Magpie

No, this is a completely different point to that debate, in which I accept I was wrong. BV and GM are issuing a guarantee to give you your gold on demand. They store your gold, give you an IOU, promise, guarantee, whatever you want to call it. That's different to, say, a babysitting token, which is an unbacked token, same as fiat currency. But both share the fact that people voluntarily use a certificate or proof of ownership of some sort rather than directly exchanging goods. The first bank certificates were the equivalent of being able to transfer ownership of gold in a vault. They worked as currency because people trusted them. You were asserting that an IOU or token only works because of central bank coercion, which is balderdash. It works because for one of a variety of people both parties to the transaction trust in it. You don't actually have your gold. You have paper or electronic data that proves you are the owner. That system works because there is a cultural or political system that alows you to trust that promise, that you retain ownership. It is the system that allows people to trust in currency that matters, and it isn't necessary that it be coercive. Of course when gold was the currency, people preferred gold. Right now if I sold my lawnmower I'd prefer cash, as would 99.9% of the population. Paypal would do. Or a cheque with a guarantee card. I'd find gold a bit of a pain though as it would require me to make another transaction, selling it for cash, in order to use it as currency.

Totally agree with that post.

Balderdash. People accept IOUs for all sorts of reasons that are nothing to do with central banks, and have done throughout history. Random examples from now and the past: babysitting tokens (eg swapping services), early bankers certificates (before fractional banking and central banks). I use Paypal because I trust it enough. You accept IOUs from Bullionvault and Goldmoney because you trust them. The key thing that makes IOUs or tokens work is trust. People (mostly) trust money that is government backed because they believe it is enforceable in a society that is too big to operate on the basis of local babysitting tokens or whatever.

Yes, but there is frequently an attempt to go beyond the obvious truth (fiat tends to decline over time) to unverifiable theories about gold (eg it always buys the same value of goods, or the supply always expands conveniently in such a way as to avoid constricted supply being a problem with a gold standard).

So why always bang on about Rome in particular? Just wondering. Maybe because the use of gold in the Roman Empire is nice and clearcut for comparison so it always sounds good. Also, values of all sorts of thing vary against each other over time, gold, clothes, wheat, whatever. So that particular anecdote about a suit of clothes in Roman times and now is balls. Plus I'm unconvinced that we have detailed info on how much gold had been mined 2000 years ago. These myths may have a real point to make, but I'm always sceptical about such obvious debating points.

No, but I'll sell it to you for fifty quid. If you're selling a lawnmower on ebay do you demand buyers pay in gold? Must make life very difficult...

And why do all these goldbug myths refer to history going back to Roman times, I wonder. There's this one, then there's the old chestnut about how a gold coin would buy you a suit and a pair of shoes in the twentieth century and in Roman times. I suspect it's just far enough back to be impossible for people to check the historical facts easily, so you can make up any old crap you want about what gold was worth in Roman times.

That might be very approximately true historically, but it's a big logical leap from "the amount of gold per capita has remained more or less unchanged (at about half an ounce per person) since Roman times" to the much stronger "the amount of gold available grows at about the same rate as the population" - the latter implies it's a consistent growth (clearly untrue as there have been various surges such as gold rushes etc) and that there is something inevitable about it. I suspect it's a notion that has been wheeled out in the course of some 'gold is money' debate, thus. Gold-sceptic points out that the gold standard can be problematic as it prevents expansion of the money supply with population. So goldbug comes up with "the amount of gold available grows at about the same rate as the population" to vindicate continued faith in gold's perfection as money. Dodgy history, dodgy theory...

Oh, and didn't you notice, we already replaced gold as money with paper.

Fiar point, but I think my argument still means that expecting the gold/oil ratio over the next decade or so to be at historical levels may be rather misleading. Likely that oil will cost more in terms of gold than in the past over that period at least.

1) Gold being mined is only a small proportion of the market as opposed to oil where new oil is the whole market. So production costs are far more relevant to oil. 2) The prospect of gold depletion is of no great importance - there will still be gold around even if we mine it all. Oil on the other hand is burned and is of huge importance to the world economy as it currently operates. Guess which one is more likely to have its price affected by peak/depletion issues?

Exactly, I've said it before, but there are perfectly good reasons to think oil should be trading at a higher relative price than in the past.

