When the gold hits the fan.

[boneyard bill]

It's not the cost of transport, it's the risk of insuring or otherwise guarenteeing it's delivery. There are huge risks involved there, and that gets directly factored into the price as counterparty risk.

I think gold is classified as a commodity not a currency.

It's definitely a currency, which is a bit odd, but makes sense for technical reason. It does have similar delivery problems to other precious metals, which are commodities.

The question at issue was whether or not naked shorts are illegal in the gold market. I had heard that they were, but I don't remember where I heard it. So the issue of whether or not gold is a commodity or a currency may determine the legality of naked shorts. Gold is traded on the COMEX not the FOREX so I think we can say that, in spite of its dual use, it is classified as a commodity for trade purposes regardless of the motive of the buyer.

I'm sure whether the transportation and insurance costs are included in the sale price. I suspect they are not. Therefore, any arbitrage of the metal would have to exceed the costs of carry. Nevertheless, I think would have to agree that a $600 premium per ounce would easily do that.

 

[boneyard bill]

Yes.
A lot of preppers store ammunition too: it actually has use (especially in their Mad Max influenced doomsday scenarii), and would probably be easier to barter with than gold, and is quite easy to store/hide.
(but is totally useless for civilized emergencies. Food/water, you can actually use in things that do happen, like flooding, snowstorm or fallen trees blocking roads, things like that)

In a catastrophe, even an economic catastrophe, you would certainly be better off with things that you can actually use, especially food and safe drinking water, than with precious metals. If those necessities are in short supply, it could cost you a whole lot of precious metals to buy them. For people who don't have a lot of money to invest, that is probably the best route to go. For people who do have a lot of money invested then precious metals would preserve their wealth better than fiat money (although it depends on the nature of the catastrophe). But you certainly shouldn't neglect the necessities and think that all you need is gold or silver.

 

[boneyard bill]

Commodity money enthusiasts hate to admit it, but gold is fiat money.

The value of gold is the same as the value of dollar bills - it resides not in the material, but in the completely arbitrary perception people have of its value.

Gold is not completely valueless as a commodity - and nor is the rectangle of cotton paper with green ink on it. The former can be used for dental work, jewellery, optical coatings and electrical contacts; And if you have lots of it at a low price, it would make a good corrosion proof cladding - nice and soft, it would be a good replacement for lead in flashings and stormwater drainage applications, for example. The dollar bill would make pretty good toilet paper, in the absence of any perception of value (and if you have ever tried to live for any length of time without toilet paper, you wouldn't sneer at that as a measure of value).

In the event that civilisation collapsed, paper money would be pretty much worthless - and so would gold. Neither would be a good exchange for a tin of beans or a roll of 3-ply loo paper, unless the quantity being offered in exchange was huge.

An oz of gold might be tradeable today for 1,000 tins of beans; but in a post apocalyptic dystopia, a can of beans would likely get you a good deal more than 1,000oz of Au.

Gold's greatest use is probably as adornment, and that is where its value comes from. It's a luxury item, and it's a luxury item, not only because it is attractive, but also because it is scarce. Fiat money is not scarce when governments decide that they can print all of it that they want. The cost of printing money is far less than the cost of mining gold. If I have an oz of gold and can trade it for 1,000 tins of beans, that is still far more than I would be able to get for paper money in the event of a currency collapse.

 

[Loren Pechtel]

Yes.
A lot of preppers store ammunition too: it actually has use (especially in their Mad Max influenced doomsday scenarii), and would probably be easier to barter with than gold, and is quite easy to store/hide.
(but is totally useless for civilized emergencies. Food/water, you can actually use in things that do happen, like flooding, snowstorm or fallen trees blocking roads, things like that)

Yeah, if I were a prepper I would stockpile things like ammo to use as trade goods. In a doomsday world it would be a valuable trade good. Gold only has value in a civilized society or in an area that is expected to become civilized in a reasonable timeframe.

 

[ksen]

Commodity money enthusiasts hate to admit it, but gold is fiat money.

The value of gold is the same as the value of dollar bills - it resides not in the material, but in the completely arbitrary perception people have of its value.

