GOLD

[wren]

Anyone else find numerous posts like +1, +0, -1 etc a touch irritating?

+1.5

 

/I'll get my coat.

 

[ziknik]

GF asked that "and Investment" be put into the title as was normal. It didn't happen so he started a new thread which is more about fundamentals and the long term than about short-term trading.

...

I remember GF asking. I can't remember seeing any response from the mods/admin team. Did DrBubb ever respond to explain?

 

Anyone else find numerous posts like +1, +0, -1 etc a touch irritating?

There's a thread on it http://www.greenenergyinvestors.com/index.php?showtopic=7925

[halcyon]

Not sure this was posted. When trading, keep in mind seasonality also. Even if it's not a given, like nothing is.

 

 

Eh, this was posted on the front page of this thread. My mistake. Sorry.

 

[InSilverWeTrust]

seasonality??

 

 

Those days are over!

[halcyon]

I found two very interesting long term shadow stats cpi adjusted PM charts tonight at;

 

Can you explain what you think that the graphs show?

 

To me it looks like the gold and silver have been worse than linearly falling as stores of value over a very long term. This flies in the face of all the gold-bug propaganda of course.

 

But I don't believe those graphs are very accurate, because nobody has CPI data that is consistent and dates back that long. Still, if the error hasn't grown exponentially in time, it could have a story.

 

 

[halcyon]

seasonality??

 

Those days are over!

 

This time it's different, eh? That's pretty funny

 

Look at the long term historical chart and think again. Fiat currencies have come and gone, but the charts show that the price of gold has gone down, down, down down down - as an average over the very long term.

 

PS. I hope this thread is less religious than the other gold thread, where the only truth that is apparently allowed reads: "Buy gold now, it can only go up, it's a safe bet, don't trade it.". We can do better than be emotionally dogmatic like that.

 

 

 

[InSilverWeTrust]

This time it's different, eh? That's pretty funny

 

Look at the long term historical chart and think again. Fiat currencies have come and gone, but the charts show that the price of gold has gone down, down, down down down - as an average over the very long term.

 

PS. I hope this thread is less religious than the other gold thread, where the only truth that is apparently allowed reads: "Buy gold now, it can only go up, it's a safe bet, don't trade it.". We can do better than be emotionally dogmatic like that.

 

Good luck with your Dollar, or is that the Pound?

 

Buy Gold? Sell it if you like, i'm sure a number of us here have made more than enough.

 

Wake up!

 

 

[Pixel8r]

Not sure this was posted. When trading, keep in mind seasonality also. Even if it's not a given, like nothing is.

Here's some other seasonal images, which give a much clearer view.

 

 

 

 

 

[halcyon]

Good luck with your Dollar, or is that the Pound?

Wake up!

 

I've woken up to gold, thank you very much.

 

If you've got a point to make, please argue it.

 

 

[Pixel8r]

Can you explain what you think that the graphs show?

 

To me it looks like the gold and silver have been worse than linearly falling as stores of value over a very long term. This flies in the face of all the gold-bug propaganda of course.

 

But I don't believe those graphs are very accurate, because nobody has CPI data that is consistent and dates back that long. Still, if the error hasn't grown exponentially in time, it could have a story.

Gold has historically held its value very well, much better than almost anything else. If you can think of anything that has done better pray tell.

 

The graph shows to me that during times of financial stress, like the 30's and 70's gold actually rises as people flock back to it. Which is much like what is going on at the moment, it also makes Alf Field's $10,000 target not look so unbelievable.

 

Agreed I find it hard to believe anyone has CPI data spreading back that far. Silver does look historically very cheap though for a industrial metal that will actually be extinct in years to come.

[halcyon]

Gold has historically held its value very well, much better than almost anything else. If you can think of anything that has done better pray tell.

 

I have no data on anything that has performed relatively better. I have ideas, but not data to find out if they are true or not.

 

However, IF the mentioned gold graphs are true within the error margin assumed, then the whole notion of "gold as inherent store of value" is silly. It's a fiat, just like anything else. Better fiat than many other, but susceptible to value erosion and fiat nevertheless.

 

Can still be a great interim term investment and good trade, which is the whole point in this thread.

 

The graph shows to me that during times of financial stress, like the 30's and 70's gold actually rises as people flock back to it.

 

Agreed.

 

Good graphs, very thought provoking. All gold-bugs should study them hard. Especially investors.

