Gold new price & Dollar's weaknesses!!

I guess what I should have said in simpler terms was no matter what happens to international currencies, a dollar will always be a dollar, a yen a yen, a euro a euro and so on. Gold has no such backing or monetary anchor. It's a chunk of metal that has no official monetary value whatsoever. So, when investing in something with essentially no backable value other than market response, there is no security there that can't be attained by sticking to traditional investments and hedges. If I were brave enough to publish my personal portfolio on here, which I'm not, I could prove that I've outperformed gold every time by doing just that, even during the past two years. Gold is fun to own, but don't look to it as a financial savior.
Guy~

 

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TOKYO (Reuters) - As the dollar's dominance fades with the emergence of a multipolar world, gold may stand to gain the most of all assets thanks to an unlikely quality -- neutrality.

While no major currency is likely to replace the dollar anytime soon, the need for an alternative is clear, and growing. China among others is considering how to diversify its more than $2 trillion in foreign exchange reserves; talk of using other currencies to trade oil or commodities continues to circulate.

Supply constraints mean there is no chance of a full revival of the gold standard era, when currencies were pegged directly to gold, but investors say gold's duel role as both currency and asset make it an almost irresistible buy for years to come as financial geopolitics add risk into global markets.


Full article here:

http://www.reuters.com/article/hotS...BX20091007?pageNumber=2&virtualBrandChannel=0

 

Interesting article, fools gold, and something I do see happening, though I don't think it will work for long. Maybe someone can shed light on my reasonings for thinking this last rise in gold prices is no more than a bubble. Within an hour's drive from my home is one of, if not the largest, concentrations of gold mines in the US. More than 90% of them have been shuttered since the early 90's when gold took a tumble, and have yet to see it profitable to re-open. Many friends have lost their jobs, their homes, some their families because of this. I would think if anyone knows the cycle of gold fluctuations better than anyone else, it's the people who produce it, like in any manufactoring sector. So, why have they seen fit to not open the mines again if the prospects for gold appear so great? What are they seeing that most here are not? Like any investment, I look at what the people in the know are doing instead of following the panicking throngs.
Guy~

 

Knowing people in the know is always a great way to measure reality versus hype. Then again, I guess it also depends on your sources.

I see that you're from California? Could it be that since the time it closed, there have been new regulations/policies preventing it from opening again? I know that a lot of businesses are leaving Cali, so maybe that has something to do with it and that they don't feel like having the state use their business as an ATM machine? LOL.... just speculating of course...

BTW, I forgot to mention this, but I pray that we do not ever ever go into a bartering society. I'm prepared to deal with some high prices(just not Zimbabwe prices), but not a total collapse of our system which can introduce local gangs/mafia like what Russia has.

I don't know if anyone is cheering for that but the punks themselves.

If that were to ever happen and America is stuck looking like Russia for the next 20 years, you're practically better off moving out of the country...

 

I agree. As far as the mines, you may be right. One is in AZ and a few in NV though, but I don't know about regulations or anything. I've just always wondered why they wouldn't want to take advantage of the rise in prices. Even if it's temporary, I'd think it would be worth their efforts, and if it's permanent then they would do quite well. Heck, if it keeps going up, I may take up gold mining
Guy~

 

Coleguy - I suspect a significant factor concerning profitability of the mines you are speaking of can be traced to environmental compliance.

The DXY right now is 76.44, which is a decline from 81.50 where it closed at the first of the year but is still higher than March 2008, 71.41, when Gold first reached the 1000 dollar mark.

 

You can look at that farm land that's been in the news lately that has had their water shut off for those little fishies.

I think the polices protecting mother earth is now pushing humans out of living and producing in Cali. But the environmentalists don't see it that way.

But I won't get into that, that subject alone can take us off topic...


It would be good to find out if there are any profits at all. You may find that investors will reveal that Cali takes too much of a chunk of their profits making it pointless and even financially risky for them to reopen those mines..

 

mining

Does anyone remember the time two mines collapsed in one week?
Yup they were coal mines I think. But does that bring about new safety checks and OSHA regulations for all mining?

 

This is misleading. There is no advantage to a GOLD-BACKED currency, as you state. It is a fraud and excuse for confiscating gold. But what this overlooks is that GOLD IS MONEY. If you permit gold [and silver] coins to freely circulate as money, and reopen the Mint to the free coinage of gold and silver, and permit any paper bank currency to be freely converted to gold and silver with a prohibition against fractional reserve banking, the problem disappears.

Also, economic growth isn't restricted at all, just as it was not in the days prior to the Federal Reserve Note. Your perceived constraints are a restatement of the old quantity theory of money. In practice, the free market resolved those constraints through the self-liquidating bill market which permitted a huge amount of trade to take place with a relatively small number of circulating gold coins and very little movement of gold between countries. Of course, under this sort of system there is no inflation other than from massive new gold discoveries. Instead, there would probably be a slight deflation equal to the growth in productivity. So instead of your savings losing purchasing power, they would gain. All of this is documented history. Professor Antal Fekete has written extensively on how the gold system used to work and how it would work if instituted again. Many people think they know, but few have ever deeply studied the gold-as-money mechanism.

Of course, it will never happen so it doesn't really matter. The universities make sure all students of economics graduate with a disdain for gold.

 

Needless to say, I disagree with much of what you wrote.

