Questions about Gold, brainstorming

[wobber]

1. What do you think, will the price of gold will go down? Argument as much as possible.

2. How could the price of gold could go down? What could happen to do so?

3. Would you buy gold today, now, at current the price?

4. Not actually a question. I want to learn as much as possible about precious metals and why are they so valued for thousand of years.

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[Grant]

1. What do you think, will the price of gold will go down? Argument as much as possible.

2. How could the price of gold could go down? What could happen to do so?

3. Would you buy gold today, now, at current the price?

We're certainly having an almost perfect sentiment for a 'bubble state'. Heck, in Dubai they now even placed "Gold ATMs", and i heard there are some that plan to do it on a larger scale.
There are people who said it will first pass 1500, then 2500, then 5000, and even above 10000.

The most loud gold-envangelism seems to be the argument that, in case of a deep-depression everything will go down but gold will go up. I don't disagree with the first, everything will go down, but gold (being a "portable" luxury commodity will collapse too). On the other hand if we're going for a fine W shaped recovery combine with excessive QE (too much inflation) then gold would be a good thing to offset loss on inflation.
In any of those 2 events, gold is just what it is, which leads me to your next question...

4. Not actually a question. I want to learn as much as possible about precious metals and why are they so valued for thousand of years.

Stores a lot of value, takes little space, is quiet portable and independent of authorities. During WW1/WW2 it was perhaps THE most oversold commodity (traded at well below 90% below its real worth), BUT that was in many cases still better than other commodities (except food, but food isn't very portable nor does it store much value).

Its that which makes it so valued throughout our times, it doesn't retain its value at all times but it performs better than most commodities even in the most extreme times.

If we had an extreme event today, similar to WW2, and telecom/internet communication was still intact in some form, and independent cryptocurrencies such as bitcoin were more widely spread than they are now, i think people would more likely purchase them in exchange for food, rather than gold due to its portability advantage AND independence from authorities.

[ribuck]

Before investing in gold, everyone should become familiar with its inflation-adjusted historical pricing, as shown in this chart:
http://en.wikipedia.org/wiki/File:Gold_price_in_USD.png

As you can see, if you bought between 1980 and 1982 you would still be showing a loss three decades later.

So timing is everything. The best time to buy gold was 2001. It may still be a good time to buy gold, but only if you sell it before the economy improves.

Gold is a great hedge against inflation. Historically, gold goes up when inflation is high, and gold goes down when inflation is low. But there's one potential catch in using gold this way. If the economy really goes haywire, the government could prohibit private ownership of gold as they did for much of last century. Then, your hedge becomes untradeable.

[grondilu]

You'd better ask yourself whether you trust the US dollar more than gold.

Gold is gold.  It is what it has always been.

The US dollar is in terrible shape.  If USA don't default soon, they'll have to pay their debt with printed money.  And then the price of gold will go zimbabwean style.

[RHorning]

You'd better ask yourself whether you trust the US dollar more than gold.

Gold is gold.  It is what it has always been.

The US dollar is in terrible shape.  If USA don't default soon, they'll have to pay their debt with printed money.  And then the price of gold will go zimbabwean style.

I think this is a very good point to make:  The U.S. Dollar is incredibly weak (but so is the Euro and most of the other major currencies.... including I might add the Chinese Yuan: it is built upon the U.S. Dollar as well).

There isn't any sort of mechanism or rational of what the U.S. government "defaulting" on the dollar might even be.  Other countries "defaulted", but they owed debt denominated in other currencies.  The U.S. government, at least at the moment, only owes money in U.S. denominated loans and bonds.  When Argentina defaulted on their loans, they simply refused to pay back the loans in dollars, which effectively cut them off from international loans of this nature, but shy of going to war what else are you going to do?  Argentina also let their currency go hyperinflationary, but that wasn't the key point of the "default".

That may also be the case with a U.S. default, but what may happen (and I think quite likely too) is that the U.S. dollar is going to be significantly devalued.  Mind you, China has been playing this game for the past couple of decades and in fact prospered by doing so, although I don't know how they are going to react when others start to play their same game.

The U.S. federal reserve has been essentially "running the printing presses" to create new dollars out of thin air to cope with the American economy.  I don't know the exact figures, but I've seen figures in the multi-trillion dollar range of "new money" being pumped into the U.S. Economy.  This is also relatively new behavior as the Fed has traditionally been rather reluctant to do this so overtly in the past.  With all of this money injected into the economy, it has to go somewhere and it is adding huge inflationary pressure on just about everything.  The main reason the U.S. economy hasn't gone hyper-inflationary yet is mainly that such things take time to work their way through the economy.