 

Thanks again!

 

 

 

[Pixel8r]

I have no data on anything that has performed relatively better. I have ideas, but not data to find out if they are true or not.

 

However, IF the mentioned gold graphs are true within the error margin assumed, then the whole notion of "gold as inherent store of value" is silly. It's a fiat, just like anything else. Better fiat than many other, but susceptible to value erosion and fiat nevertheless.

 

Can still be a great interim term investment and good trade, which is the whole point in this thread.

I don't think anyone is suggesting that you should buy and hold gold forever, even goldfinger. You have to agree gold has an intrinsic value that no fiat currency could ever have.

 

 

[Pixel8r]

Adrian Douglas: The explosive dynamics of the gold and silver markets

 

This week gold closed above $1,000 per ounce for the fourth consecutive week and made another all-time weekly high close. But the top-callers have come out in their droves declaring that gold is in a bubble that is about to burst and that because the recession has been declared as over there is no reason to hold such a safe-haven asset.

 

All that is nonsense and I will explain why. The dynamics unfolding in the gold and silver markets are nothing short of explosive.

 

The dynamics are different for gold and silver so I will start by discussing gold.

 

Gold is a unique substance. It is about the only thing on the planet that is bought and stored and never consumed. Almost all the gold ever mined still exists above ground. The purpose of gold is to act as a store of wealth. This singularity of gold makes it susceptible to a scam that was first perpetrated by goldsmiths in the 16th century. The goldsmiths realized that customers would buy gold and leave it for safekeeping in their vault. This meant that they could show the same gold bar to many customers and sell it many times over. This was the early form of fractional reserve banking, where banks retainly sone a fraction of the money on deposit, gambling that no more than 10 percent of the money will ever be called upon to be paid out.

 

This scam is at the center of modern gold market manipulation. Paper substitutes for gold are sold, instead of real gold, through derivatives, futures, pooled accounts, exchange-traded funds, gold certificates, etc. I estimate that each ounce of gold has been effectively sold 20 times over or more. To maintain this Ponzi scheme, some real gold is required, because some investors or jewelers demand to take possession of real gold. For the scam to be sustained there must always be plentiful physical gold for those who want it.

 

This physical supply has been met from mine supply and central bank leasing and selling.

 

The market is in effect a giant inverted pyramid with a huge paper gold market being supported above a small amount of physical gold at the tip of the inverted pyramid. The scam can continue until there are indications of a shortage of physical gold. If the 20 or so so claimants of each ounce of real gold demand their gold, there is the potential for a squeeze such as never been seen before.

 

To lend support to the idea that all the gold in the world has been sold several times over I cite the case of Morgan Stanley, which was sued in 2005 for selling imaginary precious metals to its customers. The firm had the audacity to charge storage fees for metal that didn't exist. Morgan Stanley settled the suit out of court but no criminal charges were ever filed against the firm. If Morgan Stanley was doing this, you can bet that it is the tip of the iceberg.

 

As further evidence just look at the monster over-the-counter derivatives market. Standing at approximately $1,000 trillion, it is multiples of the liquidated value of all the assets and currency in the world. Clearly derivatives must be selling some sort of claims to assets that cannot be fulfilled because there are not enough underlying assets.

 

The price discovery of gold has been achieved almost exclusively through the shuffling of paper gold promises between investors and bullion banks on the New York Commodities Exchange with very little real gold ever changing hands. But the situation is changing. Some big entities are now demanding physical gold. These entities are almost certainly countries, not individuals, such as China, Russia, India, Venezuela, Iran, and the Gulf states, to name but a few. This demand for real gold, instead of paper substitutes, is putting a strain on the gold market.

 

Paul Walker, CEO of the metal consultancy GFMS, recently said the price of gold was going up because of "large lumpy transactions in a market with a degree of illiquidity." Roughly translated, this means that there are large demands for physical metal that the market is struggling to meet. That is a cartel apologist's limp-wristed reference to the explosive dynamics I am defining.

 

The supply that feeds the bottom of the inverted pyramid to support the gold price suppression via a paper market is drying up. Mine supply has been declining for almost a decade and this year central banks became net buyers of gold for the first time in 20 years. The stress in the physical market is starting to show to those who are paying attention.

