DangerMouse

Thanks for the concern. In truth I was ready to buy at $700+ but my research into the pros and cons luckily delayed me just long enough for this slide to start. Phew! But still looking on from the sidelines.

Frugalista, I don't really care what types of filaments they use in lightbulbs. It was purely to illuminate a point. And that is, do you think a government would ever get re-elected if they set an official inflation target of 5 or 10%? I'm no economist but I'm sure we've had growth and innovation since the end of the Dark Ages, not just in the last 100 years. Should everyone in the country be a speculator to protect the value of the wages he or she has earned that week? Or maybe they should all buy an asset like houses for an investment? As most people are primarily on this website because they have been priced out by house price inflation, are you really advocating BTL to protect against inflation? I take it that's your point of view - you have the right to your opinion as much as the next person...... I thought your question in the first place was very good btw

I agree with this viewpoint too. I now think of the 2% inflation target in the same way as the lifetime of a lightbulb. Please bear with me. They could make lightbulbs that virtually last a lifetime, but there would be no money in doing that! So instead a normal household lightbulb is designed to last just long enough so that you don't resent buying another one. So a 2% inflation target is set just low enough that Joe Public's savings trickle away over many years rather than washed away in a flood and making him extremely angry. Nobody asked me if I minded the government inflating away their debt by devaluing my savings.

I'm about to invest my first chunk of cash into gold. After a few sleepless nights of should I / shouldn't I, I seem to have been fortunate enough to see the price of gold dip. I'd like to buy now to take advantage of this dip, as I still think it's the right way to hedge part of my savings against inflation. My dilemma now is Goldmoney or Bullionvault, after discounting owning and storing coins. Both have something called bailment, which is I understand a law that ensures the gold is repatriated to me if the firm goes out of business. One key difference is that Bullionvault only allows gold to be sold into the bank account that bought the gold in the first place (seems like a good security measure to me) whereas Goldmoney allows you to use the gold to as payment to other accounts (although this sounds convenient it concerns me that may be a security flaw if your account becomes compromised). On that basis I will probably go for Bullionvault as I'm looking to store my (small) wealth not use it as cash. Are there any fundamental differences between the two that anyone knows of? Thanks - I realise I'm asking more questions than contributing at the moment. This site has been a really huge help in educating me in the ways of world finance. P.S. I think I realise now that gold is exempt from VAT but you will need to pay CGT on any fiat "profit" over your CGT allowance. I hope I'm not the only one to see the irony

I'm looking at making my first gold purchase and possibly my biggest concern is whether any money I make will be taxed. I'm trying to protect my savings from inflation,but this is not worthwhile unless it is tax-free. My favourite option at the moment is to have gold physically stored in Switzerland. Is there a tax implication if gold is held abroad rather than in the UK, or when I try to sell it back to pounds sterling at a later date? Does anyone know if tax laws have been changed in the UK for gold, especially recently or in times of previous high inflation. I wouldn't put it past our present Chancellor to make a windfall tax on gold if inflation really kicked off. Thanks!

I have been reading up on what is called "Broad Money" but am still a little confused. Any help from the experienced and knowledgable on this forum would be much appreciated. As far as I can tell, broad money in the US and Europe is measured by M3. In the UK, this our equivalent measure is M4 (but not necessarily the same?). I think I see the link between expansion of broad money and inflation, but have the following queries/thoughts (sorry if this has been covered many times on this forum - if so could you point me at a previous post where this is covered) 1) Is there a key difference between US M3 and our M4 I had seen a link where a US economist from the 70's said growth of Repo Rates and EuroDollars were the key inflation component of M3 that they watched for. Is there an equivalent of these included in M4? 2) Is M4 alone a measure of money growth, or is it the difference between M4 Lending and M4 (M4L - M4)? 3) I read that a good rule of thumb is (Growth in M3 - Growth in GDP) = inflation I can only seem to find good historical stats from the US rather than Britain, but I still can't see a good pattern emerge from the high inflation 70's. Can anyone help out? Two more thoughts occurred to me from this one (i) Does inflation lag the growth of M3 by a year or 2? (ii) Is this really a true equation? If Money Supply grows, then could an increase in GDP just be a reflection that x billions of pounds is now worth slightly less and so the increase in GDP could be made up in large part of inflation,rather than producing more goods and wealth? It seems like I should be able to find this information for myself but having pored over the internet for a couple of days I don't feel I'm any further forward. Many thanks, DM