There are no contradictions at all once you accept that gold IS money and therefore doesn't have a price in the Federal Reserve Note sense of the word. It has a weight [a dollar is .77344 troy oz of fine silver]. And paper dollars would not be BACKED by gold, they would be RECEIPTS for gold. And fractional reserve banking has nothing to do with whether or not the currency is fiat or metal. It would be replaced by self-liquidating bills of credit as existed under the gold standard. And there certainly is enough gold and silver to replace the approximately $1trillion in coin and currency if the purchasing power is restored to its natural pre-World War I level plus the new mining that would be encouraged if gold was money again. The world didn't switch to fiat because there wasn't enough gold for commerce. The London bill-clearing houses functioned extraordinarily well to service world commerce. The governments switched to fiat so the had enough resources to fight World War I without paying for it through taxes. The ability to print money is the mechanism that enables perpetual war.

You are correct that prices will go up indefinitely, but not because people ask for raises. It is because the system is unstable and requires new injections of fiat money every year to service the mounting debt because while the Federal Reserve creates money to back the Treasury debt principal, it does not create the money to pay back the ever-compounding interest. So without inflation, the economy dies in a deflationary collapse. Stability is impossible. With inflation, anybody foolish enough to save money loses. A penny saved is a penny of lost purchasing power. Continuous wage increases for the cost of living are unnecessary when prices are stable.

But I agree that this won't change.

Edit: Anyway, I think this was a valuable exchange because while we probably won't change each other's opinion, the reader at least gets to read both sides of the story and can do further research to make up their own mind. Thanks.

 

Ok, this brings up whats probably a dumb question, but one I don't know the answer to. If stability in inflation is unobtainable and will continue forever, which seems to be an agreed upon scenario, then what good is it to trade currency for metals to hedge against the inflation, when inflation has also always redefined the value of currency throughout history? In other words, yes, things cost more, but in turn we make more, like in the neverending cycle pointed out. So in reality, money never really loses ground. If it did, we'd still be earning 32 cents a day. So, while gold may be a decent temporary hedge against weak currencies, doesn't it stand to reason that those currencies will, as they have since there's been inflation, catch up and stabilize again? Recessions are nothing new. If everyone that hoarded assets during each one gained what many here think they'll gain by investing in gold, there'd be 50 times the millionaires there are today. This reminds me of all the people who spent their life savings on generators and stockpiles of food for when the world returned to the stone ages after Y2K.
Guy~

 

coleguy, the part you are missing is that while wages and prices tend to keep pace with each other as inflation continues, the same cannot be said of savings. If someone spends all that they make, inflation is a virtual non-issue unless they are on a fixed income. But for someone who wishes to save money, they have to earn an after tax return equal to the inflation rate just to stay even. Over the decades, this hasn't been easy and requires you to purchase some sort of asset such as stocks or gold or real estate to maintain the purchasing power of your savings. If there was no inflation, a dollar saved would maintain its purchasing power until the time you needed to spend it. And, no, currencies never catch up again. Inflation is a one way street. Gold used to be $22 per ounce and silver $1.29, but no matter how long you wait, those prices won't return. And 50 years from now people will talk about the good old days when gold "only" cost $1000 per ounce.

That's just the way it is, but as Keynes said, not one man in a million will figure it out. That's why fiat currencies are tolerated.

 

Well then, take the price of almost anything else you need to live -- bread, milk, cars, insurance, property tax, etc. Those prices are not regulated, but they will never return again.

 

Wow you guys have a really deep understanding of this stuff. Do any of you recommend any books on the history of currency? As much as I'd like to learn about how our systems works now, I think it would help if I learned the history first.

A friend of mine told me about bimetalism and I had no idea what that was. So I'd like to play a little catch up....

 

I think this is where a lot of people get confused. The currency doesn't necessarily keep up throughout history. It may seem like it does but it's not.

Knowing what you know now, if you could go back 10 years, would you stick $250 in a savings account like the banks wanted you to do or would you buy an ounce of gold? It's the same $250 cash we use today!

Next question. Was it easier for you, or for most people, to purchase an ounce of gold in 2001 for $250 at your pay then?

Is it just as easy (or easier) for the average guy to buy an ounce of gold at $1,054 today at their 2009 salary? Has anyone's income increase that much? That's why people purchased it.

Some may say the last 8 years have been an anomaly over the long history of it and it performed poorly for a long time. Ok. Fine. But this is what a lot of people predicted would happen eventually and now it seems like there's a lot of people who are sour over it because they didn't get in at the right time themselves.

The problem I see with FRNs is that things happen over time that destroys the buying power. Now I know a lot of people feel that this will forever be but "just a little nuisance" as everyone's wages and income surely keep up with the destruction. They feel that way because it's 'somewhat' been that way over the course of (only) their lifetimes so that it must be. So it must surely remain that way forever.

Yeah right. Some will keep up. Some won't. Do you expect that to get better as time goes on or worse? I don't believe wages really keep up with the cost of everything like people think. Not by a long shot.

 

Great post. Helps to really clear things up.

The average person's wage clearly does not keep up, and that's IF they even get their 2% raise per year. I am so glad that I have decided to put in a lot of energy into understanding PM's. Only wish I could have done it sooner but I still feel like I came in at a reasonable time with Ag still under $20.
And with Ag still at around $1000. (but now breaking records at record speed).

 

Interesting points. I've never kept any substantial savings in banks so I never considered inflation effecting it. My savings have always been tied up in stocks and real estate where I've always done quite well regardless of inflation. I guess I've always been lucky enough to be immune to such things as sinking currencies. But I don't think any of us will be alive to see the days when 1000 dollar an ounce gold was the good old days.
Guy