patrick.net

austrian_man says

Because it is still considered as a monetary asset by mankind. It is considered money …has been for 5000 years.

That's where this question usually ends. Because it's always been that way. Which is fine. My point is that there isn't any reason why people couldn't change their mind.

austrian_man says

Hypothetically, Let’s say someone comes to you today and gives you 100,000 dollars for free…won’t you take it? If you will, then you understand the answer to this question.

That's not really the question. Nobody is giving you gold for free.

Honest Abe says

Gold isn’t going up - worthless paper money is going down. This is a concept too difficult for many to understand.

Not really true. But everyone here understands the concept of inflation--that's not some earth shattering relevation.

tatupu70 says

Because it’s always been that way. Which is fine. My point is that there isn’t any reason why people couldn’t change their mind.

They won't change their mind at least as long as central banks print more money.

tatupu70 says

That’s not really the question. Nobody is giving you gold for free.

lol, the point was to illustrate that humans want more money, because with more money -- they can buy more materialistic things that are useful for them. Gold is money, human desire has no limits ==> insatiable demand for gold.

tatupu70 says

Not really true. But everyone here understands the concept of inflation–that’s not some earth shattering relevation.

You could have the Dollar Index going up at the same time as Gold price is increasing in dollars..highly likely because if Euro is under a banking crisis (which it is really close...with Greece about to default), then the capital in euro flees to dollars and gold...both go up.

But the point is somewhere, some central bank is debasing their fiat currency ==> gold goes up no matter which currency is getting debased.

austrian_man says

They won’t change their mind at least as long as central banks print more money.

What's to stop people from realizing that gold isn't really that special? And to use oil or diamonds or rare earths as their inflation hedge?

austrian_man says

lol, the point was to illustrate that humans want more money, because with more money — they can buy more materialistic things that are useful for them. Gold is money, human desire has no limits ==> insatiable demand for gold.

And my point was that gold is not money. Gold is a metal. You can spend money to buy it just like you can spend money to buy tin or titanium or sand.

austrian_man says

But the point is somewhere, some central bank is debasing their fiat currency ==> gold goes up no matter which currency is getting debased

It will go up in price in that currency then--not dollars. If Russia prints lots of money, it won't make gold more expensive in dollars.

tatupu70 says

What’s to stop people from realizing that gold isn’t really that special? And to use oil or diamonds or rare earths as their inflation hedge?

True they can...and they will definitely, in case of hyperinflation..because people would want to go to anything useful other than paper dollars...such as cigarettes, alcohol...lol...anything they can get their hands on, that can be bartered.

But the point is, a lot of people are already sitting on a pile of gold.. as i said stocks to flow ratio is the highest for gold among all goods...With so much supply, why is the price increasing? It means that people don't want to part with their gold...easy divisibility, past recognition that it is money makes gold more attractive than others.

tatupu70 says

And my point was that gold is not money. Gold is a metal. You can spend money to buy it just like you can spend money to buy tin or titanium or sand.

Really? What world do you live in? Take an ounce of gold and go out in the market and try buying something....there are a lot of people trying to give cash for gold...may be you can exchange it for your beloved USD..lol.

tatupu70 says

It will go up in price in that currency then–not dollars. If Russia prints lots of money, it won’t make gold more expensive in dollars

Are you so damn sure that there won't be any more money printing in dollars? How can you be so cocky when all the economic data is indicating that Bernanke's quantiative easing programs were EPIC FAIL?

austrian_man says

tatupu70 says

It will go up in price in that currency then–not dollars. If Russia prints lots of money, it won’t make gold more expensive in dollars

Are you so damn sure that there won’t be any more money printing in dollars? How can you be so cocky when all the economic data is indicating that Bernanke’s quantiative easing programs were EPIC FAIL?

No-that's not what I'm saying. You said gold goes up no matter which currency is debased. My point was that it only goes up in that currency. I'm making no prediction about whether or not the US will print more money.

austrian_man says

Really? What world do you live in? Take an ounce of gold and go out in the market and try buying something….there are a lot of people trying to give cash for gold…may be you can exchange it for your beloved USD..lol.

Sure--people will use all sorts of goods in barter. Certainly gold is one of them. That doesn't make gold money.

When gold crashes. It crashes fast and hard. The adept folks who made 3X recently: will you sell if it drops 50% or just hold on and hope it goes back up? All about timing methinks and that's a tough psychological barrier to traverse.

tatupu70 says

I’m making no prediction about whether or not the US will print more money.

OK. Answer this then: who will fund US deficit spending if all other countries holding US debt are reducing their holdings (China, Russia being the larger ones)?