Gold is not completely valueless as a commodity - and nor is the rectangle of cotton paper with green ink on it. The former can be used for dental work, jewellery, optical coatings and electrical contacts; And if you have lots of it at a low price, it would make a good corrosion proof cladding - nice and soft, it would be a good replacement for lead in flashings and stormwater drainage applications, for example. The dollar bill would make pretty good toilet paper, in the absence of any perception of value (and if you have ever tried to live for any length of time without toilet paper, you wouldn't sneer at that as a measure of value).

In the event that civilisation collapsed, paper money would be pretty much worthless - and so would gold. Neither would be a good exchange for a tin of beans or a roll of 3-ply loo paper, unless the quantity being offered in exchange was huge.

An oz of gold might be tradeable today for 1,000 tins of beans; but in a post apocalyptic dystopia, a can of beans would likely get you a good deal more than 1,000oz of Au.

Gold's greatest use is probably as adornment, and that is where its value comes from. It's a luxury item, and it's a luxury item, not only because it is attractive, but also because it is scarce. Fiat money is not scarce when governments decide that they can print all of it that they want. The cost of printing money is far less than the cost of mining gold. If I have an oz of gold and can trade it for 1,000 tins of beans, that is still far more than I would be able to get for paper money in the event of a currency collapse.

I don't know man, I find that fiat money can be pretty scarce at times.

 

[bilby]

Commodity money enthusiasts hate to admit it, but gold is fiat money.

The value of gold is the same as the value of dollar bills - it resides not in the material, but in the completely arbitrary perception people have of its value.

Gold is not completely valueless as a commodity - and nor is the rectangle of cotton paper with green ink on it. The former can be used for dental work, jewellery, optical coatings and electrical contacts; And if you have lots of it at a low price, it would make a good corrosion proof cladding - nice and soft, it would be a good replacement for lead in flashings and stormwater drainage applications, for example. The dollar bill would make pretty good toilet paper, in the absence of any perception of value (and if you have ever tried to live for any length of time without toilet paper, you wouldn't sneer at that as a measure of value).

In the event that civilisation collapsed, paper money would be pretty much worthless - and so would gold. Neither would be a good exchange for a tin of beans or a roll of 3-ply loo paper, unless the quantity being offered in exchange was huge.

An oz of gold might be tradeable today for 1,000 tins of beans; but in a post apocalyptic dystopia, a can of beans would likely get you a good deal more than 1,000oz of Au.

Gold's greatest use is probably as adornment, and that is where its value comes from. It's a luxury item, and it's a luxury item, not only because it is attractive, but also because it is scarce. Fiat money is not scarce when governments decide that they can print all of it that they want. The cost of printing money is far less than the cost of mining gold. If I have an oz of gold and can trade it for 1,000 tins of beans, that is still far more than I would be able to get for paper money in the event of a currency collapse.

Gold isn't scarce. It used to be; but not in the last couple of centuries.

There are bloody great warehouses full of the stuff sitting idle all over the world - we call them vaults.

Far more gold has been mined than is needed for jewellery. It is basically valueless, except due to the 'race memory' of scarcity. It is valuable because our great, great, great, great, grandfathers knew it was scarce, and because those who hold it today arbitrarily decide it has far higher value than its actual worth as a commodity.

If a sufficient number of people decide to jump off the bandwagon and value gold only as a raw material for jewellery and dentistry, the price will adjust downwards sharply to a more reasonable level. But that isn't likely to happen soon, for the same reason that fiat currencies don't often crash - they are mutually agreed by many people to have an artificial value as a medium of exchange.

Both fiat paper and fiat gold are arbitrary containers of value. Both work; neither is particularly superior to the other. Either will crash in value if people lose confidence in them.

 

[Nexus]

Gold is unique because of its ability to withstand corrosion. Anything else that's scarce enough to hold arbitrary value will deteriorate with time. And catastrophes can happen in many shades of gray so besides Mad Max post apocalyptic scenarios, gold would be helpful in wealth preservation.

 

[bilby]

Gold is unique because of its ability to withstand corrosion. Anything else that's scarce enough to hold arbitrary value will deteriorate with time. And catastrophes can happen in many shades of gray so besides Mad Max post apocalyptic scenarios, gold would be helpful in wealth preservation.

