold standard - this is an interesting debate. The point is (from my perspective) that when on a gold standard things are determined by the amount of gold in existance - what happens if you find more?
I think the de-coupling from gold was a good thing. The problem is that we became addicted to money creation and ex a gold standard there was nothing to stop us becoming more and more addicted.
Now we are going cold turkey......
13. d'oh said...
techieman - the gold standard is interesting. In the 1440s there was real trouble in europe as gold was being exported to the east (China) to pay for trade goods and the shortage caused financial chaos in the West. Similarly, 100 years later with all the gold arriving from thre Americas, it caused huge inflation. However, these days, I suspect that the in ground "reserves" are well known and all the easy surface gold has probably been depleted, so I doubt we would the troubles with increase in supply that have happened in the past.
However, the real issue isn't gold versus fiat. The real problem is credit. Even when we had a gold standard (for example, the US in the 1920s) it didn't stop massive inflation of the amount of effective currency in the forms of promises to pay floating around in the system. That is what needs to be clamped down on. The one thing that is often not mentioned is that in 2003 (iirc) the US allowed banks to reduce their capital ratios, thus increasing leverage in the system. What I want to see come out of this mess is tighter regulation of credit markets. People need to be "saved" from easy money.
I suppose at one level an international gold standard might help prevent governments overspending and help prevent trade deficits from getting out of hand (by the threat to call in payment), but even then I don't quite see how it would completely stop these things. The other issue with gold is that I suspect it would lead eventually to the accumulation of wealth in a few hands. It is easier to redistribute wealth using inflation etc. than direct taxation.
14. bellwether said...
D'oh @8 I bought some gold via Bullionvault about 2 months ago and have seen a 10% increase since then so happy with that, and happy to invest more if the price is to accelerate up as many anticipate. Don't really see gold as any different from anything else that might make a return, although clearly it becomes relatively more valuable if society breaks down altogether. As Drewster says gold appeals to survivalists/outsiders who incidentally I think are actually hoping that the world as we know it will end because that will create an equilasation and start a new game, one that they believe they will win.
D'Oh@12 Similarly I think the belief that the gold standard cures everything is to misunderstand it's function and the limits of those. As its simplest if residential and commercial property prices had not risen so much in the west over the past 5 years this situation would not exist.
15. drewster said...
D'oh / techie,
Fractional reserve banking is the culprit you're looking for, not fiat currency. Thanks to FRB we have wild credit booms and busts.
D'oh - "accumulation of wealth in few hands"
Rich people don't sleep on mattresses stuffed with banknotes or swim in gold vaults like Scrooge McDuck. The rich own land, businesses, shares of businesses, and a few bonds. Gold isn't income-producing so it doesn't appeal to rich investors.
16. bellwether said...
Drewster I don't see it as a result of FRB but as a result of what can happen under a system that uses FRB.
The cause of this mess is exclusively the inflation of money supply based on specualtion in land and property.
It is no different from dutch bulb mania where market value of a bulb became utterly detached from its intrinsic value.
This happened over the past 5 years in relation to land (the return simply did not justify the capital cost) but worse we expanded the money supply to support and further inflate the artifical value thereby debasing the currency.
17. bellwether said...
There were of course other interacting factors which meant the ponzi scheme went on far longer than it usually does. We often wondered why land/house prices didn't fall sooner. The rise of the east had a lot to do with this, they were complict in this producing and saving as manically as we were borrowing and buying.
18. mountain goat said...
Techie - sorry I need to challenge you on the gold versus £ statement you made. [ the market price is in $ if you want to make an issue with how much its risen in £ terms, then please just shut up and trade the currency - i do actually find that quite annoying and it demeans the argument ].IMO it is the Dollar and Yen that has acted unusually because looming recession has meant a big repatriation of invested money to its owners etc. This has meant a big demand for $ and Yen, but is of course temporary. Without this they too would look like £ versus gold. The fundamentals, broke consumers, hpc, insolvencies, money printing by Central Banks should mean a weak currency. Also I think for the average person trading gold is easier than trading currencies. So no, the £/gold price is very meaningful too me. The best investment I have ever made (provided I sold right now).
19. bellwether said...
MG I am hoping that gold fires up and price and gives a good opp to make more however unless it is the end of the world wealth will stay in currency and it then solely becomes a question of which currency is stronger in realtive terms.
The market is not saying that the Japanese or American economies are in great shape they are just saying that relatively they are a far better bet than than the UK
20. bellwether said...
meant to say the majority of wealth would stay in currency, a increased portion going into gold does seem quite feasible to me