What if the economy continues to stagnate like how its doing and unemployment gets worse?

There's only one trick in Fed's books...that is to print money...they cannot give it to the Government...it has to go through private banks. tell me why QE3 will not happen.

austrian_man says

tatupu70 says

I’m making no prediction about whether or not the US will print more money.

OK. Answer this then: who will fund US deficit spending if all other countries holding US debt are reducing their holdings (China, Russia being the larger ones)?
What if the economy continues to stagnate like how its doing and unemployment gets worse?
There’s only one trick in Fed’s books…that is to print money…they cannot give it to the Government…it has to go through private banks. tell me why QE3 will not happen.

I'm not sure your assumptions are valid. But the short answer is I don't know. QE3 may happen. I'm just not making a prediction either way.

tatupu70 says

Sure–people will use all sorts of goods in barter. Certainly gold is one of them. That doesn’t make gold money.

Let gold continue to be not money in your mind. It doesn't really matter whether you think it is money or not. Most of the people continue to think gold is money, which is the very reason it is increasing in fiat price.

No signs of flagging gold demand anywhere to be seen.

India Gold and Silver imports up 500%

http://online.wsj.com/community/groups/financial-markets-459/topics/gold-silver-imports-rose-500

tatupu70 says

Nope.

You must seriously be intellectually brain-dead then. I don't know what else will convince you.

austrian_man says

tatupu70 says

Nope.

You must seriously be intellectually brain-dead then. I don’t know what else will convince you.

Not brain dead. Just with a different perspective than you. And I'm obviously not alone--elsewise the price of gold would already reflect the price that it is "certain" to reach.

tatupu70 says

Just with a different perspective than you. And I’m obviously not alone–elsewise the price of gold would already reflect the price that it is “certain” to reach.

Don't focus on short term noise. Focus on the long term picture, with the fundamental macro-economics guiding you. How can gold price in what I'm saying already? What I'm saying is the long term future prospect of this highly indebted nation. The masses have to wake up to this reality yet. Which is why gold price hasn't shot to the moon yet.

Then, there's also active gold price manipulation by central banks. (see www.gata.org for more info).

austrian_man says

How can gold price in what I’m saying already? What I’m saying is the long term future prospect of this highly indebted nation.

If everyone agreed that the long term trend for gold was up, up, up then they would be buying it NOW. And if everyone was buying now, the price of gold would go up. That's how the future expectations are already priced in.

Just because people disagree with you doesn't mean they are brain-dead or asleep.

tatupu70 says

If everyone agreed that the long term trend for gold was up, up, up then they would be buying it NOW.

lol people think its way too expensive. they don't understand dollar has been devalued steadily as well...its all smoke and mirrors, what happens to the dollar and no one seems to notice...no one seems to care.

tatupu70 says

And if everyone was buying now, the price of gold would go up. That’s how the future expectations are already priced in.

confidence is a big thing for the fiat currency. confidence is still lingering, but waning big time.

tatupu70 says

Just because people disagree with you doesn’t mean they are brain-dead or asleep.

lol am not saying that. but everyone should at least be looking to BTFD.

Wow....someone asked why gold is valuable as money and NO ONE brought up its physical properties?

Gold has these wonderful physical properties that make it a great fit for money:

* Rare enough that having some is meaningful. You can't just "grow more on trees" or print some or play games like that. Nor can you go to the beach and get bucketsful, like you can with sand. Even aluminum ore would be a little too easy. You have to go mine HARD for it. All the gold ever mined could be formed into a 19-meter cube, a cube that increases in size only 1-2% each year (and probably even less in coming years).

* Identifiable and workable, even with primitive tools. Its boiling point is low enough that you don't need space-age blast furnaces to work it; it's soft and malleable and can be made into easily-stamped coins of known weight or jewelry. It's a bright yellow color that is easily identified and not like most other metals. That means you don't have to have sophisticated metallurgical studies in your culture to know you've got gold, which isn't really the case for, say, titanium.

* It really does not tarnish, corrode, or otherwise degrade over time. We still find ancient gold coins from time to time that are more or less intact. You can pass it down, you can leave it out in the rain, a house fire probably won't destroy it, and so on. Oh, and it's not a radioactive metal, so it won't give cancer to your great-grandchildren either!