BuyingBear, first of all an apology. I seem to have read so many posts on this site I mixed your name up with another Bear in my last post. Prob my last post on this thread, but it's been very theraputic. I always had a rough idea that inflation was an inevitable fact of life and that raising interest rates somehow curbed inflation and lowering them too much increased inflation, without really understanding what was going on. But I think the key thing I've realised here this week (and please correct me if I'm wrong) is inflation is only inevitable when a government "prints" extra money by increasing the money supply. And one reason money supply increases is when interest rates are low enough that the BofE will lend more money (net) than is being saved, producing fiat money out of thin air. When interest rates go high enough, more people are prepared to save until the net effect is money supply slows, or in extreme cases decreases. Whether that is in fact true, at least that now makes sense to my thinking. And in the case of Japan, I guess more people have been saving for a long time causing previously created fiat money to disappear in a puff of smoke - making cash in your pocket for once more valuable than it was a year before as the money supply has decreased. Again, please pull me up if I've got some fundamental flaw in my thinking, but it seems most on here agree. Boom & Bust, if I'm right, it's not expanding the money supply too fast that is causing inflation, but the actual act of increasing of the money supply at all? Still I am very new to this way of thinking and I'd be very interested to know if inflation has a 1 to 2 year lag on the expansion of money?? Do you have any figures on that? Thanks. If that is true then we might just be at the crest of super inflation?? My motive now is to buy some asset that is inflation proof. Buying an overpriced house right now means incurring an overbearing debt. To protect my deposit for the years ahead I'm now looking into the best way to invest in gold or silver. It may fluctuate in monetary terms but I am now convinced it will hold it's value in the long run! Of course, I need to also convince Mrs DM

Thanks again BufferBear, that is a really good link. I think it was on here reading about the Fed stop reporting M3 that really got me starting on this whole thing. Makes me kind of worried what's going to happen. I've found some more info on UK Inflation Apologies if this is old news to everyone on this forum but it was quick an eye opener for me. Page 10 to page 15 has a Price Index table, showing that prices doubled from 1750 to 1800 and stayed more or less constant until 1914. Then prices really took off and a graph on page 16 looks more or less an exact match for the M3 growth in your link! So apart from WW1, what happened in 1914 I wondered. I then found this link on the History of Currencies On Page 10 "The pound sterling was the primary international currency until 1914. The Bank of England, in effect, became the central bank for the world and managed the international gold standard through interest rates, and it acted as a forerunner of the European Central Bank. The specie-flow mechanism maintained the system of exchange rates. If a currency became overvalued, gold would flow out of that country and into other countries, restoring the exchange rate to its normal level." "The gold standard worked smoothly until August 1914 when World War I forced countries to suspend their currency conversion. Countries were then free to print money they could not raise through taxes in order to fight World War I, but high and varying rates of inflation resulted." Okay, I think I'm pretty convinced now. Expansion of money (M3 or M4) IS inflation. Or is it that inflation is the effect of this expansion? Either way, it looks like it's a very close correlation since 1914 !!!

Thanks for the replies! Please use or embellish the analogy of you think it works. I honestly felt like I'd had a kick in the stomach when the realisation struck me that maybe, just maybe, the only reason we had inflation was the printing or creation of more money by governments, effectively taxing my savings by stealth as one weblink put it. Still I feel better today and maybe this is the first step forward in protecting myself against future inflation. BuyingBear, thanks for the link to M4 and good point that it is the value (got to remind myself not to say price) of land that has stayed roughly constant, not the house that sits on it. I see what you're saying. I always remember from growing up that a rule of thumb was prices approximately doubled over 10 years. With my dodgy maths, I make that a devaluation of 7.2% per year. Not an exact science but if that was the norm when I was growing up then a 13% growth in the money supply this year is really frightening! Do you know of any good sources of info that has historic groth of the money supply and how it relates to the price of gold, land, or any other asset over the last century. I realise that may be a bit simplistic as we trade with other countries and currencies which will be expanding their money supply at different rates, but it's a good starting point. I have lots more questions bouncing round my head now but I'd like to get stuck into some historic numbers if anyone has anyone good links out there.

I've been lurking on this forum for over a year now, reading lots of interesting threads and news blogs about the housing market. But all this talk of gold over the past few months has got me reading a few links on the subject, and yesterday evening I had what I think they call a moment of clarity. Bear with me as I'm not a trader and this concept of Fiat money has been completely alien to me. But yesterday reading up on gold-backed currencies and Fiat money systems and how the expansion of the money supply is in effect a tax on your savings, a picture analogy popped into my head. Basically I read historically the value of a gold sovereign would buy you the equivalent today as it would have a 100 years ago for example a suit, even though the monetary value of the sovereign has increased greatly. My vision was of standing in a slow moving river beside a bridge. As the water passes by me, I get the illusion of moving upstream, getting further up relative from the water that has just passed me by. If I stand in the river for a few hours, I am now maybe a few miles upstream from the first particles of water that lapped around my ankles when I first stood in the river. But when I look around me, I am still standing beside the bridge and I haven't moved. So the analogy (as far as analogies go) is that the water is paper or fiat money, passing me by and devaluing as it heads downstream, to be replaced by more new money that has just been created (I guess in the mountains . The faster the rate of increase of the money supply, the faster the river flows and the faster the value of my money flows away from me. But if I had been standing on the bridge (that is my money savings were in gold) I would not have lost any inherent value. Obviously try not to take my analogy as a serious financial model, but I then had a second thought. If that meant gold had never really changed it's inherent value (just the money supply had devalued) then what if other assets were like that too. What if House Prices had never really changed in value over the last century(based on 3.5 average salary), but property and gold were two ways of protecting your wealth, IF you owned either. So I'm not sure what that means for investing in gold now after a bull run, but it struck me that even in a high interest bearing account, my savings are devaluing by the day as long as the money supply continues to expand??