Only if people have confidence in it. It is no longer sufficiently scarce to hold value other than in people's imaginations; Any catastrophe need only leave people wanting other stuff more than they want gold, and its value will collapse.

Of course, you can't necessarily detect that collapse by reference to fiat currency alone (as it is possible that both $ and Au could become worthless simultaneously), so watching the gold price in $/oz wouldn't necessarily tell you zip about its value - you also have to look at the value of both $ and Au against other commodities.

I don't think either are likely to collapse in value any time soon; I am merely pointing out that there is no particular reason to think that gold is especially immune to such a collapse. Strong currencies - such as US$, CHF, EUR, GBP and Au - are all likely to retain their value indefinitely unless there is a huge disruption or a massive failure of management.

If a cheap particle accelerator that could make lead into gold in your garage for a few cents a ton was developed; or a super-copier that could make exact replicas of $100 bills, indistinguishable from real ones, and those technologies were widely available, that could cause a collapse of confidence in the value of the affected currencies; as could an major disaster; a huge gold strike; or simple market sentiment swinging for no clear reason - remember, any market can remain irrational longer than you can remain solvent.

Gold is OK as a currency; but there is no particular reason to set it apart from all the other fiat currencies out there.

 

[Bronzeage]

Gold is unique because of its ability to withstand corrosion. Anything else that's scarce enough to hold arbitrary value will deteriorate with time. And catastrophes can happen in many shades of gray so besides Mad Max post apocalyptic scenarios, gold would be helpful in wealth preservation.

Only if people have confidence in it. It is no longer sufficiently scarce to hold value other than in people's imaginations; Any catastrophe need only leave people wanting other stuff more than they want gold, and its value will collapse.

Of course, you can't necessarily detect that collapse by reference to fiat currency alone (as it is possible that both $ and Au could become worthless simultaneously), so watching the gold price in $/oz wouldn't necessarily tell you zip about its value - you also have to look at the value of both $ and Au against other commodities.

I don't think either are likely to collapse in value any time soon; I am merely pointing out that there is no particular reason to think that gold is especially immune to such a collapse. Strong currencies - such as US$, CHF, EUR, GBP and Au - are all likely to retain their value indefinitely unless there is a huge disruption or a massive failure of management.

If a cheap particle accelerator that could make lead into gold in your garage for a few cents a ton was developed; or a super-copier that could make exact replicas of $100 bills, indistinguishable from real ones, and those technologies were widely available, that could cause a collapse of confidence in the value of the affected currencies; as could an major disaster; a huge gold strike; or simple market sentiment swinging for no clear reason - remember, any market can remain irrational longer than you can remain solvent.

Gold is OK as a currency; but there is no particular reason to set it apart from all the other fiat currencies out there.

This is certainly true. In the days when gold was the only currency, governments limited the cash in circulation to amount of their gold holdings. This was a real limit on an economy when the population increased.

Now that gold competes with true fiat currency, it has to offer all the advantages of fiat currency. If sales of gold were limited to people who manufactured electronics and jewelry, the price would be a fraction of today's gold market. The price stays high because there is a belief someone else will buy one's gold for at least what it cost, maybe a little more.

That faith makes it a fiat currency, just like the dollar and the pound.

 

[boneyard bill]

Gold's greatest use is probably as adornment, and that is where its value comes from. It's a luxury item, and it's a luxury item, not only because it is attractive, but also because it is scarce. Fiat money is not scarce when governments decide that they can print all of it that they want. The cost of printing money is far less than the cost of mining gold. If I have an oz of gold and can trade it for 1,000 tins of beans, that is still far more than I would be able to get for paper money in the event of a currency collapse.

Gold isn't scarce. It used to be; but not in the last couple of centuries.

There are bloody great warehouses full of the stuff sitting idle all over the world - we call them vaults.

Far more gold has been mined than is needed for jewellery. It is basically valueless, except due to the 'race memory' of scarcity. It is valuable because our great, great, great, great, grandfathers knew it was scarce, and because those who hold it today arbitrarily decide it has far higher value than its actual worth as a commodity.

