When the gold hits the fan.

[boneyard bill]

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.

I doubt that there are enough loonies. It would force prices really, really high. Maybe the euro would work. But the real problem is that if the dollar fell, these other currencies probably would as well.

 

[boneyard bill]

Togo writes:

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.

Of course not because commodities are affected by a lot of things. Gold, however, is mostly affected by the quantity of money. Gold production and gold demand are pretty stable. So when the price changes, it reflects the volatility of the currency in which it is priced more than anything else. Of course, in the short term it might be influenced by the daily news, but long term the price generally affects money creation.

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?

Because the price of gold on the COMEX has been falling.

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

???

The price of physical gold would be at least $1800 an ounce and probably higher according to the OP. So, despite the decline on the COMEX, physical gold is probably at an all time high.

[ 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.

I don't know what you mean by a "packet." I assume you are saying that I could arbitrage it. But that's the problem. It is highly unlikely that I would be able to take delivery of physical gold from the COMEX. They don't have to deliver the gold. In fact, the COMEX has very little gold compared to the value of their contracts. For me to arbitrage physical gold, I would have to take possession.

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

.

If you sell enough shorts, the price goes down, then you buy it back. You don't need to lose money. Professional investors can't buy gold except for a few very rich ones. Most professional investors are investing pension funds or insurance companies or other institutional investors. They need yield. Gold does not provide a yield. They might invest a small portion of their funds as a hedge, but they cannot afford to risk an investment in gold going up or down. They generally prefer bonds as the safest investment, but with interest rates so low, they often have to invest in stocks despite the higher risk because they need the yield. That's one of the reasons why the stock market is doing so well right now.

 

[boneyard bill]

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.

Yes. Gold has served as a medium of exchange for millennia. Theoretically, there is no reason why fiat money can't work. It is a contract and a contract has value. So if governments or banks did not keep creating more of it, it would work. The problem is that history shows that governments have never resisted the temptation to debase the currency. The Romans put so much junk metal into their "gold" aureus that no one would use it. Even the soldiers eventually refused their pay. The current era does not appear to be any kind of exception to the rule. Debasement works in the short run, and politicians don't think about the long run.