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Serious Gold / Inflation Question

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http://www.bullionvault.com/gold-price-chart.do

I just had a 'moment' looking at gold just now

At the risk of looking this a bit too simplistically here, isn't the fact that gold going almost 3 fold in the last 5 years or so, good for keeping inflation minimised. i.e. if all that fiat is getting soaked up by an effectively unproductive commodity, surely this is helping to keep massive inflation at bay?

I apologise in advance if I've overlooked some glaringly obvious flaw in my theory.

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BB,

alas not.

A rising gold price isnt a sponge for excess cash. If you buy some gold, all that happens is that someone else now has the excess cash, with which they too can use to bid a bit more for something than they could have the day before.

Gold is good inasmuch as it indicates that there is an inflation problem that needs to be dealt with. It doesnt cure the problem though. Well perhaps it does if you buy gold, because your problem with inflation is cured, even if it isnt for everyone else.

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BB,

alas not.

A rising gold price isnt a sponge for excess cash. If you buy some gold, all that happens is that someone else now has the excess cash, with which they too can use to bid a bit more for something than they could have the day before.

Gold is good inasmuch as it indicates that there is an inflation problem that needs to be dealt with. It doesnt cure the problem though. Well perhaps it does if you buy gold, because your problem with inflation is cured, even if it isnt for everyone else.

Of course, Doh! I thought I was looking at it too simplistisically. Thanks for enlightening me.

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BB,

alas not.

A rising gold price isnt a sponge for excess cash. If you buy some gold, all that happens is that someone else now has the excess cash, with which they too can use to bid a bit more for something than they could have the day before.

Gold is good inasmuch as it indicates that there is an inflation problem that needs to be dealt with. It doesnt cure the problem though. Well perhaps it does if you buy gold, because your problem with inflation is cured, even if it isnt for everyone else.

Not if it was banks buying from J6P. Dis-inflationary.

Edit: Sorry, selling. Buying would be inflationary.

Edited by Alan B'Stard MP

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BB,

alas not.

A rising gold price isnt a sponge for excess cash. If you buy some gold, all that happens is that someone else now has the excess cash, with which they too can use to bid a bit more for something than they could have the day before.

Gold is good inasmuch as it indicates that there is an inflation problem that needs to be dealt with. It doesnt cure the problem though. Well perhaps it does if you buy gold, because your problem with inflation is cured, even if it isnt for everyone else.

This is true, unless the gold is being sold to repay debt.

In that case, it would act as a sponge because the debt would destroy the credit.

But I have no idea what percentage of gold sales are to finance debt repayment.

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This is true, unless the gold is being sold to repay debt.

In that case, it would act as a sponge because the debt would destroy the credit.

But I have no idea what percentage of gold sales are to finance debt repayment.

Or, typically in a bubble, money is borrowed to buy more of the asset and so that is creation of credit. Or maybe "Gold Equity Withdrawal (GEW) would also create money? :)

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Gold is good inasmuch as it indicates that there is an inflation problem that needs to be dealt with. It doesnt cure the problem though. Well perhaps it does if you buy gold, because your problem with inflation is cured, even if it isnt for everyone else.

Buying gold is only a band aid 'aolution' to inflation since you will still need to unload gold for fiat currency to buy stuff.

If you buy back into gold then you must do so at a vastly inflated rate.

If you were getting paid in PMs at the same rate each week then that would be a good solution.

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Can any of the older readers here, confirm that a 1oz Krugerrand was £800 in 1980?

Today it is about £900.

If I could buy a house at 1980s price, I'd jump to it.

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This is true, unless the gold is being sold to repay debt.

In that case, it would act as a sponge because the debt would destroy the credit.

But I have no idea what percentage of gold sales are to finance debt repayment.

Well I grant you that. Can debt be taken out to buy gold? So perhaps my first answer is wrong, it could be neutral, inflationary or disinflationary.

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You need big balls to buy at today's prices, but there again iv'e felt that for ages.

At a guess, i think there will be a delay in QE3, maybe to let things cool down and not to make the FED look so desperate. There will be a correction in most things and a bounce in the Dollar. Then when not if QE3 comes commodities will take of again.

So all in all, maybe a correction and a time to load up, before the next push.

I don't own gold by the way.

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Or, typically in a bubble, money is borrowed to buy more of the asset and so that is creation of credit. Or maybe "Gold Equity Withdrawal (GEW) would also create money? :)

The elite and the banks do not want people buying gold as it is bad fro their corrupt business models, so they are not in the business of loaning money to people to buy gold on leverage. As an example of this the Chicago Mercantile Exchange that deals with futures on gold and silver (amongst other things) in the US has recently hiked margin requirements several times on the long side of gold/silver contracts to reduce the amount of leverage investors can use to speculate on gold/silver going up (and therefore try to force the price lower). First time they did it, it cooled the price for a few days, each subsequent time they've done it the buyers have rightly smelt a loss of control and fear from the authorities, hence the recent gains in Precious Metal prices.

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The elite and the banks do not want people buying gold as it is bad fro their corrupt business models, so they are not in the business of loaning money to people to buy gold on leverage. As an example of this the Chicago Mercantile Exchange that deals with futures on gold and silver (amongst other things) in the US has recently hiked margin requirements several times on the long side of gold/silver contracts to reduce the amount of leverage investors can use to speculate on gold/silver going up (and therefore try to force the price lower). First time they did it, it cooled the price for a few days, each subsequent time they've done it the buyers have rightly smelt a loss of control and fear from the authorities, hence the recent gains in Precious Metal prices.