 

For example, the London PM fix of the gold price is coming in at historic highs day after day, the contango in the futures market has contracted dramatically, and the U.S. mint is routinely suspending production due to shortages of metal. But most importantly we are seeing astute investors display a growing preference for real bullion. A couple of months ago Greenlight Capital, the large hedge fund, switched $500 million of investment in the exchange-traded gold fund GLD to physical gold bullion. The supposed gold holding of GLD has not grown to a record high despite a record high gold price.

 

Apparently Germany has asked that its sovereign gold held by the New York Federal Reserve Bank be returned to Germany. Hong Kong has requested the same of the Bank of England, which stores Hong Kong's gold.

 

Robert Fisk, a respected journalist for Britain's Independent newspaper, reported this week that the Arab oil-producing states, Japan, Russia, and China have been holding secret talks to replace the dollar as the international reserve currency and as an accounting unit for the oil trade. The Independent reports that the basket of currencies they propose instead of the dollar would include gold.

 

If gold is going to regain its monetary role, you can understand why those in the know want real bullion. There are some significant signs that a run on the bank of the anti-gold cartel for physical gold is commencing.

 

Meanwhile most investors and analysts are focused only on the net short position of the commercial traders on the Comex, which has reached a record level and has in the past signaled the onset of a major correction. But such market observers are watching only a side show of the main event. The main event is all about a growing tightness in supplies of gold in the physical market.

 

I don't think the commercial net short position of 800 tonnes is that important. What is important is that the world's stockpile of 140,000 tonnes of gold may have been sold several times over. In all likelihood half of the supposed 30,000 tonnes of central bank stockpiles have been sold at least 20 times over. The gold short position could well be 300,000 tonnes (15,000 times 20) against a total world inventory of only 140,000 tonnes, much of which is not available to the market.

 

Could there be a more bullish scenario for gold?

 

If you think that such business practices could not be tolerated, I can hold up the example of the airlines, which regularly and knowingly oversell the seats on their flights, expecting that not all passengers will show up. Bullion bankers oversell their inventory of gold knowing that only 10 percent of customers will ever ask for it, just as the goldsmiths figured.

 

One cannot discuss the gold market in isolation, as it is linked to the U.S. dollar and Treasury debt. The major impetus behind the suppression of the gold market was to maintain a strong dollar despite massive overissuance of the currency. This has allowed the United States to live beyond its means because the rest of the world accepts the funny money as payment for goods and services. In a study he did when he was a professor of economics at Harvard titled "Gibson's Paradox and the Gold Standard," former U.S. Treasury Secretary Lawrence Summers showed that in a free market gold and real interest rates move inversely to each other. But since 1995 the United States has had low gold prices and low interest rates. In the absence of a gold standard this could have been achieved only by surreptitiously fixing the gold price through market manipulation. This was the essence of the "strong dollar policy" of Robert Rubin, the mechanism of which was never explained to the public.

 

The dynamics of the silver market are different. About 90 percent of silver production is used for industrial applications. Only 10 percent is purchased for investment. Clearly paper substitutes for silver cannot be used in industrial processes. The investment market is suppressed by paper silver substitutes as described above with respect to the gold market. It is this market, specifically the Comex futures exchange, that controls the price of silver.

 

The very low price of silver over the last 30 years has encouraged large holders of silver to dishoard it. After all, who wants to pay costly storage fees for something that is of low and declining value and bulky to store? This dishoarding has filled the gap between silver production and industrial demand, which runs at more than 200 million ounces annually.

 

Much of the investment demand has been met with paper substitutes and scams that are variations on the one that was perpetrated by Morgan Stanley. Because of the suppression of the price of silver it has been uneconomic to recycle most industrially used silver, with the exception of silver used in photography. This has meant that most industrially used silver finds its way into landfills. All the above-ground silver is now less than 1 billion ounces. Considering that the exchange-traded fund SLV alone claims to have more than 250 million ounces of silver, it is reasonable to estimate that investors have been sold something of the order of 5 billion ounces of silver. But how much is supported by real metal?

 

If the same ounce of silver has been sold 20 times over, as with my estimate in gold, then only 250 million ounces of investment silver bullion exist. This means that 4.75 billion oounces of silver could potentially be demanded in a market where only 1 billion ounces of stockpile exist and mining supply is already oversubscribed to the tune of 200 million ounces annually. One can probably add to this picture that investors who cannot easily find physical gold will come looking to buy physical silver. What is even more bullish is that the industrial users will not sit idly by watching a manic silver grab. They will join in the fray because they cannot remain in business unless they have silver inventory. They will try to stockpile silver at a time of acute shortage.

