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<p>[QUOTE=&quot;InfleXion, post: 1709970, member: 29012&quot;]All value is in the eye of the beholder, the collective human consciousness, AKA the market. Without our perceptions there would be no such thing as value.</p><p><br /></p><p>Gold has no practical utility or critical function from an industrial standpoint (far too expensive to be worthwhile), but it does have one function that is relatively unique which is a barometer for currency strength. All metals share in this to some degree, but since the rest of the metals are practical for industrial usage their fundamentals are muddied which leaves gold as the only metal which is strictly monetarily based.</p><p><br /></p><p>Since gold alone holds this sole monetary distinction and not dual purpose role it is the most sensitive to monetary policy (when electronic proxy contracts are not superceding it in this role).</p><p><br /></p><p>So why does gold (and to a lesser extent the other metals) have this role? Because it is money. It was money before paper was money. Paper arose out of the need for a more <b>practical </b>medium of exchange, but gold as money arose out of the need for a <b>reliable</b> medium of exchange to improve upon barter.</p><p><br /></p><p>Why is gold (and other metals) the most reliable medium of exchange? Because of the 4 rules of a unit of account and a store of wealth: fungibility, divisibility, durability, and portability.</p><p>- Fungible: Any oz = Any oz from a value standpoint. Paper also suffices. Other commodities do not.</p><p>- Divisible: You can melt or cut up the metal and lose no value (minus collector premiums which are not relevant to money). Paper suffices insomuch as you can break a dollar for change, but you can&#039;t cut or burn your dollars and expect them to retain their value. The value in metals literally cannot be destroyed. They are elements!</p><p>- Durable: You can leave metals at the bottom of the ocean or in outer space literally forever and still retrieve them and their value. Dollars are somewhat durable but ultimately fail this from both the paper and electronic standpoint, but also fail from a purchasing power standpoint. The durability of their buying power is suspect where as metals cannot be manufactured and thus cannot be depreciated in the same manner. They can be depreciated by deflationary monetary policy however.</p><p>- Portable: Throw metals in your backpack and take them with you if you need to. Paper also suffices. A house, not so much.</p><p><br /></p><p>So as you can see there are many parallels between sound money and our current debt based fiat currency, but ultimately gold and silver arose to fulfill the need because they are the most qualified to do so based on their inherent and unalienable properties.</p><p><br /></p><p>This is why gold is typically a measure of currency strength, because it is the ultimate currency and cannot be devalued. Dollars only arose as a proxy for gold and silver because they were convenient, but measuring the price of gold or silver in dollars is putting the cart before the horse.</p><p><br /></p><p>Gold doesn&#039;t make a practical currency compared to paper and electronic dollars, but those dollars have no stability without gold. They need to work in tandem in a best case scenario, with gold keeping the dollars honest and the dollars providing practical utility.</p><p><br /></p><p>Additionally because gold is desirable for aesthetics and thus jewelry all the gold ever mined is still around. Over the course of human history it became accumulated and thus here was this inventory ready for use as money. Same thing with silver until the 1900&#039;s when we made technological breakthroughs with it.</p><p><br /></p><p><br /></p><p><br /></p><p>If the US defaults on the debt then nobody in the world will be willing to buy our treasury bonds because they know they won&#039;t get paid back (the Fed is already buying 90% of it anyway), but all the existing bondholders (China / investment portfolios) would also take a haircut and instantly lose a lot of value. This would likely cause a mass exodus from the huge bond bubble the Fed has created which would ripple throughout leveraged financial markets due to infinite chains of counter party risk and require a new global monetary system as all that leverage unwinds. I doubt the Fed would have the firepower alone to stem this, but maybe global QE could do so assuming other nations are on board.</p><p><br /></p><p><br /></p><p><br /></p><p>There are 2 different scenarios where gold and silver could become hyper valuable.</p><p><br /></p><p>In a hyperinflation the price of everything rises. Since gold and silver can&#039;t be produced out of thin air they and all other resources that are not easily reproduceable (as well as services) will rise in price to absorb the currency saturation. Rember that currency as a medium of exchange is simply a representation of goods and services. If you increase currency without increasing goods and services then they will rise in price. If you decrease the currency supply then they will drop in price as there is less money to go around that represents them.</p><p><br /></p><p>Or we could avoid hyperinflation, and if gold and silver simply returned to fair value based on historic norms they would be quite valuable. For all the money printing we&#039;ve done gold would need to be $8,000-$10,000 per oz and that&#039;s only counting USD, not all the other nations doing the same type of currency devaluation. Current mining ratio of silver to gold is only 7:1, but the available supply is more like 1:7. So maybe silver should be 7 times more valuable than gold, or only 7 times less valuable. We could temper expectations further and look to the historic mining ratio of 15:1 which would put silver at over $500/oz.</p><p><br /></p><p>If we return to a barter system silver will be far more practical for day to day transactions than gold, but they will both become de facto money because of their inherent properties that serve that purpose better than anything else. Their purpose arose out of the barter system to begin with.</p><p><br /></p><p>However, both gold and silver are more ideal for wealth preservation as initially in a barter system it will be things with practical utility that are more desirable, but if and when a new monetary system eventually shakes out it will be those with gold and silver who retain and expand their wealth, where as anybody holding paper or electronic assets will get the short end of the stick as everything reverts to its intrinsic value.[/QUOTE]</p><p><br /></p>

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