Supply/Demand dynamics

bushi

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To pay off our 15 tn + national debt with our gold, we would have to have gold priced at $78,000 / oz:
good question: TO WHOM you owe that 15TN? Last fiver, AFAIK, has been more or less printed by FED since roughly 2008 shock.

And it is important to understand, that when we say "FED is printing", what it really means, is "FED is creating money out of thin air, and then they lend these freshly formated harddrives (it is just too much of a hassle to print all these banknotes anymore) to US people via their government, on interest

This is the devil. Creating money, required for every nation to function, as a interest-bearing debt. This circle has to be stopped.

And you know what money is created differently? Everything that is minted. Coins, and of course PMs.


So, going back to my original question: why you should EVER pay back ANYTHING that you owe to the FEDs? IT is a nonsense, and this part of the debt should be simply abolished. I would try to get the already paid interest back, because it is just a very sophisticated scam.

Of course, it would take very brave or very stupid president to try to do this.
 

bushi

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Hi guys,

It will be probably PM's 101 to many folks here, but I think this is a great series of rationale behind PM's current (under)valuation. Bear in mind they are making their living from selling that stuff :gold: :silver:, so make your own mind, but I find that reasoning very appropriate:

http://gold.bullionvault.com/How/GoldValue

And another very good one, specific about the silver (explaining well why you could put the "volatility" of the PMs market deep into the closet, and keep laughing at the swings):
http://www.tfmetalsreport.com/blog/3313/coming-paradigm-shift-silver


These two tie nicely with other stuff that I've read/heard from few people who do NOT have any interest in promoting PMs, and in general, it resonates well with my strongly formed "no nonsense, bullshit-detecting spider sense" :)


cheers,
 

DCFusor

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I don' get the argument that our debt has anything whatsoever to do with the value or price of gold, except that as we monetize it, gold's going up. Sorry DoChen, I think that one is specious. Pun intended.

If Zimbabwe had to pay off theirs with their gold...I mean, where does that line of thinking lead you, and why is the US particular financial situation a price setter for gold? I don't think it is.
 

bushi

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1)(...)that our debt has anything whatsoever to do with the value or price of gold, except that as we monetize it, gold's going up

2) (...) why is the US particular financial situation a price setter for gold? I don't think it is.
My take on this:
ad 1). Indeed, as you monetize your debt, the gold goes up. And because monetizing it changes investors' sentiments, and is increasing risks regarding paper assets (or wipes their value, or creates negative effective rates), that is shifting the gold price upwards.

Secondly, "gold is money". So it is a natural alternative to paper assets, which become more and more risky and worthless. Other commodities cannot perform the function of money, i.e. wealth preservation (oil, food, etc., even silver, with it's big industrial consumption (irreversible economically - for now) - we don't want our wealth preservation medium, whatever it would be, to be consumed. So while we could TEMPORARILY hedge our cash into oil, food, etc - which is happening, that is why commodities are skyrocketing after any round of "easy money", if it is available in tough economic climate - re QE - but eventually, that is just impractical to store one's wealth in these other commodities)

ad 2) size matters, and the status of dollar being (still) world reserve currency, makes all the difference, if someone wants to switch from dollars (China? Europe? Middle East?) into something else, gold comes into play inevitably, and naturally. There may (and will be) temporary swings into other currencies, commodities, but ultimately, it will gravitate towards gold, because ALL fiat currencies are in a deep shit, our global economy is simply too much in debt, and pumping more money in it, only derives that money into risky investments (commodities again), but does not filter down to SMEs (ask anyone at the bottom of the pyramid how easy it is to get credit, and how THEIR interest rates looks like, comparing to ZIRPs of the leviathans)

Although I agree with you completely that simplistic calculations, i.e. "we owe $X trillions, we have Y OZ of gold, so price of gold will be X/Y, and everything is rosy, reset the counters" will definitely not work. Markets will eventually dictate the real value (the price discovery WILL happened in the future, it is already happening despite all the BS going around. This price discovery will also include massive defaults and liquidity, happening in the "monopoly money" economy, inevitably, affecting greatly and disturbing also the real economy. This is inevitable, all these abstract economic instruments floating around, that do not PRODUCE anything, that do not add any REAL value - apart from transferring the wealth from the real economy into the hands of the few - it will HAVE to come down tumbling. At some stage soon, nobody will be willing to pay for them, and people smart enough to notice, will probably make the killing on it.