 

So the dynamics of the gold and silver markets are wildly bullish. This is no longer about whether the commercials will knock down the price by selling more contracts short. This is about a lot of market participants who have been content to hold precious metal paper substitutes but who now increasingly will want to own real bullion. This has been happening slowly but will gather pace. Because in the last 30 years most investors have trusted the brokers, dealers, and bullion banks to have the metals that have been sold, there has been no "run on the bank." This is changing. Many indications point to significant supply stress building.

 

Why are the entities that hold the largest short positions on the planet custodians of the bullion depositories for the largest ETFs? That's like putting a sex offender in charge of the day care center or Bernie Madoff in charge of your company pension fund.

 

The argument against holding physical bullion yourself has always been the risk it might get stolen while in your possession. But the risk of holding bullion substitutes is that it already has been stolen or never existed.

 

The precious metals market is now akin to a game of musical chairs with perhaps only one chair for every 20 players. It might be prudent to follow in the footsteps of Germany, Hong Kong, China, and Greenlight Capital and get your chair before the music stops.

 

If the physical markets for precious metals lock up due to shortages, then the short squeeze will be of epic proportions; it will be something to tell your grandchildren about. It will be a far better story for your grandchildren if you are on the right side of the trade.

 

 

[malvern hills]

I have no data on anything that has performed relatively better. I have ideas, but not data to find out if they are true or not.

 

However, IF the mentioned gold graphs are true within the error margin assumed, then the whole notion of "gold as inherent store of value" is silly. It's a fiat, just like anything else. Better fiat than many other, but susceptible to value erosion and fiat nevertheless.

 

Can still be a great interim term investment and good trade, which is the whole point in this thread.

 

 

 

Agreed.

 

Good graphs, very thought provoking. All gold-bugs should study them hard. Especially investors.

 

Thanks again!

 

I'm sorry I don't understand or agree.Fiat is 'by decree',however no -one or government has decreed gold to be valuable .Every person on this planet knows gold to be valuable (even if hey don't know why) ,by reason of its nature , the effort required to win it from the earth and is multi millennial use as money which I'm sure has left a great psychological impact on our brains.

 

You might disagree with the notion that it is valuable but most of the planet does not and that is unlikely to change ,although its worth in terms of fiat may ebb and flow.

 

I don't think you can describe it as fiat ,a 'barbarous relic' maybe.

 

You might also consider that true fiat has no limit to its quantity and a present we cannot produce gold.

[romans holiday]

I have no data on anything that has performed relatively better. I have ideas, but not data to find out if they are true or not.

 

However, IF the mentioned gold graphs are true within the error margin assumed, then the whole notion of "gold as inherent store of value" is silly. It's a fiat, just like anything else. Better fiat than many other, but susceptible to value erosion and fiat nevertheless.

 

Can still be a great interim term investment and good trade, which is the whole point in this thread.

When getting down to the bedrock of money and value, I find it useful to take an "ideal, psychological" perpective on money at times as opposed to a "real, objective" one. From this point of view, gold is considered the strongest symbol of money.... though at times this symbol may move to the edge of the collective imagination, and at others be renewed and become central, its symbolic power remains relatively constant.

 

Historically, this symbol has shone brightly over the imagination of the species. This past generation or so has been the anomaly... perhaps more so than any other time, and perhaps more so in our culture. Gold, the most primeval symbol of money, now looks to be reasserting itself for practical reasons as opposed to theoretical ones. Modern currencies are becoming increasingly "problematic" and hence gold is beginning to stir.

 

I doubt gold's restoration will be in a straight line though.... nothing in nature is straight.

[id5]

seasonality??

 

 

Those days are over!

I pray to the Gods of all of the posters that it is not, for the last few years seasonality in PM's has helped to pay for the families holiday

[halcyon]

I don't think anyone is suggesting that you should buy and hold gold forever, even goldfinger. You have to agree gold has an intrinsic value that no fiat currency could ever have.

 

Maybe. Let's plot an average of all fiat paper currencies PP with SS CPI adjustment and compare that to gold. That's the proof. I don't really want to believe anything this important without proof. Especially not gold-bug propaganda.

