romans holiday

I am the laziest of investors so will hang on to my Yen and dollars for now and wait for the big one before buying bullion. How about a "subjective" logic instead of an objective index? A commonly accepted currency is required to measure value [all other "objective" measures/ indices of value fail as value is essentially idiosyncratic... this is suggested by the fact assets can so quickly inflate/deflate in value]. Everything has become an asset today with currencies themselves freely floating and trading as commodities. Currencies are potentially compromised and unable to provide the function of measuring value as capital flows from the centre to the periphery and back again. "The problem of valuation" becomes more keenly felt in the market. Value continues to erode out of assets and currencies become more unstable as investors are unsure of how to value them. This deflationary/ volatile process can only be stabilized by a re-institution of the most commonly accepted currency, or symbol of money, that of gold to which currencies are again pegged. With this logic in mind, my aim is to take profits by accumulating ounces at the most opportune times.

Three quarters agree with that one. It is an interesting one on how we should value currencies today. The investor in me does tend to put a higher value on gold than the market does... due obviously to my idea of where I think gold is heading. But then the hedger in me tries to value currencies as the market does... and looks to gain in the long term from this valuation [i would not be able to hold fiat for long if I thought it would be toilet paper shortly]. And after all, as you suggest, money is the most mundane and pragmatic of things. I have found since starting to buy other currencies [Yen/ dollars] that I have come to value them more and am less hesitant to swap for gold on the slightest dip. One situation where familiarity doesn't breed contempt.

Half agree with that in so far as gold can be harnessed..... but then it can not be so easily manipulated as other currencies [once institutionalized]. I'd suggest that because gold is potentially of a "higher order" than the other currencies, it might make sense to make it your core currency. What I am getting at here is the free floating, increasingly unstable, system of currencies we currently have looks like it might have to be "anchored" in the near future to gold. Some of the problems it would solve: 1] Governments can target the price of gold by effectively capping the price by pegging to gold [Volker targeted gold by other means]. 2] Government can avoid the radical Volkerian solution of sky-high interest rates which would kill the economy. 3] Governments can devalue the dollar against Asian currencies by pegging the currencies at the appropriate levels. 4] Creditor countries would then have the greater part of their reserves guaranteed without the risk of sovereign default. 5] International trade can be restored and rebalanced due to currency revaluations. 6] A fiscal restraint of sorts on governments, and a show of good faith that liabilites will be met , and a rebuilding of trust between government now that government is on the monetary discipline of gold. 7] Securing the value of both debts and savings for whole populations. 8] A renewed international gold standard will alllow capital to remain freely flowing between countries and dampen protectionist policies. 9] The avoidance of war. There are just too many pragmatic solutions to be found in gold today to not seriously consider this outcome as the endgame.

One must never trade gold! How about silver/ dollars instead? Much more volatile... and if you get it wrong... the volatility will rescue you. plus you will always be in two cough cough decent currencies.

gf, if people have different tactics and strategies to you, that does not necessarily make them "gamblers in a casino". More likely it just means they have different convictions. edit: fwiw I don't think the "convictions" between people here are really that different. For myself, I also have a foot in the inflation current depreciation camp.

I wonder if the internet is a double-edged sword. On the one hand we have this wealth of information available at our fingertips. There is the potential for sharing knowledge and gaining insights from mulitple sources and perspectives for those that are interested. But then on the other hand we have all the potential for a narrowing of consciousness to one bandwidth, where one certain perspective can be reinforced in an ongoing feedback loop between purely like-minded individuals. Instead of facilitating a liberal broad-mindedness, the internet would just facilitate a dogmatic narrow-mindedness which would become incapable of understanding the thoughts of others. Any disagreement is shouted down and a tribal consciousness "which is solitary, poor, nasty, brutish and short [tempered]" is developed. Is this progress? I hope this site continues to be a tolerant and liberal space for tolerant and liberal minds.

Twas a good call.... and one a few of us were looking for. It will be interesting if there is enough momentum to see the dollar continue to strengthen and the markets completely turn round. Failing that, the dollar could roll over yet again, with markets slouching up again and with then perhaps hot money once more chasing the metals. I have always had a nagging suspicion that we might need one last blow-off phase in the reflation trade, with the gold/silver ratio nearing 50, before we got the deleveraging swing.... on the back of some shock.

I don't know if Bubb is encouraging anyone to short term trade gold. I think he is just providing a counter-prevailing opinion that those buying, or thinking of buying, should be cautious as gold will be volatile. Nothing controversial about that. Also, even if Bubb does trade gold himself, most realize he is a professional trader/ investor and that is his own business... so to speak. Edit: Even most here calling for short term weakness in gold are long term gold bulls.