I'll give you that one - since it might not protect your wealth in all scenarios, but in the ones that you are using it as insurance against, it will probably pay out.

If the prediction that gold beats inflation (and other alternatives) is correct then it's wealth preservation. If not I guess it's a gamble that didn't pay off. You're confident of the former outcome - you could certainly say that the intention is wealth preservation, but until that can be seen in retrospect one can't be sure if it's a winning bet or a losing bet, which kind of takes me back to the 'speculation' word.

More or less the same thing - except if you're buying in the belief that civilisation will collapse, you're buying because you believe or hope the future price rises will be higher than alternatives. Personally I see it as speculation rather than investment as I define investment in the old-fashioned sense as putting money into a project or company to support it in creating wealth. All you do with gold is buy it, hoard it and wait. Sounds about right.

Fabulous paranoia - up there with "reds under the bed". Does the guy think that true goldbugs speak no evil of gold under any circumstances? The WGC report seems pretty bleeding obvious to me - we've had a bull run as high demand has pushed the price up - at this stage it seems reasonable that demand (other than pure speculative demand) may be suppressed by higher prices and weakening economic conditions. There is probably a government attempt to deny the level of inflation - it is not identical with an attempt to suppress gold, and suppressing gold isn't the reason for denying inflation. Funny how too narrow a focus on one issue can make people appear completely mad.

Of course, that's one of the attractions. I was only making the point about whether or not you'd expect current production costs to set the price. In the case of oil, it is the oil being produced now that is the majority of the market, so production costs are all-important. Slightly less so with something like gold where newly mined gold is only one part of the market.

Welcome. It's true that there might be some blowback on the cost of mining gold, as with the cost of generating other commodities, but that shouldn't be enough to keep the ratio the same if the demand and supply situation has fundamentally changed. Apart from anything else, a barrel of oil is taken from the ground to be used - whereas gold that was dug up centuries ag is still being traded - a higher proportion of the gold market is unaffected by the cost of mining new gold. Oil is a very different problem to gold in a number of ways. It is a basic necessity, that the global economy relies on. There is still a fair amount of it left, but there is a fear of it becoming depleted, and growing demand from countries such as Chindia. We are fighting wars over oil, not gold. I can see a far better case for the idea that the real price of oil has increased and will continue to do so, than I can for the real price of gold. I'd say that's a danger of reading charts rather than examining the underlying facts. If the price of oil is going up for long term supply reasons, there's no reason to expect a reversion to the mean, in which case the idea that the ratio is 'bottoming out' doesn't make much sense. If it isn't, then maybe the ratio will go back to the mean. We'll see I guess.

Or, just possibly, it could be an indication that the supply and demand conditions have changed for one of those commodities, meaning that their equilibrium comparative value has changed. In other words, oil is running out and there is rapidly increasing demand for it. Basic economic theory suggests that might make it more expensive, whatever you measure the price in, gold, dollars, or bags of nuts.

I don't know her writing that well. The other thing I read by her recently was a rather cutting attack on Greenspan, which I thought was pretty good.

Baum, Brown, whatever her track record, I think she's making a fair point in the article, just that this particular stat isn't that big a deal. As she says, there are enough other things to worry about without finding new ones.

Rather good article here explaining why it isn't as scary as it looks: http://www.bloomberg.com/apps/news?pid=206...id=a7EAJelhvLh0

Oy, that is a bit of a vertical drop isn't it. The cartel must be angry that we're talking about them.

Good point. A strange accident of naming - the name comes from something completely different and was chosen well before I got interested in arguing about gold... I like gold, anyway. Just not as an object of religious awe.

I already read quite a lot of them. I mainly do that thing of dismissing them as "nutso goldbug stuff" to irritate you, but in truth I think some of them really help to give an alternative viewpoint on what's 'really happening in the economy', whatever I think about gold - because the goldbug point of view strips out a few assumptions that many economists take for granted. Not sure if it was one you linked to but I read one the other day about how Adam Smith never talked about 'recessions', only about dear years and cheap years. It's an interesting point, because it connects to one of the hidden assumptions of current economists - that permanent growth is 1) possible and 2) desirable - going back to Adam Smith makes you realise the whole Keynesian approach did a lot to cement this idea of permanent growth, permanent inflation as the only possible model.