Just imagine even a fraction of all that Monopoly Money being pumped into PMs, if the derivative market alone is estimated an order of magnitude bigger than the WHOLE real, tangible, wealth-producing economy. And it will happened at some intermediate stage - while suckers will be still buying these paper assets, and the clever sellers of them will be putting them into the ONLY remaining safe heaven - the gold (and possibly silver, but I believe silver mechanics will be largely driven by different mechanics (vanishing supply).

So, Zimbabwe could not make a dent, but US of A, oh "yes we can" ;). Also, in case of any previous high/hyperinflations, there were OTHER STRONG FIAT CURRENCIES ready available, that people naturally switched to -> ergo, gold haven't came into a play in a big way. Not so much in our current end game...

regards,
 
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DCFusor

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Right, bushi - I think we're seeing things about the same here. The amount of gold the US claims to own (maybe not equal to the amount actually owned) seems a pretty arbitrary number - an accident of history. Though discovering we own a lot less than claimed would surely cause gold to spike, it's not a 1::1 kind of thing..

What I would find interesting I think is to compare gold to other things that are money, or at least extremely necessary in this world as we've built it.

What's the ratio of gold to:
Oil
Food
Copper
Stock indexes
Land (hmm, a bunch of possible categories here)
Other PM's

Or some combination of these things to smooth out the fact that weather can affect the price of food, a big find can cut the price of oil, Land and stocks are affected by the economy at large, and so forth.

Maybe I should get off my butt and make that plot...As far as I can tell, gold merely prices currencies plus or minus some noise - there's nothing really to see there - the grocery store also prices the currency I use..effectively, as does the price of gasoline for most people (heh, charging my Volt off solar regularly now - sun finally getting over the trees).

Well, perhaps I should retract a little bit - that noise (Forex) is also data that can be turned into information.
 

DCFusor

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Ok, real crummy compared to what I envisioned, but still somewhat enlightening I think. To do what I want here, I'd have to write some code to use the downloadable data I can get and plot it in Gnuplot all pretty. But using some stand ins - another source of not-goodness, here's what I see.



What happened at the end of July? Look at all that divergence!
But on a longer scale, not so dramatic.
 

DCFusor

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Interesting that BTE, a stand in for oil, which I got real lucky and bought in 1q 09, has done better than gold - and has been paying a real nice dividend the whole time that doesn't show up there (google doesn't do dividends as return) - speaking of supply/demand dynamics. I'm not sure I'd buy it now, but...

Guess that's why they call it black gold. A lot higher risk than gold - but with higher return, as things should be in a sane world. Sanity is getting harder and harder to find out there.
 

bushi

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I still think (and that's my belief only), that for every practical reason, gold (and quite possibly silver as well) will end up as the money of choice, when everything paper starts to fail all over the place (hint: Iran/India recent deal)

Other commodities you mention are not intrinsically money, or do not have that broad tradition (like other PMs, platinium etc.).

Can't really imagine transactions being carried out in oil, that's just highly unlikely to happened. 1OZ Krugs would be still waaaay more practical than whatever amounts of crude equivalent. Oil's usability lies in BURNING it (well, this and chemistry, of course), why should we use as money something that you by default want to extract the value from by BURNING it :). It is much more NEEDED in economy as the fuel/component, rather than wealth preservation/medium of exchange, it is also it's main PRACTICAL purpose. Gold on the other hand is and always was used nearly only for wealth preservation/jewelry (=to a large degree, wealth preservation as well). IT is not really used for anything else.
For obvious reasons, you CANNOT use land for any transactions, it is physically impossible (good for storing the wealth, though - but only in big chunks, and only where/when available, and as you know best yourself - an acre is not equal to another acre at all).
 

DCFusor

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I agree that oil would stink as money (and those other things too) - but I think you'd have to agree that with the world set up as it is - it's just as important. If all money (by the standard definitions of it as medium of exchange) disappeared overnight by some magic - we'd still barter - it'd be inconvenient, but we'd live. But without oil to move things around, there'd not be much to barter for. We'd lose that whole Adam Smith thing of allowing specialization on the scale we now have it just as surely as if there was no money - we'd be back to village scale things totally.