Interesting discussion this,... and for its ramifications on why we should buy a bit of gold. We seem to have completely different visions of the political sphere. I'm "pro" government because I think government provides order where otherwise we would have chaos. Many on the right today are "anti" government in that they see it as an illegitimate, or exploitive, power where otherwise we would have freedom and independence. The first vision contrasts the real world conditions of civilization to barbarism, whereas the second contrasts the abstractions of "society" to "nature". Ask yourself how order could emerge from chaos without government. How could free markets [beyond barter] exist without some form of government, law and order? And isn't government the only thing stopping us now from lapsing into chaos? Or is everyone so perfectly rational that we don't need government [the myth of the economists]. Won't, and shouldn't, governments do everything to stop an economic collapse? I think they should and will and what is most likely, should the global economy deteriorate, is that governments will resort to institutionalizing gold as an international currency. This would go towards resolving many of the problems facing the international monetary and trading system today. As soon as you go beyond thinking abstractly about an isolated economy, and consider real world circumstances at the international level, the institutionalization of gold makes a lot of sense. It would be very interesting to hear what James Turk, being a banker, has to say about a coming standard. Though he is a hyper-inflationist, he seems a lot more sensible than Sinclair.

Yes, you are misunderstanding me. Notice I "interrogated" free-markets, which was denoting something quite different... with the absence of law and government.... a kind of anarchic state of nature that some find ideal. It is in this sort of environment where barter would be the rule.... and anything might serve as money. No doubt silver and gold would quickly establish themselves also. Yet I do not think civilization will collapse and that we will we go back to bartering. Or that this would be desirable. It seems to me there is a mythology of sorts towards the "free market" today where it is thought to somehow solve all our problems [i'd suggest that real free markets, beyond barter, are only made possible by certain political and social developments.... laws, rights etc..., and do not exist in a "state of nature". There we would have barter.... or plunder]. I think money will remain institutional with a good chance a gold exchange standard will be re-institutionalized in order to resolve some of the difficulties we face. This was discussed a bit in last month's gold thread: http://www.greenenergyinvestors.com/index....st&p=146953

If the "free market" were to reign you would have effectively denationalized currencies which would essentially involve bartering for goods with gold or silver or whatever. A near Cormack McCarthy view of the future. On the other hand, we have the continual reign of governments with the institution of an international currency, that is, a gold exchange standard. Which do you think more likely? I'd suggest the first is more attractive to those who view the world along the lines of freedom versus power. Those that view the world along the lines of order versus chaos find the second more attractive. However corrupt we think government is, it is their job to maintain law order... and accordingly it will involve a new international currency/ system.

Yes, I think it's going Japanese now. I have bought gold because of currency instability and uncertainty. I notice the Kiwi dollar [commodity currency] is going gangbusters today but silver down.... unusual. It does look like precious metals ran up too fast recently for the market. I am continuing to raise US dollars and wouldn't mind having up to 40% in dollars [and Yen].... the rest staying in bullion. No certainties and all that. [The NZ CB did not raise the cash rate today, nor has it earlier.... unlike Australia where it is getting towards 4%]

Yes, it really depends on the time frame you want to use. In the short/ medium term capital is likely to flow/fly from the peripheral currencies to the central dollar at times. Dollar spike, gold dip. In the longer term, we could see a partial default in the dollar. I think it is very likely to devalue against gold first... though it could well apreciate against other currencies and assets. Eventually, if trade and currencies are to be stabilized, I think a new formalized monetary system will have to be instituted... only then would the Yuan and Asian currencies appreciate against the dollar representing a partial "default". The US might end up begging for this solution after "paradoxically" being crucified on a strong currency as Japan now is.

I don't think people are holding gold for any one particular reason but a multiplicity of ones. Accordingly, no single trade could really upset the price too much. Some consider gold a hedge against inflation... some a hedge against [global] deflation... some a hedge against the debasement of currency....some a hedge against government... some against economic collapse....some against soveriegn default.... some against instability....some a hedge against uncertainty.... and then some just like to buy it as a enchanting distraction from the morbid realities of life. This mish-mash net of reasons should serve to support the price if gold comes under pressure from one particular quarter. Given the confusion, gold should continue to surprise to both the up and down side. Unless you believe the global economy will be back to normal shortly then gold looks good. I'm reminded of the old cold restless man whose small blanket couldn't quite cover him all at once.

This is nice in theory. But the reality is whole populations, and countries, have savings [and debts] that are currently denominated in existing currencies. It is these real world circumstances that have governments [and pragmatic economists] attention at the moment. The questions occupying them is how to preserve the value of savings, how to preserve the international trading system, and how to stave of increasing unemployment. In short, how to avoid chaos. I do not see much advantage in governments now taking a laissez faire approach [after meddling for so long] and letting the chips fall... I think they have to do what they can to limit the damage of a global debt deflation.... and then at a later date look at an ideal solution. Hayek is interesting. Yet I wonder if his writing was too pre-occupied with collectivism... and was therefore essentially reactionary. Imo a pragmatic economics should allow the tension between the private and public sphere to exist and not slide completely into collectivist ideology, or for that matter laissez faire free market ideology. I think the other problem with Hayek is he tends to put too much emphasis in the "collective wisdom of the species". A doctrine that has degenerated to the idea that free markets always know best.. and are wisest. I think the "madness of crowd" hypothesis is nearer the mark.

Faith-based "investment"? [Maybe he means hope less]. Buy weakness, sell strength? I guess that is fine for a trader. I don't trade gold [the idea for me is to realize "profit" by accumulating gold ounces], but I would consider trading silver. Buying weakness sounds good, but I'd also keep serious powder in reserve for a possible manic swing in the market.

