Gold and precious metals as "Money"

[wayneL]

It is often stated that gold is money, gold is the only real money etc etc.

Sure I have a few krugs (but not a huge amount) I've accumulated over the years, and I trade gold futs, but I have a few questions regarding this "gold is money" thing, as lots of people are buying physical gold in case the sky falls down.

If I have a 1oz krug, and the whole monetary system has collapsed, how do I go to the supermarket and pay for a loaf of bread, six sausages, a pint of milk and a six-pack of p!ss with it?

That thing is worth 100 times what the bill is. How do I get my change? How is the value of the goods determined, relative to gold?

If the sky does not fall down, I cannot see that physical gold and PMs as a good "investment", only a good trading instrument in a functioning financial system.

It does not pay a dividend and can only deliver either a capital profit or loss.
The spread/commission is fraking horrendous for retail punters.
It has to be safely stored. In an apocalyptic scenario, the marauding hoards are going to smash their way in and hold a knife to your first born's neck unless you tell them where the gold is (they WILL find out if you have any).
If gold is confiscated, there is a danger that only the face value of any denominated coinage is redeemed. (which is vastly less than the market price of the gold).

In an apocolyptic scenario, surely something more divisible would be a better currency.

Discuss?

 

[It's Snake Pliskin]

It is often stated that gold is money, gold is the only real money etc etc.

Sure I have a few krugs (but not a huge amount) I've accumulated over the years, and I trade gold futs, but I have a few questions regarding this "gold is money" thing, as lots of people are buying physical gold in case the sky falls down.

If I have a 1oz krug, and the whole monetary system has collapsed, how do I go to the supermarket and pay for a loaf of bread, six sausages, a pint of milk and a six-pack of p!ss with it?

That thing is worth 100 times what the bill is. How do I get my change? How is the value of the goods determined, relative to gold?

If the sky does not fall down, I cannot see that physical gold and PMs as a good "investment", only a good trading instrument in a functioning financial system.

It does not pay a dividend and can only deliver either a capital profit or loss.
The spread/commission is fraking horrendous for retail punters.
It has to be safely stored. In an apocalyptic scenario, the marauding hoards are going to smash their way in and hold a knife to your first born's neck unless you tell them where the gold is (they WILL find out if you have any).
If gold is confiscated, there is a danger that only the face value of any denominated coinage is redeemed. (which is vastly less than the market price of the gold).

In an apocolyptic scenario, surely something more divisible would be a better currency.

Discuss?

Good thread topic.

Silver could be the answer as it is easier to part with coins etc as they are of lower value. I don't see gold being too practical when trying to survive. Investing in it may be a different thing, though.

 

[theasxgorilla]

In Fallout on the PS3...based on a post-apocalyptic world, bottle-caps are transactable currency.

 

[disarray]

That thing is worth 100 times what the bill is. How do I get my change? How is the value of the goods determined, relative to gold?

haggle and a hacksaw

It has to be safely stored. In an apocalyptic scenario, the marauding hoards are going to smash their way in and hold a knife to your first born's neck unless you tell them where the gold is (they WILL find out if you have any).

get guns. arm your family and friends.

If gold is confiscated, there is a danger that only the face value of any denominated coinage is redeemed. (which is vastly less than the market price of the gold)

they can't confiscate what you don't admit to owning

In an apocolyptic scenario, surely something more divisible would be a better currency

such as? barter would be a good start. chickens, vegetables, daughters, whatever, depends on the state of society. is it stable enough to grow produce and keep animals? is it anarchy? if so, get guns. arm your family and friends. better to have a gun and not need it than need a gun and not have it etc. etc.

 

[MR.]

It is often stated that gold is money, gold is the only real money etc etc.

Sure I have a few krugs (but not a huge amount) I've accumulated over the years, and I trade gold futs, but I have a few questions regarding this "gold is money" thing, as lots of people are buying physical gold in case the sky falls down.

If I have a 1oz krug, and the whole monetary system has collapsed, how do I go to the supermarket and pay for a loaf of bread, six sausages, a pint of milk and a six-pack of p!ss with it?

That thing is worth 100 times what the bill is. How do I get my change? How is the value of the goods determined, relative to gold?

If the sky does not fall down, I cannot see that physical gold and PMs as a good "investment", only a good trading instrument in a functioning financial system.

It does not pay a dividend and can only deliver either a capital profit or loss.
The spread/commission is fraking horrendous for retail punters.
It has to be safely stored. In an apocalyptic scenario, the marauding hoards are going to smash their way in and hold a knife to your first born's neck unless you tell them where the gold is (they WILL find out if you have any).
If gold is confiscated, there is a danger that only the face value of any denominated coinage is redeemed. (which is vastly less than the market price of the gold).

In an apocolyptic scenario, surely something more divisible would be a better currency.

Discuss?