 

As for GF, only he can say what he believes, but I've gotten the impression that he believes: not trading in gold, gold will go to $2000-$5000 (inf adjusted), COMEX will default, gold somehow has intrinsic value, gold is money, and many other things. That to me is tantamount to "buy & hold & be happy". If I have misrepresented his views, I apologize and I hope he he will correct me.

 

I'm sorry I don't understand or agree.Fiat is 'by decree',however no -one or government has decreed gold to be valuable.

 

Sorry, should have been more precise. Fiat as in 'through faith'. Gold is not de jure money anywhere and it's use as a money-like store of value is based on culture, history and mainly other non-intrinsic features.

 

That's why it is faith based. Either you believe gold has the value that people say it has - or not (or believe these to a degree, based on price).

 

I don't believe it is "once and future money, a perfect store of value."

 

Valuable? Sure! For industrial uses, for historical reasons, due to cultural expression and due to the emergy embedded.

 

Money? Historically yes. Now? No.

 

You might also consider that true fiat has no limit to its quantity and a present we cannot produce gold.

 

That's not quite as I view it. Only produced (mined) gold can really be valuable in use (excl. futures/options on assumed reserves in the ground are speculation, even though on can exchange it to something of true value).

 

Now, the price of something is determined (I believe in microeconomic theory in this regard) by supply and demand. Currently we have due to many cultural/historical reasons increasing demand. And the production isn't rising as fast. Hence price rises. Nothing to do with intrinsic value or perfect store of value.

 

I believe food has more intrinsic value and its price can still fluctuate wildly according to supply and demand. If you don't eat, you die. Food is essential. Food in itself is useful, without any intermediaries.

 

If gold is chosen as 'perfect' money, because it has not intrinsic value, then it is by definition granted value based on faith. Whether that is cultural silent agreements or a de jure position, matters none. If it has no intrinsic value, then whatever given to it is based on faith. This is basic logic.

 

BTW, all paper money fiats have had a practical limit to it's quantity - namely loss of credibility. Gold can experience a correction in this regards in its price, just as it has, several times before in history. If too many start piling up on it, and the prices rise too high, it's credibility as a cultural store of value at that time can rapidly diminish. As has happened before in history.

 

Again, this is not an either/or issue. I'm not "against gold". I respect gold, but I don't go into the "hey, it's once and future money! BUY IT! It can only go up" camp either.

 

What is the point of all this, I hear some of you saying? Some academic posturing?

 

The point is this: gold both historically and the way it is given value can have wild upswings (overvaluation) and downswings (relative historical mean undervalution). It is a potential good trade or mid-term investment, if you believe in it due to the volatility and sentiment hypothesis. It's not a GOOD long term investment, if you believe it on the the long term historical averages.

 

Very crude graph with a hand drawn approximation linear regression (don't have the original dataset to plot algorithmically)

 

My point to myself and perhaps to some others who haven't thought about this:

 

Understand what you invest in, why and when. Don't fall for dogma.

[Errol]

For the last time - GOLD IS NOT AN INVESTMENT.

 

Stop referring to as it as an investment.

[Pixel8r]

Maybe. Let's plot an average of all fiat paper currencies PP with SS CPI adjustment and compare that to gold. That's the proof. I don't really want to believe anything this important without proof. Especially not gold-bug propaganda.

I would be very interested to see that graph if ever you can come up with it.

 

Can't really offer you the proof you are looking for, I can only tell you my experience has been one of my gold hold it's PP or increasing it and my fiat always losing it. If you have a large amount of fiat currency just sat somewhere, I would recommend swapping some of it to gold and silver.

[romans holiday]

Sorry, should have been more precise. Fiat as in 'through faith'. Gold is not de jure money anywhere and it's use as a money-like store of value is based on culture, history and mainly other non-intrinsic features.

 

That's why it is faith based. Either you believe gold has the value that people say it has - or not (or believe these to a degree, based on price).

 

I don't believe it is "once and future money, a perfect store of value."

 

Valuable? Sure! For industrial uses, for historical reasons, due to cultural expression and due to the emergy embedded.

 

Money? Historically yes. Now? No.

I am not sure whether the "gold bug narrative" is supposed to be philosophically sophisticated. I think its function is more to provide something close to a coherent explanation as to why gold is of supreme value to those who already believe this. The "dogmas" you refer to are for the edification of those belonging to a certain faith [this is also why hostilities arise from time to time over the subject]. That said, I think it is perhaps punching a straw man to identify the gold-bug creed with gold in general and the reasons why one should invest in it. It would be like writing of all religion and philosophy because you disagreed with one particular sect.... however large it was.

