What if Gold drops to $300.00 per ounce?

[Cortopassi]

I have gathered, Tech, that you have a good amount of gold! 

But lost it in a boating accident...

I think my opinion would be that there are people who will not ever see the value of gold, and will either not look at the PP because of it, or try to modify it so gold is a lower percentage.

I am not here to drink the HB koolaid, but I am one who does see the value of gold.  Until and unless the governments of the world outlaw paper money and go to a completely credit based system (seems possible, I think all Star Trek's were like that except for Ferengi gold pressed Latinum) I think gold has a very viable position at 25%, I just wish I came to this realization before 2008.

[Pointedstick]

I am not here to drink the HB koolaid, but I am one who does see the value of gold.  Until and unless the governments of the world outlaw paper money and go to a completely credit based system (seems possible, I think all Star Trek's were like that except for Ferengi gold pressed Latinum) I think gold has a very viable position at 25%, I just wish I came to this realization before 2008.

I'm reminded of a Deep Space 9 episode that concerns one of Quark's vaguely shady business deals that goes bad, leaving him with a huge crate full of counterfeit latinum. He breaks the bars open with his bare hands, wailing, "There's nothing in these bricks but worthless gold!!!"


[img width=500]http://i.imgur.com/EfmXiYh.jpg[/img]

[Cortopassi]

Ahh, DS9.  I have watched the entire series I think 3x.  My favorite Trek series.  I like the darkness and the characters.  Got a bit hokey in the last couple years with all the prophets stuff, but otherwise great.

[dualstow]

I'm reminded of a Deep Space 9 episode

As long as we're off-topic, just want to add that Patrick Stewart  (Captain Picard of Star Trek Next Generation) was hilarious on Stern last week. I'm looking forward to his new show, 'Blunt Talk.'

[MediumTex]

I'm reminded of a Deep Space 9 episode

As long as we're off-topic, just want to add that Patrick Stewart  (Captain Picard of Star Trek Next Generation) was hilarious on Stern last week. I'm looking forward to his new show, 'Blunt Talk.'

They calling his show "Blunt Talk" now?

I think that originally they were going to call it "420 Week."

[dualstow]

As long as we're off-topic, just want to add that Patrick Stewart  (Captain Picard of Star Trek Next Generation) was hilarious on Stern last week. I'm looking forward to his new show, 'Blunt Talk.'

They calling his show "Blunt Talk" now?

I think that originally they were going to call it "420 Week."

Maybe when he's deep-spaced.

[MachineGhost]

I agree that the 40 years is not a "very long period of time."  But I do expect the purchasing power of gold to remain essentially constant over long periods of time.  Isn't that a central claim of most fans of gold ownership?  It's a reliable store of value, in a world of fiat currencies.  And I don't see that as a downside of gold, rather I think it's really pretty amazing and a fun fact to consider in our high tech world; one little ounce of gold will still buy a good men's suit 500 years from now.  Or perhaps 10 men's suits from Joseph A Banks.

You guys ought to stop conflating modern gold bullion which is not money with old era money which was gold coins and are now collectibles.  In 500 years, gold bullion is unlikely to be worth much unless it is critical for hyperspace flight or something else that literally consumes it up.  But true collectibles will always retain their value for reasons far beyond the metal content.  Value is in the minds of what other people are willing to pay; scarcity and uniqueness are the most valuable traits.  Modern gold bullion is neither scarce nor unique; it's a useless, shiny, inert, lump of barbarous metal.

Let me put it this way.  How much is the very first gold coin struck by the Roman Empire worth?  It's orders of magnitude higher than any other commodity --- including gold buillion -- and which all have long-term declining real returns.  40 years of gold no longer being money is not enough to draw a conclusion that gold bullion will retain its value when it is no longer money and never will be again.  The past is not the future.

They're starting to replace striking miners in South Africa with automated mining machines.  What do you think that will do to gold buillion prices?  It will lower the marginal cost of production even more.  At least real estate's advantage is they're not making any more land (and location, location, location).

[MachineGhost]

I don't agree that gold is money, however.  In the 1970's, it became a commodity, and I doubt it will ever be money again.

Value is only in what others are willing to pay.  So long as others believe common gold bullion is any number of outdated fictions, it will maintain a corresponding premium value above its true utilitarian value (in electronics?  Indian weddings?).  But that premium is eroding, as it should be.  Cryptocurrencies, Riegel's Valun, tontines, SDR's, asteroid mining, no income taxes, etc. the future of money is moving away from gold at warp speed.

