Gold peg

Discussion of the Gold portion of the Permanent Portfolio

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seajay
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Gold peg

Post by 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.

Image

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.
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Re: Gold peg

Post by 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
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Re: Gold peg

Post by 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.
The journey of a thousand miles begins with a single step. -Lao Tzu
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Re: Gold peg

Post by 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
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dualstow
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Re: Gold peg

Post by 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.
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Re: Gold peg

Post by dualstow »

boglerdude wrote: Sat Nov 18, 2023 7:49 pm Sound Money hasnt gotten much traction.


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

Or just the concept?
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seajay
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Re: Gold peg

Post by seajay »

dualstow wrote: Sun Nov 19, 2023 6:32 am 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.
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dualstow
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Re: Gold peg

Post by dualstow »

seajay wrote: Mon Nov 20, 2023 8:19 pm 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.
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Re: Gold peg

Post by ochotona »

boglerdude wrote: Tue Aug 15, 2023 6:45 pm 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.
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seajay
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Re: Gold peg

Post by seajay »

dualstow wrote: Mon Nov 20, 2023 9:04 pm
seajay wrote: Mon Nov 20, 2023 8:19 pm 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.
Not even silver?

When money was gold, Sovereign Pound coins in the UK worth their weight, depositing those gold coins (Pounds) in return for interest was paramount to being paid for someone else to secure your gold.

When gold was compulsory purchased, silver was the next best alternative, many similar physical characteristics.

I prefer to backtest assuming cash deposits pre 1932, silver from 1932, gold from 1980, as I suspect that is more aligned with what at least a British investor might have held as their 'gold' allocation. Based on the assumption that when the Hunt brothers were pretty much paying any price for silver and the price had risen to exceptional highs in 1979/1980 that a investor would have been inclined to swap their silver for gold.
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seajay
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Re: Gold peg

Post by seajay »

ochotona wrote: Tue Nov 21, 2023 10:47 am
boglerdude wrote: Tue Aug 15, 2023 6:45 pm 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.
With the internet shifting things around in real time, those voted in are more interested in how they're being perceived hour by hour, and have only a five year period/horizon initially in mind, that averages to 2.5 years, their allotted time within which they strive to milk as much personal/family benefit as possible. Not the best choice of method for mid/longer term outcome.
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dualstow
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Re: Gold peg

Post by dualstow »

seajay wrote: Sat Dec 16, 2023 8:15 am
dualstow wrote: Mon Nov 20, 2023 9:04 pm
seajay wrote: Mon Nov 20, 2023 8:19 pm 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.
Not even silver?

When money was gold, …
Silver’s neat, but I only hold enough to give away as gifts. If I didn’t already mention it, my nieces were thoroughly unimpressed :-/

If I could exchange paper dollars for silver ones with no friction (no 10-20% markup), only then would I be inclined to hold the metal.

I think that’s funny that I wrote “holding the hold” in a previous post. Sounds poetic but of course I meant to write gold.
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seajay
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Re: Gold peg

Post by seajay »

dualstow wrote: Sat Dec 16, 2023 9:01 amI think that’s funny that I wrote “holding the hold” in a previous post. Sounds poetic but of course I meant to write gold.
On a number of occasions I've typed god instead of gold! Some I guess have equal contempt with whether another holds in-god-we-trust or in-gold-we-trust. I like your Disney style avatar image and synagogue of Satan location combo :) Had quite a unusual run-up to xmas this year, a week or so back and when I compiled the 6.6.6 Linux kernel release ... it produced a 6.66MB vmlinuz filesize >:D I was glad when 6.6.7 soon followed ;D
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Re: Gold peg

Post by dualstow »

I’m envious that you’re running linux, not to even mention compiling. However, maybe you should use FreeBSD as it has a more demonic logo. https://en.wikipedia.org/wiki/FreeBSD#/ ... d_logo.svg
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