Was thinking just that today. Selling all my gold and buying Silver then I decided I should buy "bottle tops" ...... I'd kinda be set for the home brew! I have a use!

Was thinking today what use is gold?

I can hit someone over the head with it perhaps the person trying to take it from me and all the want it for is to hit the next person over the head. Maybe should just through it at a roo! ... **** too heavy .... Knew I should have gotten a smaller bit. Need to buy a hacksaw! Huh..... you want my great lump of gold for the hacksaw??????

Is gold all the rage because, we might re-peg money back to gold? Can't see it myself. Now "that" would be going backwards. Money is the best way to value a trade. Can't see swapping chickens for vegies either. Perhaps a chicken for this bloody lump of gold though!

ps I hold no gold.

 

[doctorj]

Gold is an historic inflation hedge. Gold is a store of value. Blah Blah Blah.

To me, it’s in the same boat as house prices always going up and everything else most people have accepted as an unquestionable fact (until recently).

Surely the value of something should be linked to the benefit IT can generate. For example, oil has value as it can be burnt to release heat/energy or processed into everything from plastic bags to drugs. When oil was worth $140 everyone was quick to blame a ‘speculative bubble’, could the same not be said of gold?

I understand it has some uses (electronics and so forth), but does the benefit it generates justify it being worth nearly USD1,000/oz? Or is it just a bunch of people hoping to sell it on for something more?

If you don’t think a fiat money system works because the paper is only worth something because it’s printed in a certain way with a particular number on it, then how is gold really any different?

I’m not saying it won’t rally further from here, but I can’t see why.

 

[numbercruncher]

You just need smaller denomination coins ! 1oz will certainly be overkill for a handful of goods - We realy should return to Bronze/silver/gold coinage, keeps em honest and stores your wealth much better than this dodgy inflate it away fiat stuff ...

In a post apocalyptic world there would be plenty im sure that even money (gold) couldnt buy ....

 

[wayneL]

If you don’t think a fiat money system works because the paper is only worth something because it’s printed in a certain way with a particular number on it, then how is gold really any different?

Exactly!

Who's to say how many bottles of Badger's Fursty Ferret my gold coin is worth? How many venison and wine sausages is it worth? How many Magnum .357s is it worth? It must be by agreement; then we are back to, essentially, a fiat arrangement really... aren't we?

Surely some unit of account (AKA fiat money) would quickly establish itself... in the dark ages people used sticks of wood. Maybe bottle caps could suffice.

 

[doctorj]

Maybe bottle caps could suffice.

So we agree that gold is the latest ponzi scheme?

Despite so many failures, the greater fool theory of investment lives on!

 

[numbercruncher]

You can create as much fiat as you like out of thin air, try it with Gold ..... Used as currency for thousands of years it isnt going away anytime soon, modern governments have and will continue to try manipulate its value ....

I dont think an Oz of gold actually buys much more than it did say 100 years ago ..... ?

 

[sinner]

Of course it is an agreed upon form of value, and no you can't eat it to survive. You can get as many Badger's Fursty Ferrets for your gold coin as someone is willing to part with in return for the coin.

Yes, it works for the same reasons as fiat money, which is the above.

This does not make fiat money and gold the same.

People are (hopefully) buying physical gold not because they think the sky will fall but simply because they don't trust the current fiat system to hold it safely. If you want gold as a store of value (not just looking for capital gains), you have already recognised and accepted fundamental issues with fiat curency which cannot be overlooked. Since one of these issues is trustworthiness of financial and government figureheads, one must consider physical.

I think it's a bit silly to say since the current fiat is flawed that all fiat is flawed and always will be. If the sky does fall and all our current currencies collapse then there will be a new one or ones after it. It's simply important to recognise the lifetime of a fiat currency is severely limited (centures in comparison to millenia for gold) by a lack of scarcity.

For the "bread" scenario, mostly because I am one of those kooky gold bugs, I purchase pre-1946 Aus coins and pre-1920 British ones. These are easily recognisable, minted at 92.5% sterling, and available in all denominations from threepence upto florins and crowns (1937-38 only). Also commemorative Royal Mint coins all minted at 92.5% with weights ranging from 1g+, I like the 20g "$10" coins. I have a bit of everything, but mostly sixpence, shillings and florins. Hopefully that will cover everything from "bread" to "clothing" with gold filling the gap on "shelter".

Of course, since there are lots of kooky gold bugs out there and since the US Mint has massive production shortages on silver eagles, the physical market for small denomination silver has skyrocketed in the past year (even as paper silver declined) and anything minted >80% silv is attracting a hefty and rather rediculous premium (upwards of double spot). Glad I did my accumulating a while back when you could get it at spot or less

Be careful. I have found collecting silver to be very addictive. To be honest as I have mentioned a few times already, I would really prefer to be proven wrong on precious metals. The righter I am the worse it means things are becoming.

