Gold peg

[seajay]

Successive Fed chairs each generally appreciated that if the dollar didn't somewhat align with gold that bad things tend to happen. But where periodic revisions of the peg rate are also required. Each of the historic revisions have largely been driven by Treasury actions, not the Fed (who in some cases have openly opposed the Treasury actions).

One way to align the dollar with gold is to ... buy or sell gold. There's 120+ times more paper gold than there is physical gold, and within that a big buyer (Treasury/Fed) could buy (or sell) 10x leveraged gold derivatives in order to 'direct' the price of gold ...closer into alignment with the dollar. Dollar down, sell (short) sizeable amounts of 10x gold and the price of gold is inclined to decline such that in terms of gold the dollar remained stable. Dollar up, buy 10x gold.

What would be inclined to arise out of such policy/controls would be for prolonged periods of the price of gold broadly being flat, and periodic spikes as circumstances depicted that the dollar be repegged to a higher price. Which is quite similar to what we actually see with gold price motions. Give or take interim noise across 'flat' periods (more a general art that a precise mathematical peg).

What that induces is the tendency for many to flock into gold after its spiked sharply up, but then become dissatisfied with the subsequent prolonged flat period and selling gold to buy other 'better' alternatives (stocks/bonds). Buy high, sell low practice. Gold is a long term asset, that could take decades to step-up, beyond individuals remaining lifetimes for some. But could step up in a year or two time, typically at a time of stress. A factor is that such stresses are inclined to occur more frequently with time. Increased leveraging (derivatives) and other factors induce higher probabilities of periodic distress.

The BRIC's looking for alternatives to the dollar for international trade settlement, when the dollar already somewhat pegs to gold anyway, bar periodic resets that naturally have to occur, are unlikely to find success. Part of the original agreement that got multiple countries adopting the dollar instead of gold for international trade settlements was that the US would peg the dollar to gold, that even today it still mostly does, but in a evolved manner that caters for the need to periodically reset things.



1930 step (Wall St Crash), 1970 step (high inflation/high cost of Vietnam war), 2000 step (dot com bubble), 2008 financial crisis continues the rise.

Doesn't look like a Covid 2020+ step has yet occurred, so the next step might be closer rather than distant. Perhaps within the next decade.

[boglerdude]

"great reset"

Crypto hype took a bite out of gold and now they're defending the dollar via rates. I dunno why they dont raise taxes or cut spending to fight inflation given the cost of paying interest

[pmbug]

Instead of pegging the value of gold to the dollar, gold should float freely IMO. And by "float freely" I mean compete on an even playing field. Ron Paul isn't around anymore to champion his Free Competition in Currencies act any more ( https://www.congress.gov/bill/112th-con ... -bill/1098 ) but there is an interesting twist on the idea happening right now in, of all places, Zimbabwe. Zimbabwe currently made both the US Dollar and gold coin legal tender. They are attempting to build a digital gold bank account payment system for the local economy.

[boglerdude]

Sound Money hasnt gotten much traction. The people who understand it give up and buy a bag of real assets. Or they end up a homeowner where the inflationary regime is mostly a benefit.

Speaking of the Pauls, Rand pushing the narrative that covid was super deadly is sus. And it doesnt matter where it came from (there will be more) he needs to focus on the gov power grab

https://www.youtube.com/watch?v=3I7HFriEVxQ

[dualstow]

There’s a lot in seajay’s post. It’ll be interesting to see what happens if & when dedollarization makes significant headway.

I haven’t rebalanced out of gold and I occasionally add, always physical,always 1-ounce coins. Sometimes I feel the urge to move back into something more easily tradeable and holdable like an ETF, but I have resisted. Maybe when my bank kicks me out of its bank box.

[dualstow]

Sound Money hasnt gotten much traction.

Are you talking about https sound dot money? I’d never heard of it.

Or just the concept?

[seajay]

There’s a lot in seajay’s post. It’ll be interesting to see what happens if & when dedollarization makes significant headway.

I haven’t rebalanced out of gold and I occasionally add, always physical,always 1-ounce coins. Sometimes I feel the urge to move back into something more easily tradeable and holdable like an ETF, but I have resisted. Maybe when my bank kicks me out of its bank box.

And swap for what? After the US treasury compulsory purchased all US investment gold they've had a 8000 ton stack of gold, that they've issue the Fed non redeemable gold bonds at $42.42/ounce. At $2000 ounce market price that's near 50x leverage the Fed has as ammo to call upon, the equivalent of 400,000 tons of gold ... more than all of the gold in the world. Which all backs/protects the dollar, and the weaker the dollar may become so the greater the leverage.

If others opt to trade sea-shells (whatever) instead, that's more inclined to failure. Maybe good for a while, but destined to doom.

pmbug's observation

Zimbabwe currently made both the US Dollar and gold coin legal tender.

is a good choice, counter-balance both ends/extremes of fiat and non-fiat. Investing the dollars (into stocks/whatever). The PP blends that barbell with a barbell of long and short dated Treasury bonds, that combine to a central 10 year bullet. Further reduces collective volatility. But in the absence of a stable Zimbabwe state/treasury, just stock/gold barbell is OK. Own some land, stocks, gold in around equal measure with those assets geopolitically diversified ... is about the best/safest that can be done.

[dualstow]

And swap for what?

If you’re asking what I would swap the gold ETFs for, suggesting I wouldn’t be able to take delivery, well that’s definitely a risk, and the reason I went all physical. ETFs are convenient, but it doesn’t feel the same as holding the hold.

If you’re asking what asset I would abandon gold for — e.g. seashells — there are none.

[ochotona]

I dunno why they dont raise taxes or cut spending

Our government is captured by special interests who want short term bennies and who don't care about the LT survivability of the United States.