If a sufficient number of people decide to jump off the bandwagon and value gold only as a raw material for jewellery and dentistry, the price will adjust downwards sharply to a more reasonable level. But that isn't likely to happen soon, for the same reason that fiat currencies don't often crash - they are mutually agreed by many people to have an artificial value as a medium of exchange.

Both fiat paper and fiat gold are arbitrary containers of value. Both work; neither is particularly superior to the other. Either will crash in value if people lose confidence in them.

Gold is only expensive now because we've printed so much money. In 2000 it was selling for about $300 an ounce. In 1971, when we went off the gold standard, it was selling for only $35 an ounce. Of course, that price could not be maintained because we'd printed too much money. The price of gold when the dollar was created was a mere $20.67. The rising price of gold represents our own irresponsible use and abuse of fiat currency.

 

[boneyard bill]

Gold is unique because of its ability to withstand corrosion. Anything else that's scarce enough to hold arbitrary value will deteriorate with time. And catastrophes can happen in many shades of gray so besides Mad Max post apocalyptic scenarios, gold would be helpful in wealth preservation.

Only if people have confidence in it. It is no longer sufficiently scarce to hold value other than in people's imaginations; Any catastrophe need only leave people wanting other stuff more than they want gold, and its value will collapse.

Of course, you can't necessarily detect that collapse by reference to fiat currency alone (as it is possible that both $ and Au could become worthless simultaneously), so watching the gold price in $/oz wouldn't necessarily tell you zip about its value - you also have to look at the value of both $ and Au against other commodities.

I don't think either are likely to collapse in value any time soon; I am merely pointing out that there is no particular reason to think that gold is especially immune to such a collapse. Strong currencies - such as US$, CHF, EUR, GBP and Au - are all likely to retain their value indefinitely unless there is a huge disruption or a massive failure of management.

If a cheap particle accelerator that could make lead into gold in your garage for a few cents a ton was developed; or a super-copier that could make exact replicas of $100 bills, indistinguishable from real ones, and those technologies were widely available, that could cause a collapse of confidence in the value of the affected currencies; as could an major disaster; a huge gold strike; or simple market sentiment swinging for no clear reason - remember, any market can remain irrational longer than you can remain solvent.

Gold is OK as a currency; but there is no particular reason to set it apart from all the other fiat currencies out there.

You are overlooking the fact that gold has another use, and that is as a medium of exchange. Yes, I can always exchange my potatoes for a gallon of gasoline, but how easy is that to do? The gas station owner doesn't necessarily want my potatoes. So I have to find someone who wants my potatoes and has something the gas station owner wants whereas he will accept gold because he knows that he can trade it for something he does want. Gold is a commodity, but I is the most marketable commodity. Fiat money is not a commodity and is not marketable at all if it becomes too plentiful. Yes, gold would be as worthless too if it were as cheap to print as Zimbabwe dollars. But it isn't. Gold is scarce because governments and investors are holding on to it because they know that it will be marketable when paper currencies are not.

 

[boneyard bill]

Only if people have confidence in it. It is no longer sufficiently scarce to hold value other than in people's imaginations; Any catastrophe need only leave people wanting other stuff more than they want gold, and its value will collapse.

Of course, you can't necessarily detect that collapse by reference to fiat currency alone (as it is possible that both $ and Au could become worthless simultaneously), so watching the gold price in $/oz wouldn't necessarily tell you zip about its value - you also have to look at the value of both $ and Au against other commodities.

I don't think either are likely to collapse in value any time soon; I am merely pointing out that there is no particular reason to think that gold is especially immune to such a collapse. Strong currencies - such as US$, CHF, EUR, GBP and Au - are all likely to retain their value indefinitely unless there is a huge disruption or a massive failure of management.

If a cheap particle accelerator that could make lead into gold in your garage for a few cents a ton was developed; or a super-copier that could make exact replicas of $100 bills, indistinguishable from real ones, and those technologies were widely available, that could cause a collapse of confidence in the value of the affected currencies; as could an major disaster; a huge gold strike; or simple market sentiment swinging for no clear reason - remember, any market can remain irrational longer than you can remain solvent.