[MachineGhost]

The fact that you can't use it to buy groceries at the supermarket is irrelevant, as you also can't use currency other than the currency of the country where the supermarket is located for that purpose.

But it IS relevant.  Money is whatever people believe other people will accept without exception, easily and without fuss.  It's a metaphysical thing.  Gold is no longer money.  Money can be toilet paper, hairpins, moon rocks, cows, baskets, women slaves, boogers, whatever....  it simply dose not matter what form money takes as it is merely a value reference.  Money has never been a store of value; that role always belong to assets which is why there is an inverse relationship between money and everything else.  You use money to buy assets.  Gold is now an asset as opposed to money.  That is why you hold it in the PP despite HB's misunderstandings.  You could swap it for other real assets that will serve the so-called store of value role just as well.  Indeed, I have done so.  Now if you think hard about what makes a real asset valuable to others -- in absence of a crisis in government and the financial system -- then you know how to avoid real long-term losses on a useless, inert, shiny, lump of a barbarous metal.

[MachineGhost]

gold is  only a bet  on the  failure of the dollar . which so far is the best house in the worst neighborhood and betting against it with gold has been quite costly for 40 years now in lost time and lost compounding  , a resource us humans run out of all to quickly .

No, no...  gold is a bet on a government continuing and by extension, the world financial system since the USD is a reserve currency in the SDR basket.  Gold has nothing to do with the USD insofar as gold is priced by USD.  USD is the money used as the reference value.

When all the USD-dollar denominated soverign debt starts imploding over the next couple of years and people lose confidence in their respective governments while interest rates subsequently rise to double digits, you will see the true role of real assets as insurance in the PP, including gold.  In the meantime, both the USD and gold will go up at the same time as safe havens.

If you don't grok this reality now, you risk being very, very confused by what is coming.  I suggest junking all the gold mythology the hucksters, doom porners and true believers repeat ad nasueam in defiance of actual history.

[MachineGhost]

Gold to dollar fixed until Nixon in 1971.  Does that not explain the period before 1971 for the 1900s?  In nominal terms, I assume that means gold was flat with the dollar up to that period, except for the devaluation by Roosevelt in 1933.

Gold was officially fixed to the dollar at $35, but the dollar flunctuated in value versus foreign currencies, so so did gold by default.  There is no such thing as a stable form of money.

[MachineGhost]

If you think about it, though, it was gold that signaled a crisis in the Bretton Woods system itself, right?  As I recall, it was other countries suddenly wanting to convert their dollars to gold that led to Nixon "closing the window".

In other words, even in a strictly controlled fixed exchange rate system, gold is always going to be there waiting to be the last currency standing in the event of political or monetary crises, which would potentially make owning it a good idea even in the 1932-1972 period (assuming it had been legal to do so) even though its value was fixed.

Britain abandoned the so-called gold standard in the early 30's to recover from deflation.  The world gradually moved to a dual system then; illegal to own domestically; legal internationally for settling balance of payments transanctions.  The fiscal inflationary excesses built up in Britain until the gold peg finally blew up in 1968 and then gold gradually became demonetized.  The USA was late to the realization in both instances.

It would be huge mistake to assume the monetary legacy premium on gold will always repeat in the future.  But we currently don't have many other portable options beyond cryptocurrencies and diamonds that is value dense, easily hidden, not easily taxed and immune from decay in an Escape from Amerika scenario.  However, the EU has already been hunting down all assets including gold to confiscate for desperately needed revenue, so gold's days for that is numbered as well.

Lesson: Do not fall in love with gold.  The concept of a Real Asset vs Cash (Money) is far more important to understand.  Money by definition is always intangible metaphysical value; the form taken is completely irrelevant.

[Libertarian666]

40 years of gold no longer being money is not enough to draw a conclusion that gold bullion will retain its value when it is no longer money and never will be again. 

Never is a very long time.

I think anyone who claims that something that has been money in many different places over the course of thousands of years will never be money again has a very large burden of proof.

[Cortopassi]

Release the MachineGhost!

[Pointedstick]

I'm curious to know what real assets you've exchanged your gold for, MG.

[mathjak107]

bullets and guns . with that you can get anything else you want , if the vision is of things being that bad . at the least you will need it to keep your gold from being stolen the first time you pull  it  out to offer . but then again if you got th gun , you don't need the gold .

you got to think like real doomsday prepper's here .