I think by and large it worked relatively well... it was the basis of the first prolonged period of globalization... our period of globalization could be pitiful in comparison. I think the First World War did more than anything to ruin the gold standard and it never really recovered from it. When Britain did go back on the standard they incredibly [from our perspective] went on to the old pre-war standard... radically appreciating a depreciated pound overnight and ruining their economy. There was no conception for them to go onto a new standard... there was only the gold standard and a mythology of sorts towards gold. I think you have a good point about empire and power. Perhaps these are also inherent in the nature of things....

The IMF. In the old system, each country just had a corner of a vault. At the end of the year they tallied the sums... then moved some gold from one countrie's corner to another's... to put it simply. Today, they might not even have to move the stuff... just have it audited and sitting there. Digits could be moved instead. I agree with you here. We won't be going back unless we need to. I am betting that increasing currency instability, bursting bubbles, capital flight and then capital controls and protectionist polices will make the stability and ultimate control of gold look increasingly attractive.

The pegs could be "managed"... repegged to reflect new economic realities. But I think what would happen is that money would find its own level.... the idea of the gold standard, which did work well for the best part of a century, was that of specie flow... when a country consumed more than it produced it lost gold... it then tightened its belt... the country receiving gold felt richer and consumed more... David Hume developed this idea "price-specie-flow ". It didn't quite work in the Orient though as they tended to put a higher value on gold than the mere monetary one. They ended up hoarding. I do not think there is quite so much danger of this happening today as many Asian countries have acquired the appetite for consumption. Maybe there is no perfect monetary "system". But like democracy, gold could be better than the rest. http://en.wikipedia.org/wiki/Price_specie_flow_mechanism

I wonder if the amount of gold really comes into it. A gram could represent the value of what an ounce represented before. Also, if wealth continues to evaporate... assets/ debt/ credit.... then there will not really be that huge amount of liquidity left over to "squeeze" into gold. I would also suggest that gold represents a "quality" view of money as opposed to a quantity one, but can not extrapolate further on this as haven't as yet thought it through.

I wonder if Keynes got it half right with the “barbarous relic” phrase. I’m sure it was the “earlier” Keynes, the good rationalist and monetarist, that said gold was a relic, at a time when massive confidence was placed in reason to analyze then control all the vagaries of life. In the context of an age of near universal optimism and progress [before the depression], gold could be thought to belong to an earlier period of our historical development… and now freed from the constraints of our customs, traditions and religions, pure and critical reason could work to remove the hindrances to progress and development. The later Keynes lost faith and broke with classical economics developing a new pragmatic economics for a new and uncertain age…..a more irrational one. That is why I think rather than speaking complete nonsense when calling gold a barbarian relic, he was being half prescient. When we value gold, we do not do so for clear and distinct rational reasons but for more “primordial“ ones. This proves that economic value is not completely rational; it is based more on human nature, culture and tradition than reason….. things are valuable because…… we value them. There is a “barbarian” quality to it insofar as this valuation is irrational and rooted in basic human nature. This is hardly a criticism of gold, but a criticism of pure reason applying itself to a sphere of life that it has no business in doing so. Economics is not mathematics, geometry or logic.... though it tried to be.

I think it would just be gold..... being the strongest symbol of money and cutting across all cultures. Also, in a deflationary period, other commodities are likely to become less valuable against money... where a premium is put on liquidity. The irony of it all. It took a depression for us to go off the gold standard, and then another one to go full circle and return to it. Now that will have the economists scratching their head.

The Chinese are interested most of all in stability, which is why they will mosy probably cling to the peg, or not allow a substantial appreciation of the Yuan against the dollar. It certainly wouldn't allow it to freely float which could lead to economic havoc; capital could quite as likely flow out of China as into it. As long as this peg remains in place, we will see assets inflate and a bubble in China which could easily pop as declining Anglo-sphere GDP can not provide the demand to meet the supply. I imagine the Chinese themselves see the "Chimerican" gig is up, which is probably why they have been calling for a new reserve currency. Like any creditor worried about their debtor, they would only be too happy to take a haircut if that also meant securing the bulk of their reserves. This could be achieved by breaking the Yuan/ dollar peg and fixing the Yuan to a relative level than the dollar to gold. The Yuan would effectively be appreciated to reflect new economic realities, the dollar will be stabilized at a lower level to restore a trade balance and guarantee also the bulk of Chinese dollar reserves. I think any creditor would accept a 20 or 30% loss if the greater part was secured.... or there was a risk of complete default.

Yes, I think the IMF will eventually institute such a new gold exchange standard. Gold backed SDRs anyone? This would kill a lot of birds with one stone. Break the Yuan/dollar peg. Guarantee the bulk of Chinas reserves as the dollar is stabilzed/ pegged to the new currency at the appropriate level. Restore trade as other currencies are stabilized to the new central reserve gold-backed currency. Necessity is the mother of re-discovery. I think Keynes would agree on a gold backed "bancor'..... being the pragmatist he was.

If the dollar can continue to strengthen to 67 odd, we could see 16.50 silver.