Gold is OK as a currency; but there is no particular reason to set it apart from all the other fiat currencies out there.

This is certainly true. In the days when gold was the only currency, governments limited the cash in circulation to amount of their gold holdings. This was a real limit on an economy when the population increased.

Now that gold competes with true fiat currency, it has to offer all the advantages of fiat currency. If sales of gold were limited to people who manufactured electronics and jewelry, the price would be a fraction of today's gold market. The price stays high because there is a belief someone else will buy one's gold for at least what it cost, maybe a little more.

That faith makes it a fiat currency, just like the dollar and the pound.

No. It's not the faith. It's the scarcity. It will still be marketable when fiat currencies are dead and gone.

 

[Bronzeage]

This is certainly true. In the days when gold was the only currency, governments limited the cash in circulation to amount of their gold holdings. This was a real limit on an economy when the population increased.

Now that gold competes with true fiat currency, it has to offer all the advantages of fiat currency. If sales of gold were limited to people who manufactured electronics and jewelry, the price would be a fraction of today's gold market. The price stays high because there is a belief someone else will buy one's gold for at least what it cost, maybe a little more.

That faith makes it a fiat currency, just like the dollar and the pound.

No. It's not the faith. It's the scarcity. It will still be marketable when fiat currencies are dead and gone.

When fiat currencies are dead and gone, the real wealth will be held in dried beans and toilet paper.

 

[bilby]

Gold isn't scarce. It used to be; but not in the last couple of centuries.

There are bloody great warehouses full of the stuff sitting idle all over the world - we call them vaults.

Far more gold has been mined than is needed for jewellery. It is basically valueless, except due to the 'race memory' of scarcity. It is valuable because our great, great, great, great, grandfathers knew it was scarce, and because those who hold it today arbitrarily decide it has far higher value than its actual worth as a commodity.

If a sufficient number of people decide to jump off the bandwagon and value gold only as a raw material for jewellery and dentistry, the price will adjust downwards sharply to a more reasonable level. But that isn't likely to happen soon, for the same reason that fiat currencies don't often crash - they are mutually agreed by many people to have an artificial value as a medium of exchange.

Both fiat paper and fiat gold are arbitrary containers of value. Both work; neither is particularly superior to the other. Either will crash in value if people lose confidence in them.

Gold is only expensive now because we've printed so much money. In 2000 it was selling for about $300 an ounce. In 1971, when we went off the gold standard, it was selling for only $35 an ounce. Of course, that price could not be maintained because we'd printed too much money. The price of gold when the dollar was created was a mere $20.67. The rising price of gold represents our own irresponsible use and abuse of fiat currency.

That's just silly. You don't use a proxy measure when a direct measure is available. The value of the dollar relative to gold is a poor proxy for the value of the dollar to the ordinary American. The effect of increased supply of greenbacks is better measured using the Big Mac index - or the cost of tinned beans and loo-rolls; or bread and beer.

Inflation can't be hidden; and if it was, it would be hidden from gold pricing far more easily than from the prices of basics such as food.

Nobody in Zimbabwe or the Weimar Republic had to look at the gold price to find evidence of inflation. The price of a loaf of bread was a much better indication of the problem.

 

[boneyard bill]

No. It's not the faith. It's the scarcity. It will still be marketable when fiat currencies are dead and gone.

When fiat currencies are dead and gone, the real wealth will be held in dried beans and toilet paper.

Barter is inefficient. We'll still need to use something as a medium of exchange and that something will have to be some kind of commodity that people have some confidence in. Maybe it will be nickels. They have about $.08 cents in junk metal and cost about $.11 to mint. So when people lose faith in the paper currencies, they might still retain confidence in our coins.

 

[boneyard bill]

Gold is only expensive now because we've printed so much money. In 2000 it was selling for about $300 an ounce. In 1971, when we went off the gold standard, it was selling for only $35 an ounce. Of course, that price could not be maintained because we'd printed too much money. The price of gold when the dollar was created was a mere $20.67. The rising price of gold represents our own irresponsible use and abuse of fiat currency.