* Since we're talking about uniform elemental material that is solid (uncompressable) at room temperature, divisibility and fungibility are clearly also in the bag as well. Not so with, say, gems, right? They can vary in quality for the same karat weight because of uncontrollable impurities or flaws or whatnot...or imagine using carbon dioxide gas as money...a balloon of it would literally inflate or deflate with the seasons! Incidentally, this uniformity and the above chemical stability make it a great "medium of exchange" too because it wears well and is the same everywhere.

To some extent, silver shares gold's properties. HOWEVER, it tarnishes over time. BUT it still works well enough that it is a common secondary metal. Also as with copper. Most other metals just don't work as well, or for thousands of years did not. Things like rhodium have far too high a melting point and is far too rare; I believe also it's more recently discovered. Platinum is too rare to be practical compared to gold. Anything that's too rare is not typically available everywhere on the earth.

Other non-metallic compounds with the same rarity and chemical stability tend not to have metal's nice working properties...malleability, low melting point for re-forming, etc.

You could argue that, in a digital age, money properties like "unit of account" are better handled by technology. However, the "store of value" aspect continues to shine for gold; paper currency loses value, digital currency loses value AND requires electricity and technology to maintain it, at significant, if not huge, cost. If you want to GUARANTEE buying power in 100 years, the best you can do is gold. If gold is not accepted as payment in 100 years, it will be because *money* per se no longer carries the same conceptual weight and we will have reverted to valuing only direct labor, water, food, shelter, clothing, and services. NONE of those things can be saved indefinitely, it should be noted...what an advanced society indeed, that would have abolished stored wealth. Or, perhaps, what an impoverished one, that could not afford it.

tomoeDave says

Wow….someone asked why gold is valuable as money and NO ONE brought up its physical properties?

it has already been brought up in other threads. But forget about it. tatapu70 loves the fiat, centrally planned currency too much that nothing you say will be convincing enough..lol

austrian_man says

tomoeDave says

Wow….someone asked why gold is valuable as money and NO ONE brought up its physical properties?

it has already been brought up in other threads. But forget about it. tatapu70 loves the fiat, centrally planned currency too much that nothing you say will be convincing enough..lol

It has nothing to do with me loving fiat currency although I do think it is a much better solution than a gold standard.

My question is, and always has been, why is there such demand for gold. Because value is a combination of supply and demand. Being rare does not automatically make something valuable. And the answer isn't because of its chemical or physical properties. The answer is always--because people have always believed it to be valuable. Well, that's fine. It's just not something I would ever want to invest in.

tatupu70 says

My question is, and always has been, why is there such demand for gold. Because value is a combination of supply and demand. Being rare does not automatically make something valuable. And the answer isn’t because of its chemical or physical properties. The answer is always–because people have always believed it to be valuable. Well, that’s fine. It’s just not something I would ever want to invest in.

Slow down there, cowboy. If you take a moment and think about it, you answered your own question. The value comes purely from the utility inherent in the physical properties.

Plus you are confusing *price* and *value*. *Price* is a combination of supply and demand. *Value* is the force that drives demand. But you knew that, right?

Gold's value is that it has great utility as money. Just ask yourself the same question about fiat money. What gives fiat money its value? It's just paper or digital bits...why would you keep any value in it? It's useful as money, yes? It's just a question of how MUCH money utility it has. Right now fiat currency is more accepted for all the money properties except perhaps "store of value", but even then not so much. But the tide is changing.

The only reason that gold is so high right now is because all these "Gold will replace US dollar as world currency" talk.

However Gold will never become "money", because the money supply has to increase with the population growth.

xenogear3 says

However Gold will never become “money”, because the money supply has to increase with the population growth.

More shallow fallacies. Why should the money supply increase with population? If money stock remained the same and productivity increased and more efficient goods/services are produced, then prices are in a continuous decline. Gold becomes that much more valuable when exchanged for goods.

Here's Murray Rothbard:

tomoeDave says

Plus you are confusing *price* and *value*. *Price* is a combination of supply and demand. *Value* is the force that drives demand. But you knew that, right?

I was sloppy in my last post--thank you for pointing that out.

tomoeDave says

Gold’s value is that it has great utility as money. Just ask yourself the same question about fiat money. What gives fiat money its value? It’s just paper or digital bits…why would you keep any value in it? It’s useful as money, yes? It’s just a question of how MUCH money utility it has. Right now fiat currency is more accepted for all the money properties except perhaps “store of value”, but even then not so much. But the tide is changing.

And your point is? How does that relate to the value of gold? And how is the tide changing?

austrian_man says

If money stock remained the same and productivity increased and more efficient goods/services are produced, then prices are in a continuous decline. Gold becomes that much more valuable when exchanged for goods.