[mathjak107]

you would think they were not making more land but will rogers was quite wrong .

right here in nyc battery park city sits  right where the water used to be .  yep , they made more land  and there is a huge development sitting right on it .

[MachineGhost]

I think anyone who claims that something that has been money in many different places over the course of thousands of years will never be money again has a very large burden of proof.

I don't really want to quibble, but gold has a rather small history of being used as money in all history compared to the alternatives.  But we have never gone back to any of those forms of money once used -- and why should we?  We always evolve: smarter, faster, better.

[MachineGhost]

I'm curious to know what real assets you've exchanged your gold for, MG.

I didn't mean to infer or imply I exchanged my gold specifically for other real assets.  I am diversified in several real assets as a hedge.  I can tell you I don't own everyday, common, ordinary, superfluous gold bullion though.  The window of opportunity between a confidence collapse in government/financial system and a restoration of that confidence (with a new form of money, if necessary) or to a stone age SHTF scenario where gold is useless is too historically short for me to put a huge chuck of my wealth into a useless, shiny, inert, lump of metal.  I'm thinking about at least the next 80 years here.

[goodasgold]

I don't really want to quibble, but gold has a rather small history of being used as money in all history compared to the alternatives.  But we have never gone back to any of those forms of money once used -- and why should we?  We always evolve: smarter, faster, better.

Just like Homer Simpson, the apex of evolution?

Gold has always been a store of wealth, and it is a good bet that it always will be, unlike various fiat currencies, stock certificates, bonds and other "paper promises," all of which, at various times, have been worth zilch.

[Pointedstick]

I guess I'm curious to know what you're using as those "several real assets." Numismatic gold?

[MachineGhost]

I guess I'm curious to know what you're using as those "several real assets." Numismatic gold?

I have outlined it many times in here.  Quit being so frugal.

[MachineGhost]

Gold has always been a store of wealth, and it is a good bet that it always will be, unlike various fiat currencies, stock certificates, bonds and other "paper promises," all of which, at various times, have been worth zilch.

Store of Wealth != Money. 

Store of Wealth == Asset.

[goodasgold]

Gold has always been a store of wealth, and it is a good bet that it always will be, unlike various fiat currencies, stock certificates, bonds and other "paper promises," all of which, at various times, have been worth zilch.

Store of Wealth != Money. 

Store of Wealth == Asset.

Which money is a reliable store of wealth? "Eternally stable" Swiss francs, Confederate dollars, czarist rubles, Cuban pesos, Venezuelan bolivars, Zimbabwe dollars, post-World War I Deutschmarks?

And as for assets being a store of wealth, there are times when some "can't lose assets" drop sharply in value or cannot be sold at all, meaning they are worthless: real estate in certain areas and times, tulips, baseball cards, barrels of oil, Cabbage Patch dolls, art that falls out of fashion.

To summarize: all assets are not created equal, and it is very hard to predict which "can't lose assets" will actually collapse in value. The price of gold, in contrast, is highly volatile, but it never becomes worthless, and rebalancing with other assets allows us to harvest the price of gold during good times and reduce our losses during price drops.

[MachineGhost]

Which money is a reliable store of wealth? "Eternally stable" Swiss francs, Confederate dollars, czarist rubles, Cuban pesos, Venezuelan bolivars, Zimbabwe dollars, post-World War I Deutschmarks?

No money has ever been a reliable store of wealth historically, for such is not the purpose of money, its for transancting.  That's why gold was never fixed in value even when it was being used as money!  Value is real and subjective; official prices or pegs are just nominal illusions which is why they always fail.

To summarize: all assets are not created equal, and it is very hard to predict which "can't lose assets" will actually collapse in value. The price of gold, in contrast, is highly volatile, but it never becomes worthless, and rebalancing with other assets allows us to harvest the price of gold during good times and reduce our losses during price drops.

Never is a long time, but that doesn't justify owning gold.  As a real asset, gold is currently uniquely 1) portable 2) relatively liquid 3) immune to decay 4) hard to tax.  Even though those traits have increasingly come under attack.  So are diamonds.  So may something else in the future that is even better.  If gold drops to $.01 it may not be worthless per se, but it still doesn't have much value.  Gold will only have value as long as other people believe it does, or at least the marginal cost if its utilitarianism (electronics?)  Mountaineer will like this one, but gold having any value relies on F-A-I-T-H.  Be flexible.  Gold's days as money is long over and its days as a unique real asset will one day be over also.