 

[wayneL]

But is it a "true" store of value?

There was inflation from 1980 right through to 2002, yet gold declined steadily throughout that period. What happened to the "store of value" theory and the "inflation hedge" in that period.

Why aren't a multitude of other commodities useful in the way it is claimed for gold eg like Doc said, oil... or soybeans or copper or even salt (which was once more valuable than gold).

It strikes me that gold, even though it does have an agreed value via price discovery (just like every other bloody thing) is not money unless it is minted as such.

As such, it is merely a glorified medium for barter with shifting speculative value like numerous other items. Couldn't guns be used in the same way?

So we agree that gold is the latest ponzi scheme?

Despite so many failures, the greater fool theory of investment lives on!

I would bet my left testicle that at some point, gold WILL collapse... massively... from any peak "value" (as measured by fiat) it might reach, regardless of any considerations of inflation etc.

Why does it go up in times of fear? Because it does. Perception becomes reality until the perception is exposed as deception. It's speculative. Yes, ponzi scheme indeed.

 

[wayneL]

PS I'm just as happy as any ardent gold bug to see gold on the move, I'm trading it. But it's ultimate value doesn't concern me, nor to see the price collapse either. I'll try and trade that too... just like any commodity.

 

[sinner]

Of course we must recognise that gold is cyclical wayneL, as I mentioned each fiat currency which destroys itself is replaced by the next and it all starts over again.

Dow gold ratio is as good an indicator as any I have seen to address your concerns.



This one is from 2006 but I like it better than some of the newer ones showing the "trumpet" formation of the last 3 gold cycles like this (and also contains the 1980s example you highlighted)

Very amusing to see the dow:gold at 20+ in Feb 08!

If anyone was curious dow:gold sat at 7.65 yesterday (not factoring in todays jump in gold and corresponding market drop), was at 9 not so long ago. So we have already fallen below the green 75% confidence band above. Historically, dow is cheap if you can get it for 2 golds or less, but the trumpet formation does not bode well for the dow this time.

To put it simply, when gold is worth more than anything else, time to switch to the anything else. When gold is worth the least out of everything, buy buy buy!

However, even at the very highest point (least vaue) I will still keep accumulating gold and silver at a small rate, just as I will continue to save paper money when it could be in gold during opposite market cycles.

 

[wayneL]

Sinner,

I don't really understand what your charts are telling me apart from that there is a cyclical relationship between the Dow and gold. This could signify a number of factors apart from the "gold is money" mantra. It could simply reflect the production costs of gold, with various levels of speculative artifact from time to time.

If there is more, "please explain".

 

[cuttlefish]

Gold has no counterparty risk, its portable, its fairly indestructable and rare so it can't be diluted so it works well as a currency in that regard.

In relation to its function - its function is symbolic - historically gold is entrenched as a symbol of wealth and power within world cultures. So if there is a complete meltdown of the political/financial regime and a new regime forms, many of the leaders/power holders in that regime will covet the symbols that will allow them to demonstrate that power. Gold has such a strong cultural entrenchment that it will serve as part of that function.

Basically its function is to service people's greed and hunger for power/control - all societies will have people that, once they've gotten to a position where they aren't worrying about where their next meal comes from or how to put a roof over their heads, will then start coveting these other things.

 

[Trembling Hand]

Interesting (Ridiculous?) that people believe a stock index over an extended period is worth comparing

Especially something as random as the DOW.

What is the world coming to? Its a friggin imaginary line.

 

[prawn_86]

I have always failed to see the 'value' of gold also. In an apocalyptic scenario you are much better off with a pallet of canned food or even a heap of seeds that can be planted to grow food.

Person hoarding gold: "I'll give you this lump of gold for all your seeds"
Person hoarding seeds: "What can i do with it?"
Person hoarding gold: "Well you cant eat it or plant it, but you might be able to barter with it with someone else..."

 

[Temjin]

A great topic question.

So why gold/silver is regarded as money? Why not bottle caps (Fallout) or precious gemstones or anything else?

Most goldbugs would argue that gold has been the money of choice over the past 5000 years. Since it has been that way for so long, it would be forever.

While I am still fairly bullish on gold in the medium term, I do think the value of gold is largely symbolic, like cuttlefish has said. It has value because people "believed" it has value. The day when we have achieved low cost space flight and start hauling heavy density asteroids from the belt and start mining precious metals like steel, it would no longer be as "attractive" anymore as money. Remember there was a point in history where there were simply too much gold around and it lost its status as money of choice temporary.

Regardless, in the event of an apocalyptic scenario, I agree with most people that it is better to hoard food and weapons than gold.

 

[Happy]

..

, in the event of an apocalyptic scenario, I agree with most people that it is better to hoard food and weapons than gold.

+1


Shelf life and size of storage are problem, that make people to think of alternative bartering medium and gold is perceived to be one of them.