That's just silly. You don't use a proxy measure when a direct measure is available. The value of the dollar relative to gold is a poor proxy for the value of the dollar to the ordinary American. The effect of increased supply of greenbacks is better measured using the Big Mac index - or the cost of tinned beans and loo-rolls; or bread and beer.

Inflation can't be hidden; and if it was, it would be hidden from gold pricing far more easily than from the prices of basics such as food.

Nobody in Zimbabwe or the Weimar Republic had to look at the gold price to find evidence of inflation. The price of a loaf of bread was a much better indication of the problem.

I think you're missing the point. The fact is that the markets DO look at the gold price as an indicator of inflation. That's because inflation comes in many forms and asset price inflation is not as easy to detect as consume price inflation. Is the stock market rising now because of real growth or because of inflation. If you look at the price of paper gold, you would say it's not inflation. But if you look at the price of physical gold, you would say it's because of inflation. So the government does have an interest in keeping the gold price down so people don't lose confidence in the stock market. They look at the COMEX and say there is no asset price inflation. But that's because the COMEX price is rigged either by the Fed, the Exchange Stabilization Fund, or by the Wall Street banks in cooperation with the government. At this point, there is no market comparable to the COMEX for physical gold.

 

[bilby]

When fiat currencies are dead and gone, the real wealth will be held in dried beans and toilet paper.

Barter is inefficient. We'll still need to use something as a medium of exchange and that something will have to be some kind of commodity that people have some confidence in. Maybe it will be nickels. They have about $.08 cents in junk metal and cost about $.11 to mint. So when people lose faith in the paper currencies, they might still retain confidence in our coins.

Dried beans make a pretty good medium of exchange; but perhaps not as good as toilet paper, which is almost completely non-perishable. What use is nickel (or cupro-nickel) in a post apocalyptic wasteland? Scrap metal will be plentiful enough; what counts is a full belly and a clean arse.

Of course, if other currencies don't collapse, then they will fill the void - as they always do. Usually the US$ takes over as defacto currency, but if the US$ collapsed, there is no reason why the Loonie or the Euro couldn't fill the void.

 

[laughing dog]

Arguing with gold bugs or commodity money bugs is like arguing with YECs: they are both faith-based.

 

[Togo]

I think you're missing the point. The fact is that the markets DO look at the gold price as an indicator of inflation. That's because inflation comes in many forms and asset price inflation is not as easy to detect as consume price inflation.

No, it really isn't. Gold is a currency, and is looked at for a view on inflation because of its status as a currency. Markets look at commodity price inflation by looking at a basket of commodities - they often separate it out into energy, base metals, and so on. I've not seen Gold used as a measure of commodities in general.

Is the stock market rising now because of real growth or because of inflation. If you look at the price of paper gold, you would say it's not inflation.

Eh, why not?

But if you look at the price of physical gold, you would say it's because of inflation.

???

[ So the government does have an interest in keeping the gold price down so people don't lose confidence in the stock market. They look at the COMEX and say there is no asset price inflation. But that's because the COMEX price is rigged either by the Fed, the Exchange Stabilization Fund, or by the Wall Street banks in cooperation with the government. At this point, there is no market comparable to the COMEX for physical gold.

Well, if you're right, then you can make a packet. Set up a arbitrage between physical gold and paper gold, and you'll make a packet with the Fed effectively paying you to supress the market effects of your trading. I'd recommend Standard Bank (London) as a good place to start, since they deal a lot of gold and have a private client business to set up the necessary trades. Personally, I wouldn't bet my money on the entire global gold market being unable to spot what you describe as a fairly obvious and substantial subsidy by the Fed to supress the price of physical gold, but if you really feel you have better information that an entire community of specialist investors, then by all means go for it.

 

[Nexus]

Dried beans make a pretty good medium of exchange; but perhaps not as good as toilet paper, which is almost completely non-perishable.

Those wouldn't last if exposed to water. Gold has been used for 1000s of years because it doesn't perish like every other element or their compounds. I'm not a gold bug and my history here shows that but its silly to outright dismiss gold's value as an exchange medium considering its solid history throughout human civilization.