In other words, deflation. Why do people spend if deflation is coming? People will stop spending and wait for better price.

This will cause recession.

There are very few items in our lives that ever experience deflation.

Remember, people can't really delay entirely spending on Food, Healthcare, heating, cooling, until prices come down. Yes, they do cut back and doctors offices have seen a drop off as a result of the economic contraction. But, I've yet seen a drop in prices and most people I know get hungry regularly. Besides the Governments never pause their spending to wait for lower prices and Government employees get pay raises/bonuses even when times are bad.

I think a bigger challenge is that the Money required to maintain Government is always increasing......can the Government afford to have prices drop or be flat. Does this mean that Taxes will be lower in the future?

Taxation generally has been going up for ever - and Taxes are not just Income taxes. Think of how much the average American pays in property taxes, telecommunications taxes,gas taxes, car registration taxes, toll road fees.

When there is a whiff of Deflation you generally get massive Government intervention to get us back to Prosperity as Ben Bernanke defines it = Inflation for example 2009 and 2001.

"Gold as money" is good in theory, but will never work because the whole government spending thing is based on the ponzi scheme.

The government spends first (currently at 70% GDP). Hopefully population and economy grow fast enough to "cover" it later.

xenogear3 says

because the whole government spending thing is based on the ponzi scheme.

This much is true. 100%.

xenogear3 says

Hopefully population and economy grow fast enough to “cover” it later.

lol, population growth will only make it worse not better...as soon as the human comes in, he/she can't enter the labor force..it takes 20 years before they do. economy growing will cover it, but only as long as energy is cheap. energy is so closely interconnected to the global economy than most people realize.

xenogear3 says

austrian_man says

If money stock remained the same and productivity increased and more efficient goods/services are produced, then prices are in a continuous decline. Gold becomes that much more valuable when exchanged for goods.

In other words, deflation. Why do people spend if deflation is coming? People will stop spending and wait for better price.
This will cause recession.

Until the price decline actually reflects true market value. Then they buy. This causes recovery. Trying to fight a price decline via inflationary policies will only cause market distortions (and sometimes bubbles). In fact, those distortions, once they unravel, result in a larger fall out down the road. Everyone who thinks deflation is an endless cycle ignores the fact that every period of deflation was self correcting. Meanwhile, the one that took the longest to correct was the one that they tried to fight the most.

The housing market took its turn around 2007. We are about 4 years into this mess with no recovery in sight. History will eventually look back on these policies and actions and write them as a catastrophic failure, despite the fact that the media and hollywood are doing their best to try to paint the Fed as the institution that saved the economy.

theoakman says

Everyone who thinks deflation is an endless cycle ignores the fact that every period of deflation was self correcting.

How was the Great Depression "self-correcting"? Please elaborate.

theoakman says

History will eventually look back on these policies and actions and write them as a catastrophic failure, despite the fact that the media and hollywood are doing their best to try to paint the Fed as the institution that saved the economy.

oakman, brilliantly said.

As David Stockman says in the video LINK: It was the 'Blackberry Panic of 2008'.

PersainCAT says

tatupu70 says

How was the Great Depression “self-correcting”? Please elaborate.

see world war 2

Good point. If he includes revolt, revolution, and wars as part of the self correcting mechanism, then it might make sense.

tatupu70 says

And your point is? How does that relate to the value of gold? And how is the tide changing?

It is simply this: all value is psychological. Even food and shelter have a value - and price - that is determined by psychology. And, as a concept, money has a high value to people right now. You keep thinking "But where is the hard, important, inelastic demand, usefulness, etc.?" but such value does not exist except in the minds of people exchanging things.

tatupu70 says

theoakman says

Everyone who thinks deflation is an endless cycle ignores the fact that every period of deflation was self correcting.

How was the Great Depression “self-correcting”? Please elaborate.

it wasn't. That's why I said "the one they tried to fight".

theoakman says

tatupu70 says

theoakman says

Everyone who thinks deflation is an endless cycle ignores the fact that every period of deflation was self correcting.

How was the Great Depression “self-correcting”? Please elaborate.

it wasn’t. That’s why I said “the one they tried to fight”.

All evidence to the contrary, of course.

tatupu70 says

theoakman says

tatupu70 says

theoakman says

Everyone who thinks deflation is an endless cycle ignores the fact that every period of deflation was self correcting.

How was the Great Depression “self-correcting”? Please elaborate.

it wasn’t. That’s why I said “the one they tried to fight”.

All evidence to the contrary, of course.

Contrary to what?

theoakman says

Contrary to what?

Contrary to the story that you are trying to sell.