Gold Reaches Record High
- Thread starter slayerment
- Start date
I just got back home from selling 25 British sovereigns to a local dealer. I honestly think Gold is a little overvalued right now so I had to hedge back a little.
Anyone have any idea how it works if you're say... a majority owner in a company with huge assets? Say I bought up 50% of KO, and the economy crumbles, currency fails, etc.
KO still owns an incredibly valuable brand, machinery, etc. Even if there's no $ to represent that (presumably, because $ are inflating at INF%). And I still own KO. So what gives? Does something magic happen or do I just list my KO shares for sale for gold?
KO still owns an incredibly valuable brand, machinery, etc. Even if there's no $ to represent that (presumably, because $ are inflating at INF%). And I still own KO. So what gives? Does something magic happen or do I just list my KO shares for sale for gold?
Gold has very little intrinsic value. What is it used for? Gold is worth money because people think it is worth money.
Any reason for it to continue to climb like that? If you think it's a hedge against inflation you may be right, but look at the charts:
This only shows thorugh 2009, gold is up to $1,230/oz now so that puts at near historic highs, but it isn't used for anything anymore. I'm far from an expert and it might go to $1500 or higher for all I know, but eventually the mania will die down. I can't buy my groceries with it, or pay my bills with it, or make anything with it (like several other metals). If the economy gets so bad that our currencies become worthless, who's going to be using it to make jewelry?
I just figured it was time to unload some of it to lock in a profit. If it keeps going up, I have more. If it doesn't, at least I didn't lose.
Interesting inflation chart.
Gold has value because it is rare and is difficult to produce more of it, unlike a paper currency with no backing (ie. the gold standard the US used to have.)
It's not that people will be using it to make jewelry, but that they can convert it into paper currency in the future and then buy things with the paper currency.
The theory is that gold will hold its value, while unbacked paper currency will not. That ounce of gold you buy today for around $1000 might be able to be converted into $2000 in say 5 years in the future. (I'm totally making these numbers up for the sake of example).
If that happens, the value of the US dollar will have gone down the crapper, and the $1000 you had previously that you did not put into gold will not be able to buy anywhere near as much as it could previously.
Of course the theory doesn't always work, if you look at your graph above, the time period from 1989 to 2001 was a tough time to be in the gold mining business (which is my background) as the central banks around the world had decided that they didn't need to back their currency with gold anymore, and were dumping it onto the market and good old supply and demand kicked the crap out of the gold price.
All that changed in 2001 though, as we can see in the graph, and gold has been going straight up ever since. Where will it stop? Nobody really knows, and anybody who tells you they know for sure is a fool.
Gold has value because it is rare and is difficult to produce more of it, unlike a paper currency with no backing (ie. the gold standard the US used to have.)
It's not that people will be using it to make jewelry, but that they can convert it into paper currency in the future and then buy things with the paper currency.
The theory is that gold will hold its value, while unbacked paper currency will not. That ounce of gold you buy today for around $1000 might be able to be converted into $2000 in say 5 years in the future. (I'm totally making these numbers up for the sake of example).
If that happens, the value of the US dollar will have gone down the crapper, and the $1000 you had previously that you did not put into gold will not be able to buy anywhere near as much as it could previously.
Of course the theory doesn't always work, if you look at your graph above, the time period from 1989 to 2001 was a tough time to be in the gold mining business (which is my background) as the central banks around the world had decided that they didn't need to back their currency with gold anymore, and were dumping it onto the market and good old supply and demand kicked the crap out of the gold price.
All that changed in 2001 though, as we can see in the graph, and gold has been going straight up ever since. Where will it stop? Nobody really knows, and anybody who tells you they know for sure is a fool.
^ Referring to the adjusted for inflation graph, I'm guessing it shouldn't go down until at LEAST it gets back up to where it was before. Cause if people were willing to pay that much for it back then, now with more people (demand) in the pool, wouldn't it make sense for it to at least exceed the previous historic high.
I'm thinking gold will continue to rise sharply (in U.S. dollar terms) in the foreseeable future. Even though Bernanke has said he's going to contract the monetary base, I've yet to hear how he'll do so without pummeling the economy. And that would be political suicide for his boss.
Here are the problems...
1. Our borrowing rate is climbing as evidenced by a recent $32 billion note offer that fell flat. So, that's an increasingly less attractive option.
2. Future tax receipts promise to be insufficient to cover spending plans, including expenditures coming down the pipe before November. I doubt they're seriously considering cutting off social security, Medicaid, education, and other services.
So, that leaves printing some green paper.
Talk about being stuck between a rock and a hard place. More paper in the monetary base means people are going to run for cover by storing their wealth in gold. Not as an investment, but as a store of value.
Here are the problems...
1. Our borrowing rate is climbing as evidenced by a recent $32 billion note offer that fell flat. So, that's an increasingly less attractive option.