It's a shame they didn't do the same for houses 10 years ago. :)

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Here's the thing that puzzles me- who are all the numbskull holders of gold who are presently selling it for paper money?

The logic of gold as a defence against fiat devaluation would seem to be undermined to the exact degree you can pay fiat money to buy it- unless those selling are either fools or do not themselves believe in the idea of Gold as an inflation hedge.

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Guest spp

You must have missed my SILVER/Gold warning almost a year to the date on the PM thread.

Here is M Faber today -

Edited by spp

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Can any of the older readers here, confirm that a 1oz Krugerrand was £800 in 1980?

Today it is about £900.

If I could buy a house at 1980s price, I'd jump to it.

Yes it was - do you want the house with a 15% interest rate mortgage as well? Be careful what you wish for!

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Here's the thing that puzzles me- who are all the numbskull holders of gold who are presently selling it for paper money?

The logic of gold as a defence against fiat devaluation would seem to be undermined to the exact degree you can pay fiat money to buy it- unless those selling are either fools or do not themselves believe in the idea of Gold as an inflation hedge.

Some people buy it cos it is going up, and then they take their profits.

I wouldn't say it is numbskull, as much as a sensible policy in case you are wrong.

People have been wrong before.

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Some people buy it cos it is going up, and then they take their profits.

I wouldn't say it is numbskull, as much as a sensible policy in case you are wrong.

People have been wrong before.

It cost's money to get into and out of physical. Your better off spread betting if your going to buy and sell.

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It cost's money to get into and out of physical. Your better off spread betting if your going to buy and sell.

Well I wasn't talking about short term investment, but say holding for 3 1/2 years and then taking some of the profit in order to realise you're gains.

Edit to add, I take you're point but wasn't thinking in those terms.

Do the spread prices of gold affect the physical prices?

Edited by bobthe~

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Are kruggerrands comparable though? I have no idea, but S Africa was a different country back then and subject to some trade restrictions IIRC.

£250 in 1981 would be around £750 today I think, there is a premium on buying and selling gold but I can't see why a kruggerand would cost that much more

even during a spike.

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£250 in 1981 would be around £750 today I think, there is a premium on buying and selling gold but I can't see why a kruggerand would cost that much more

even during a spike.

Scarcity? Coin collectors? That was really why I was asking the question. Wondering whether it was a good example.

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Here's the thing that puzzles me- who are all the numbskull holders of gold who are presently selling it for paper money?

The logic of gold as a defence against fiat devaluation would seem to be undermined to the exact degree you can pay fiat money to buy it- unless those selling are either fools or do not themselves believe in the idea of Gold as an inflation hedge.

Some are weak hands, that believe the bubble hype, only to sell and see the price march higher. Others sell gold to cover debts, or to release capital for other projects/reasons.

However, in order for gold to march higher, in general there has to be fewer sellers than buyers (basic supply and demand) and the higher the price goes the larger that differential gets.

So what you are actually seeing as the price continues to rise is less people selling and more people buying, i.e. a growing realisation in the market place that gold is not something you should be selling and something you should be buying. As this realisation spreads the price will move higher and higher as supply becomes tighter and tighter relative to demand.

Anyway, the logic of gold as a defence against fiat devaluation is hardly undermined by the fact that as fiat is devalued the amount of fiat required to be exchanged for an ounce of gold is rising, i.e. people will no longer exchange it at the pre-devalued rate and demand more 'worth less' fiat.

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Zerohedge today has 2 or 3 articles on gold and silver that are more juicy than their usual gold and silver articles.

You start reading the comments and you get some balanced views then, inevitably, the comments descend, IMPO, in the Yank mentality that the end of the World is a few years away at most. Dollar crashing to nothing, world trade suspended, no one trading because fiat currency is worthless and, of course, everyone will be wanting the gold and silver that they physiclly hold.

It is a mindset that is typical of a certain grouping of American that, IMPO, is often naive about the way of things in the World. I often wonder if any of the Americans who post such comments have ever visited a country outside of the US.

You know, it is all that "I fought in 'Nam man!" , "You will have to prise my gun from my cold dead hand" kind of stuff, log cabins built in forests in the back of Montanna with a big supply of vacuum packed food.

FWIIW, I think that the we are about to see a crash in commodities and in stocks with a rise in the US dollar - probably as a result of the US Fed raising IRs and stopping QE. But it will onyl be a temporary respite as the crash in commods and stocks will be the excuse for the Fed to bring out QE3 and the whole thing will take off again.

I could be wrong, but I don't see the end of civilisation as we know it.

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Well I wasn't talking about short term investment, but say holding for 3 1/2 years and then taking some of the profit in order to realise you're gains.

Edit to add, I take you're point but wasn't thinking in those terms.

Do the spread prices of gold affect the physical prices?

Well you have a valid point there, if someone had been holding gold for 3 1/2 years then they would be holding large profits depending on what currency they transferred in from. Then they might wan't to take some profit it would be very tempting.

Spread betting tends to be mostly intraday so would only affect the daily price.

I hope they pause for QE3, then i'm loading up.

You can come back and quote me on that. It's looking very ominous on a daily basis.

Edited by neil324

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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