What I was going for there was some way to look at some sort of absolute value of gold. Obviously comparing against fiat is pointless except to value the fiat - which can come, or go, on the whim of a government. So, what else is there to compare, something that's at least nearly as important as money to everyone's daily life?

Some of these things, yes, their only value happens as they are consumed. Which of course brings in supply/demand/scarcity dynamics - particularly for "those they ain't makin' anymore". But humans consume these things not so much by choice, but because you die without them - or can't have a society anything like what we have - and support as many people on the planet without them (copper). I'd say that rates their importance way up there, and makes possible at least some kind of comparison of gold to something other than paper currency.

I'm not dissing gold! I'm trying to accurately value it, since there is so much utter baloney out there as theories of its value (as agreed on by we silly human beings, my cats really don't care - and the trees don't notice at all). I believe the value of any "thing" there is or will be is just what you can trade for it (neglecting deeper philosophical considerations, such as "what is wealth" because hey, I'm wealthy - and I also have money).

Gold really IS used for "anything else", though not a huge fraction of the total gold there is. I have a house full of electronics all of which have gold in them. Much tech would not be practical without it as a contact media - nothing else is even close to being as reliable. I use it in my physics lab for its properties - one of the things I do is transmute it into other things (not much, though!). RF gear plates gold over silver for best long lasting conductivity in corrosive atmospheres. NASA used it all over the moon lander as the best reflector of IR radiation - and it's in every satellite. There is any amount of gold plated jewelry that you really can't call a store of wealth, but gives the appearance, and then gets thrown away. All these uses do put some gold in landfills (and in orbit!), maybe not much, but like with anything finite - a drip can fill an ocean eventually, a rate is definitely a different thing than an amount - and the latter is what we have with gold unless someone gets to practical transmutation.

This might be another important idea about what can constitute money - the fact that it's finite. If you go with Chris Martensen's view of you can't grow forever on a finite planet - it makes sense that whatever makes good money should also be finite, and perhaps the potential infiniteness of fiat (particularly digital) is the problem with it as money.

Sure you can use land in transactions, real estate professionals have an entire sector devoted to doing just that. It's slow, painful, and only happens in large pieces - like 1 oz gold coins are pretty useless for buying a loaf of bread - or you'd better hope, a weeks worth of groceries (when 1 oz only feeds you a week, we've got real issues!). That's simply a matter of scale.
 

bushi

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OK, I generally agree with you, these commodities you mention have practical more importance for us to function as a society, as materials (and unlike them, we could function WITHOUT gold, no doubts about that - re century of fiat money) but... money is something that enables all that other stuff to circulate (practically). So this is a one and only practical use for money, to make other things go around.

And suppose, that you are a hedge fund manager, and you have some burning stash of fiat, being more and more risky to hold on to. What would you buy? Depends... maybe oil. But then, at some stage... you will need to exchange it, to trade it for something else... maybe grain? Uuups, you need to go through something intermediary, ie money in between, most likely. So, back to that risky fiat stuff, or maybe we can trade directly in something tangible and intrinsically valuable???

Switzerland's new exchange, devalued in gold as "new currency", India/Iran deal (and China on board maybe as well)... the writing seems to be on the wall, really.

But again, I value your input on this just as much as mine, it is but a mind exercise, and trying to predict the future... As such, rooted in personal beliefs etc. :)
 
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DCFusor

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Well, I trade stocks for a living (and other things, including land). For me, so far, gold isn't working as a currency for that. It's not as good a "money' as digital fiat for things that have to happen fast (and I'm a cowboy trader, I do a lot of quick moves - at least one trade a day, sometimes more). I'm sure it was less trouble (if also less fun) to whip out a check to buy that Volt than some number of large gold coins.

To put my money where my mouth is - I keep as little in fiat as I can, all costs considered. I know it's devaluing at some rate - but it's a manageable rate - say a little faster than 30yr T bonds do - or whatever you decide is a "risk free rate" these days, which as Kyle points out, ain't risk free anymore. Gold goes down too on some days and weeks - sometimes faster than bucks, and there's transaction costs going back and forth. It's a balancing act. It's why I trade rather than buy and hold - most things. Gold (PM's in general) and land are the only two things I hold always.