2. Future tax receipts promise to be insufficient to cover spending plans, including expenditures coming down the pipe before November. I doubt they're seriously considering cutting off social security, Medicaid, education, and other services.
So, that leaves printing some green paper.
Talk about being stuck between a rock and a hard place. More paper in the monetary base means people are going to run for cover by storing their wealth in gold. Not as an investment, but as a store of value.
Gold getting expensive is just another way of saying that our bank account balance (cash) decreased in value. That's a problem.
It changed in 2001 because of the fears that came with September 11th. I know that when everybody and there mother is selling and buying gold we are in a bubble. Even the major players in Gold right now are saying there is a bubble. There are plenty of investors driving the price up that believe we are in a gold bubble.
Like any bubble, it will burst. Do you think men like Soros, Paulson etc will be stuck holding the bag? When they decide they've pulled enough profit, they will sell, and the bubble will burst. I have no idea when that will happen, but my guess is that with all the hysteria, it won't be much longer. A few more months maybe. But only an idiot, or an insider would be buying any significant amounts of gold right now.
Interesting links, thanks.
While we certainly could be, probably are, in a bubble, my personal opinion is that gold still has a long way to go, mainly because I don't think we have seen the bottom of the US dollar yet. Once considered the currency of the world, I believe that the US dollar is the new peso. The more money Obama prints, the higher the price of gold will go, in US dollar terms.
People not in the US who have seen their exchange rate go up against the US dollar as the US dollar plummets don't have the same chance to buy gold though. Kitco has an interesting chart at the bottom of their page where you can see the price of gold in other currencies in relation to the US dollar price.
Interestingly, between May 09 and September 09, the price of gold in Australian dollar terms was actually going down while the US dollar price of gold was going up. This was due to the US dollar dropping like a rock. So while I believe the US dollar price of gold still has lots of legs in it, I won't be buying any gold.
Got distracted while writing this post, and can't remember why I went off the forex tangent now lol. I think I had something else I wanted to say, but its gone now.
Oh well, back to work.
There is also silver too, which is imho is severely undervalued relative to Gold and may be a safer bet.
Gold is, and almost always has been money. There are many banks around the world, central banks, which hold gold as the reserve to back their currencies.
Gold is not "worth money", it is money, and that is because it is a universally recognized medium of exchange. It was an international money standard as recently as 1971.
They won't use it for jewelery, it will be used as money again for things like buying groceries and paying bills. Not physical gold, but some form of gold note, or gold receipt back by physical gold.
If the currencies become worthless, either the world will devolve back to barter, or a new currency will emerge. Gold has a several thousand year record as money, so it is a relatively safe bet to replace fiat money in the short term.
Money is a capital good. Gold is money. Therefore gold is a capital good. It's purpose is to enable trade without having to barter (satisfy a double coincidence of wants). Gold is fungible, malleable, durable, divisible etc. It meets all of the criteria of money, and because the alchemists never succeeded turning lead to gold, it cannot be produced by artificial means.
In POW camps, cigarettes were money. Any good universally desired, is suitable to be considered a form of "money". Those other attributes I mentioned above will determine its limitations in becoming a standard for exchange.
See, you're speculating in gold as a commodity, not in gold as a money. A lot of people buying gold aren't buying it to speculate, but as a store of value as currency inflation escalates.
I lol'd.
Technically, since our currency isn't backed by gold, gold is not money. That doesn't mean if the sky falls that we won't go back to gold being money. There is a good chance that in a situation like that, people will turn to gold. A lot of the people that have been buying gold since Y2K, 9/11 etc are expecting just that.
However, technology will possibly render gold as a store of value obsolete. The history of gold being a store of value might have a lot to do with convenience and universal acceptance throughout history. But unless the Internet is going away, and electronic payments and all of the security that goes with it (ie. harder for people to steal), and convenience (debit cards), etc., then I'm not sure people will look to gold.
Now, all of those things might happen - the sky may fall, total collapse of the world economy may happen, etc. and in that case I could see gold make some resurgence. But how long do we think society will go after a total collapse before instituting a new currency? Technology will be the reason gold never regains its former role as money in my opinion.
None of us can say for certain what is going to happen, but I think it's telling that even the people betting on gold are acknowledging that we are currently in a bubble, don't you?
I honestly don't see Gold remaining at it's price indefinitely. It's like in any business, you have a legacy system to support. Gold became what money was made on centuries ago because it was rare and not many people could get to it easily. So over the years, families passed on the notion that gold was something worth having.
In reality, gold is used pretty much for one thing, jewelry. I'd say that if worse comes to worse, we'd just makeup some other, more easily attainable, object to be used to price against if all currencies failed. There just isn't enough gold to go around.
In reality, gold is used pretty much for one thing, jewelry. I'd say that if worse comes to worse, we'd just makeup some other, more easily attainable, object to be used to price against if all currencies failed. There just isn't enough gold to go around.