The current bet on buying gold right now is to make a guess as to if this hyperinflation is really going to hit or not.  If you think the U.S. Dollar is going to collapse through massive inflation, although it doesn't necessarily have to be hyper-inflation, as even inflation like happened during the Carter administration would be sufficient to make a mess here.  Annual inflation above 10% is something not currently anticipated by most business plans in America.  I would call that a good tipping point right now:  If you think that over the short term inflation (as measured with the CPI and other comparable indexes) is going to go well above 10%, with ensuing political turmoil that will cause internally within America, gold is a good bet even now.  If you think there are "wise and intelligent people" who are in charge of the American government & Federal Reserve and that somehow they are going to prevail against those things which may attack the U.S. Dollar and that inflation is going to stay steady or that deflation is going to happen, sticking with the Dollar might be a wise thing to do.

Historically speaking, the U.S. Dollar has been a pretty good bet, which is one of the reasons why it is a world reserve currency.  Traditionally, due to investment options and other things you can do with dollars besides just simply throwing it under a mattress, dollars have out-performed gold.  I'm talking T-bills and other "safe" ways to park dollars if you have invested into dollars which certainly have out-performed gold.  The presumption now is that gold is going to out perform even T-bills, which may be the case but I wouldn't call that a sure bet even now.  If the U.S. economy goes bust, gold will be nice to have but I think it would be stupid to put your entire life savings into gold as well.

BTW, I think the long-term prospects for bitcoins are going to be better than gold, for many of the same reasons.  If you can get into investment strategies that are bitcoin-denominated investments, you will be doing even better still.  It would be fun to come up with a chart of gold vs. bitcoins, although I think at the moment you would have to reference the exchange rate in dollars to come up with any sort of comparison at the moment.

[hugolp]

I dont have time to argue now, but gold will keep going up until the crisis is over, that is it will go up for 4 or 5 years more. If you believe the crisis will be over tomorrow sell your gold now. In all the big crisis the DOW/gold ratio goes to near 1 and we are still at 7. I wont sell until that ratio goes under 3.

[S3052]

Agree with 1 caveat.

The ratio can stay unchanged at a high level even if both go down.

As there are big speculators in the gold market on top of longterm investors, if the crisis gets worse (which I believe it will), Gold will also go down as hedge funds need to unload gold to pay out fund withdrawals and stay liquid.

Hence, Gold is likely to go down towards 1000 and possibly towards 650-850 by 2011/12 before sharlpy turning up and making new highs.

[FreeMoney]

Agree with 1 caveat.

The ratio can stay unchanged at a high level even if both go down.

As there are big speculators in the gold market on top of longterm investors, if the crisis gets worse (which I believe it will), Gold will also go down as hedge funds need to unload gold to pay out fund withdrawals and stay liquid.

Hence, Gold is likely to go down towards 1000 and possibly towards 650-850 by 2011/12 before sharlpy turning up and making new highs.

What do you think about paper vs physical?

[S3052]

you want to own PHYSICAL gold, definitely no paper because this will be worthless

have a look at http://www.safewealthgroup.com/
(you need to send them a mail to get access, but it is for free. they don't offer a real website for good reason)

they have a great clarity about that and great reputation

they now offer "safestore" for gold, silver and cash notes

[da2ce7]

@S3052, what do you think of Gold Money http://goldmoney.com/?

[hugolp]

Agree with 1 caveat.

The ratio can stay unchanged at a high level even if both go down.

As there are big speculators in the gold market on top of longterm investors, if the crisis gets worse (which I believe it will), Gold will also go down as hedge funds need to unload gold to pay out fund withdrawals and stay liquid.

Hence, Gold is likely to go down towards 1000 and possibly towards 650-850 by 2011/12 before sharlpy turning up and making new highs.

That would happen if the crisis developed as a deflationary correction, but from now on is going to be more and more inflationary.

Look at this lasts months. There are deflationary presures, but the Fed monetizing govt debt everyday is keeping the market up. We are going directly towards stagflation.

[S3052]

I disagree.

We are still overall in a deflation that will accelerate again and will be persistent for some time until inflation kicks in again.

What you see in some mainstream financial coverage is the masking of the deflation becuase noone wants to face reality.

The best way to look at it is to view the Dow Jones / Gold ratio. Then you see that deflation is in full force still, and will further accelerate.

[hugolp]

I disagree.

We are still overall in a deflation that will accelerate again and will be persistent for some time until inflation kicks in again.

What you see in some mainstream financial coverage is the masking of the deflation becuase noone wants to face reality.

The best way to look at it is to view the Dow Jones / Gold ratio. Then you see that deflation is in full force still, and will further accelerate.

By mid-2011 the rise in prices will start to be evident. Government and media will claim is a sign of recovery.

By 2012 stagflation will be oficially admited.

[ShadowOfHarbringer]

I concede with Peter Schiff and Gerald Celente, which are among the very few economists who have successfully forseen current financial crisis (google it). Well, Celente actually has like a 20-year long history of valid forecasts.