Which brings up another interesting philosophical issue - if I never sell either, what were they worth, and how would I know? I know their value to me, but it's phrased in far more esoteric terms than price.

For a longer term store of "return of my capital" I use gold, silver, and other like things - I don't buy and hold oil - I trade it. But what I was trying to look into here was "return ON my capital" as many gold bugs seem to get all excited with these predictions of extra digits in the price of gold - my own take is that if that happens, you're probably not going to gain much if any actual buying power - gold might do better than almost anything else does, but..."How long can this coin keep me alive" or something similar is the issue - does that go up, or down? That 10k+ scenario means things are going seriously wrong with society at that point, which isn't going to make most things more efficient for the price they cost in whatever you're using for money. Maybe you make some seriously good scores during the initial dislocations - when people dump things just to run away - but over a longer term, going going into the 10k+ range (assuming it happens fast enough for me to collect before I die) - means real big trouble with everything else, and is not something to wish for, I think.

Thus if gold goes to 10k in a year - you probably won't want to go to Vegas and buy drinks with it. If Vegas is still there, they're going to cost about the same - or even more - milligrams of gold they do now. There might be a scarcity of booze or open places to buy it - you never know what will happen if things get rough. According to that guy from Serbia I think it was - booze and bic lighters held up real well in value in those kind of situations. Along with ammo. No one was admitting to having gold then, too dangerous.

And this leads me full circle. We can (and do) make the argument that at least the attempt is being made to keep gold undervalued, and that to make this case, we have to agree that it has an absolute value of some sort which you currently aren't getting for it. Obviously, comparing it to some currency is silly - they move in relation to each other and everything else - with the temporary dislocations providing arbitrage opportunities - it's why we have markets! So, how do we figure that one out? I'm struggling to figure out a fairly unbiased way - and the basket of "necessary" commodities isn't my idea, it's out there already. Since gold is for now, priced in bucks - and might be suppressed, even that fails, to tell the truth, since so are all those other things.

Not to put on a tinfoil hat, but could this be a reason that trying to value oil directly in gold is so unpopular to TPTB - even to the point of making war on those who try? Because it would indeed show a truer price for gold in the bucks both are measured in and might upset some applecarts? You'd think the .001% would be fine with gold going up - they have most of it, after all, or so I'd bet.

I really do hope that Swiss experiment works out, as I said on that thread. That would be really cool - but the devil is in the details. "Digital gold" doesn't impress me a lot more than paper gold does, for the same reasons. What if they, in effect, "break the buck"? As many say, if you can't hold it, it isn't yours at some level; and truthfully, maybe not then - someone can always take it from you by force.

It's trying to fix the part of the system that isn't the most broken. If you don't trust the party on the other side of the internet - you are hosed trying to do business with them no matter the medium of exchange - money, in any form, can be stolen. So it addresses the "I don't trust fiat" part, but not the "I don't trust this guy on the line, who is certainly even less trustworthy than the fed or whoever controls value of fiat".
 

rblong2us

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the concept of storing wealth in the form of 'stuff' is arguably a sign of insecurity.

When we have all we need what more do we need ?

I see the stored gold as no more than a throw of the dice, while our real wealth is all around us and our health the most valuable of all.


oops ... wrong forum (-;
 

ancona

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Rblong, while fundamentally correct, you are also wrong. Wealth is an individual idea, constructed from the beliefs of the person being posed the question.

While having a Hummer and a 55" flat-screen could be seen as a sign of wealth by some, it is not by me. I see a person with two handguns, three battle rifles and a couple of riot guns, with a thousand rounds for each, a rich man. I further see someone with a food supply, some solar panels and wind turbine as wealthy. I see the person home-schooling their teenage kids as wealthy. I see the person looking at converting an old pick-up truck to a wood gas burner as rich. I see those with a solid faith in out Lord Jesus Christ as their lord and savior as rich.

However, I also see those with ten thousand ounces of silver as rich, but only in the material sense.
 
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