 

Now, the price of something is determined (I believe in microeconomic theory in this regard) by supply and demand. Currently we have due to many cultural/historical reasons increasing demand. And the production isn't rising as fast. Hence price rises. Nothing to do with intrinsic value or perfect store of value.

 

I believe food has more intrinsic value and its price can still fluctuate wildly according to supply and demand. If you don't eat, you die. Food is essential. Food in itself is useful, without any intermediaries.

 

If gold is chosen as 'perfect' money, because it has not intrinsic value, then it is by definition granted value based on faith. Whether that is cultural silent agreements or a de jure position, matters none. If it has no intrinsic value, then whatever given to it is based on faith. This is basic logic.

What do you mean by intrinsic value? Would something be intrinsically valuable if there was no-one to value it? What I am getting at here is "value" is anthropocentric; things have value insofar as there are valuers [people value them]. It is difficult to objectify/measure value as classical economics has tried to do. The labour theory of value as a prime example of this.

 

Perhaps you mean by intrinsic value, something that is useful, or has utilitarian value; something is valuable because it performs a function. From this definition, it could be argued that gold has/does function as money and is thereby valuable on that basis... as a means to an end... say, the purchase of food.

 

Again, this is not an either/or issue. I'm not "against gold". I respect gold, but I don't go into the "hey, it's once and future money! BUY IT! It can only go up" camp either.

Like you, I do not think "gold is money" [strictly speaking]. Money is an idea/ ideal/ abstraction. Gold can function as money... that is be a currency... just like many other things can function as money. Some currencies are better than others, though not on theoretical grounds, but on practical ones; the best currencies are the ones that works. As you no doubt are well aware, the classical definitions of what makes a good form of money is functional; something that is both a medium of exchange and a measure and store of value. This is why I do not write off fiat currencies....yet. Consumers and investors still value them.

 

The point is this: gold both historically and the way it is given value can have wild upswings (overvaluation) and downswings (relative historical mean undervalution). It is a potential good trade or mid-term investment, if you believe in it due to the volatility and sentiment hypothesis. It's not a GOOD long term investment, if you believe it on the the long term historical averages.

 

Understand what you invest in, why and when. Don't fall for dogma.

Yes, gold is not an end but a means to an end. The "dogmas" can lead to an emotional attachment where detachment is called for. The gold bug often cries foul that someone should contemplate exchanging it for fiat currencies... but the aim of the gold bull [who sees an "investment" opportunity in gold] is to be able to eventually swap it anyway, preferably for higher goods in life, such as free-hold and productive property, or a boat, or whatever that might enable you to enjoy certain conditions in life. That is real wealth, not the amount of gold you happen to be sitting on.

[FWIW]

snip

 

Yes, gold is not an end but a means to an end. The "dogmas" can lead to an emotional attachment where detachment is called for. The gold bug often cries foul that someone should contemplate exchanging it for fiat currencies... but the aim of the gold bull [who sees an "investment" opportunity in gold] is to be able to eventually swap it anyway, preferably for higher goods in life, such as free-hold and productive property, or a boat, or whatever that might enable you to enjoy certain conditions in life. That is real wealth, not the amount of gold you happen to be sitting on.

 

+1 Very well said RH. 100% agree with you. I am starting to visualise gold performing a pressure release valve type mechanism. When either fiat or gold money systems get too dominate then the other comes into play. These play out over multi-generation cycles and we can't choose when we are born!

 

I have also pondered the question does a lie help create peace, and does the truth help create conflict? I am still thinking about that one...

 

 

 

 

[halcyon]

--- OFF-TOPIC - skip to the next divisor if not interested in gold value theory ----

I am not sure whether the "gold bug narrative" is supposed to be philosophically sophisticated. I think its function is more to provide something close to a coherent explanation as to why gold is of supreme value to those who already believe this.

 

Indeed.

 

I'd like ton know, how it has performed *on the average* historically over long periods of time against: industrial commodities, land, rich topsoil, etc.

 

I'm sure somebody has already plotted those with some accuracy. Just can't find them.

 

That said, I think it is perhaps punching a straw man to identify the gold-bug creed with gold in general and the reasons why one should invest in it.