From their opinions, one might conclude that some terrible financial disaster is coming, one which has not been seen in the history of mankind probably.
Perhaps the perpetual circle of self - fueling debt will create something very unexpected.... Unexpected even for the banksters who probably caused the current crisis.

I hope that this future event will create a chance for Bitcoin to adopt widely.

Also, i wouldn't invest in Gold, since it is usually overpriced and suspectible to price spikes as everybody wants it and it is advertised as a remedy for the crisis. I would rather go silver, platinum which are more stable and predictable. Of course the last currency i would ever choose is dollar.

[Sjalq]

Both gold and silver are currently manipulated through electronic trades that are not backed by gold or silver.

We will see either a total deflationary collapse, or in an attempt to avoid it we will see hyperinflation in most of the developed world.

So lets cover bother scenarios.

1. What do you think, will the price of gold will go down? Argument as much as possible.

Inlfation: Way up, since more paper chases same amount of gold.
Hyperinflation: WAY, WAY up.
Deflationary: WAY up, this is because currently when the worlds financial system cashes out it cashes out into bonds. During deflationary collapse you will have every government on the planet defaulting. So the cash out will have to occur in the next best go-to asset.

2. How could the price of gold could go down? What could happen to do so?

Politicians could implement sovereign money that is strictly enforced by legal tender laws and forbids excessive fractional reserve banking. This would take away the incentive for investors to run for safety as economies can get away from debt and savers can save. This would also end the manipulation of the AU an AG markets and might mean still reasonable gains.

Chances of this happening, basically zero.

Sound fiscal policy is what ended the previous gold bull run.

3. Would you buy gold today, now, at current the price?

Yes, but I would buy 10 times as much silver. There are both monetary and industrial arguments behind silver. Gold at $2000 is a steal!

4. Not actually a question. I want to learn as much as possible about precious metals and why are they so valued for thousand of years.

They have value because they can be used as forms of payment and stores of value that are independent of counter party risk. If you have precious metals, you don't need the bank or the government for someone else to be willing to trade goods with you in exchange for your precious metals. If the gov / banking system abuses the currency people always remember gold and silver.

BTW Major note, gold is no where NEAR bubble territory. When people begin discussing gold with the frequency they discussed real estate investment at dinner parties, take your gold and trade it for their assets, the end is neigh, but that's still a thousand days or more away. Start a separate thread if you want to discuss if gold is in a bubble or not, should make for interesting debate

[wobber]

Thank you! There is an amanzing amount of knowledge in this forum. And I thank you for that.

[hugolp]

2. How could the price of gold could go down? What could happen to do so?

Politicians could implement sovereign money that is strictly enforced by legal tender laws and forbids excessive fractional reserve banking. This would take away the incentive for investors to run for safety as economies can get away from debt and savers can save. This would also end the manipulation of the AU an AG markets and might mean still reasonable gains.

This would be extremely bullish for gold.

Politicians would start printing money to pay for political favors and gaining votes and the money would depreciate quickly. Check history, for example the assignat in France. I have not found one example in history where politicians printing money directly does not lead to hyper-inflation.

Government printing money = gold to the sky. This is basically what is happening with QE2 and the rest to come. A central bank monetizing government debt is the government printing money.


The only thing that can bring gold down is if the government decided to default on the debt and start being fiscally responsable. Apart from that, everyone nknows that governments are going to keep printing money to pay the debt.

[lucky]

Also, i wouldn't invest in Gold, since it is usually overpriced and suspectible to price spikes as everybody wants it and it is advertised as a remedy for the crisis. I would rather go silver, platinum which are more stable and predictable. Of course the last currency i would ever choose is dollar.

Surprised I had to scroll down this far to see such a sensible response.  Gold is just a commodity in the modern world, the bulk of it is used either in jewellery or for industrial purposes.

If you need to hold on to wealth, go with baskets.  A selection of precious metals, a selection of currencies.  All your eggs in one basket (so to speak) is a really bad idea.

As for everyone who doesn't believe the current gold price is a bubble: http://upload.wikimedia.org/wikipedia/commons/e/e3/Gold_price_in_USD.png

[ShadowOfHarbringer]

Government printing money = gold to the sky. This is basically what is happening with QE2 and the rest to come. A central bank monetizing government debt is the government printing money.

The only thing that can bring gold down is if the government decided to default on the debt and start being fiscally responsable. Apart from that, everyone nknows that governments are going to keep printing money to pay the debt.

This is only part of the story.
Gold can be largely overspeculated, price spikes are likely, so it is not the best investment. Other bullions are safer.

[hugolp]

Gold is only an ornamental commodity and remains so despite of it's rising prices.It's prices are increasing at an alarming rate and with that it is becoming more and more difficult for the common man to obtain it.

If gold is really only ornamental it would no way have the price it has now. Give it another tough.