 

Oh, I fully agree. If many of my posts weren't met with "IDIOT, BUY GOLD!" emotional drivel, I could stick to the analytical part only.

 

The analytical part says: gold is bad very-long term buy & hold investment (see the graph I posted). Even stocks are better (both CPI adjusted, over 100+ years).

 

What do you mean by intrinsic value? Would something be intrinsically valuable if there was no-one to value it?

 

Value is human conception yes. But beyond that, intrinsic value is what financial / economic theory of value defines it to be, that is:

 

Actual value of the asset in performing the function it offers. That is nonmonetary non-exchange value of the asset.

 

Intrinsic value does change in time and through information. In case of gold, to me all gold's value on top of it's industrial/jewellery demand is pretty much speculative exchange value, i.e. non-intrinsic. Speculative, because it's not generally agreed upon AND because historically this value has oscillated wildly - and I see no reason for this trend to break. That is, all this "gold is money, gold is wealth, gold is store of value" is non-intrinsic. It's speculative exchange value based on history and culture. No guarantees it'll work like that. Others may not agree, I'm fine with that. Would like to see an intrinsic value analysis of gold for it's wealth storage function. Haven't seen such yet.

 

There's of course the ecological economics definition (ref: Leopold, et al.), which I found to be even more deeply correct and ethically more sound, but that is quite off-topic for today's discussion, so I'll pass.

 

it could be argued that gold has/does function as money and is thereby valuable on that basis... as a means to an end... say, the purchase of food.

 

Gold has had monetary value, when it's been used as a dictated or preferred tool in the transferral of value in exchange.

 

Not today, it's just speculative value mostly on top of intrinsic industrial use value. So all arguments about it's "function as money" are based on it's history: "once and future money". And even that value has been shrinking constantly over the span of several fiat-paper money failures.

 

This is perhaps splitting hairs to somebody, to me it's a matter of understanding WHY gold goes up. Not because of inherent properties of gold, but because of the value people culturally attach to it. And *that* can be fleeting. Especially in a breakdown scenario, for which many are hoarding gold.

 

Yes, gold is not an end but a means to an end.

 

Indeed. Just like any other investment or asset (sans actual physical edible commodity investments - you can eat those if it comes to that, they will never go to zero. They can be an end in themselves).

--- OFF-TOPIC ENDS here ----

 

Now some gold price calls:

 

- Andrew Cardwell: correction to $1015-$1030, $1150 by end of year, $1500 probably by 7-8/2010

- Alexander Elder: $1300-$1500 possible if resistance is broken

- Moose Calls says UP for short and interim term trades for gold

 

And an interesting graph of gold's value against a basket of currencies (middle graph). The lowest is a bullish index for gold. Still some ways to go, esp. if USD keeps tanking (which is LOSS of USD, NOT gain of gold).

 

Gold volatility is up again and may signal a top or a break-out.

 

[Errol]

Gold is going much, much higher than those predictions.

 

$1650 first. Then onwards to $2000+. $5000 will follow in the years to come. And then on to higher levels still.

 

 

[Schaublin]

Maybe. Let's plot an average of all fiat paper currencies PP with SS CPI adjustment and compare that to gold. That's the proof. I don't really want to believe anything this important without proof. Especially not gold-bug propaganda.

 

As for GF, only he can say what he believes, but I've gotten the impression that he believes: not trading in gold, gold will go to $2000-$5000 (inf adjusted), COMEX will default, gold somehow has intrinsic value, gold is money, and many other things. That to me is tantamount to "buy & hold & be happy". If I have misrepresented his views, I apologize and I hope he he will correct me.

 

 

 

Sorry, should have been more precise. Fiat as in 'through faith'. Gold is not de jure money anywhere and it's use as a money-like store of value is based on culture, history and mainly other non-intrinsic features.

 

That's why it is faith based. Either you believe gold has the value that people say it has - or not (or believe these to a degree, based on price).

 

I don't believe it is "once and future money, a perfect store of value."

 

Valuable? Sure! For industrial uses, for historical reasons, due to cultural expression and due to the emergy embedded.

 

Money? Historically yes. Now? No.

 

 

 

That's not quite as I view it. Only produced (mined) gold can really be valuable in use (excl. futures/options on assumed reserves in the ground are speculation, even though on can exchange it to something of true value).

 

Now, the price of something is determined (I believe in microeconomic theory in this regard) by supply and demand. Currently we have due to many cultural/historical reasons increasing demand. And the production isn't rising as fast. Hence price rises. Nothing to do with intrinsic value or perfect store of value.

 

I believe food has more intrinsic value and its price can still fluctuate wildly according to supply and demand. If you don't eat, you die. Food is essential. Food in itself is useful, without any intermediaries.

 

If gold is chosen as 'perfect' money, because it has not intrinsic value, then it is by definition granted value based on faith. Whether that is cultural silent agreements or a de jure position, matters none. If it has no intrinsic value, then whatever given to it is based on faith. This is basic logic.

 

BTW, all paper money fiats have had a practical limit to it's quantity - namely loss of credibility. Gold can experience a correction in this regards in its price, just as it has, several times before in history. If too many start piling up on it, and the prices rise too high, it's credibility as a cultural store of value at that time can rapidly diminish. As has happened before in history.

 

Again, this is not an either/or issue. I'm not "against gold". I respect gold, but I don't go into the "hey, it's once and future money! BUY IT! It can only go up" camp either.

 

What is the point of all this, I hear some of you saying? Some academic posturing?

 

The point is this: gold both historically and the way it is given value can have wild upswings (overvaluation) and downswings (relative historical mean undervalution). It is a potential good trade or mid-term investment, if you believe in it due to the volatility and sentiment hypothesis. It's not a GOOD long term investment, if you believe it on the the long term historical averages.

 

Very crude graph with a hand drawn approximation linear regression (don't have the original dataset to plot algorithmically)

 

My point to myself and perhaps to some others who haven't thought about this:

 

Understand what you invest in, why and when. Don't fall for dogma.

 

Heavy artillery of sophistry in action here trying to prove that night is day. Gold is money. Why? Thousands of years and countless millions of people have used it as money. Some of your reasoning reminds me of those who disagree with evolution through natural selection or Marxist ideas that the nature of man can be changed with enough indoctrination/training. Any idea that goes against the nature of man will only ever be a short-lived experiment. Indeed, gold itself has survived the natural selection process in the choice of money. Fifty years of fiat paper (which is now unraveling) is a mere blip but you seem to think that by saying 'it aint so' will stop it happening.

 

 

[romans holiday]

--- OFF-TOPIC - skip to the next divisor if not interested in gold value theory ----

 

Gold has had monetary value, when it's been used as a dictated or preferred tool in the transferral of value in exchange.

 

Not today, it's just speculative value mostly on top of intrinsic industrial use value. So all arguments about it's "function as money" are based on it's history: "once and future money". And even that value has been shrinking constantly over the span of several fiat-paper money failures.

 

This is perhaps splitting hairs to somebody, to me it's a matter of understanding WHY gold goes up. Not because of inherent properties of gold, but because of the value people culturally attach to it. And *that* can be fleeting. Especially in a breakdown scenario, for which many are hoarding gold.

Are we off-topic? Perhaps we need another gold thread for discussing value theory.

 

The reason I am investing in buying gold is I believe it is in the process of being re-monetized, which will eventually be formalized in a new gold exchange standard, possibly involving IMF SDRs, to which currencies will be pegged. I think we will see a series of currency crises within the free-floating system over the next few years.This is where the practicality [as opposed to pure theory] of gold as [notice not "is"] money will come to the fore [this has been discussed on another thread]. It looks to me that that the financial crisis is leading to the destabilization of currencies and international trade. I guess you could say I am buying for macro-economic reasons rather than buying gold as a conventional "investment" as such. With the "re-booting" of the macro-economy, it is likely that assets priced in gold will be cheap.

 

[i am not much of a believer in linear progress, more a belief that history is cyclical, which is perhaps why I see a return to a gold standard as likely]

 

This is perhaps splitting hairs to somebody, to me it's a matter of understanding WHY gold goes up. Not because of inherent properties of gold, but because of the value people culturally attach to it. And *that* can be fleeting. Especially in a breakdown scenario, for which many are hoarding gold

I wonder if there is a paradox here. You are looking for a rational certainty of sorts as to why the market value of gold would go up or down. Yet, it is only due to uncertainty... and when conventions break-down, that gold starts to become more valued. This is why I say it has symbolic power [the strongest symbol of money]. There is a lot to be said for the idea that money, in general, is a hedge against future uncertainty.