Real value of gold to governments
tneig
Posts: 1,505 ✭✭✭
Everyday my scope broadens on this topic and but I end up with just more questions. So the big nations have storehouses of gold for some reason, but is that just symbolic power? What good is it other than that (unless of course a few pillage it.)
-What would the US do with its gold if times were bad - Sell it? It never has before, like during wars or the depression.., eh?
-In really bad times, say a 'worldwide' conflict or economic collapse what good is it? What does a nation do with it? Hold it tighter?
-Isn't it the "holder" that really owns it, regardless of the paper owner or how much its leased? Maybe that's the power. Still symbolic.
Other thought:
-With so many people in the world and such ease of obtaining gold, is the bulk of the physical actually in private hands?
-What would the US do with its gold if times were bad - Sell it? It never has before, like during wars or the depression.., eh?
-In really bad times, say a 'worldwide' conflict or economic collapse what good is it? What does a nation do with it? Hold it tighter?
-Isn't it the "holder" that really owns it, regardless of the paper owner or how much its leased? Maybe that's the power. Still symbolic.
Other thought:
-With so many people in the world and such ease of obtaining gold, is the bulk of the physical actually in private hands?
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<< <i>Everyday my scope broadens on this topic and but I end up with just more questions. So the big nations have storehouses of gold for some reason, but is that just symbolic power? What good is it other than that (unless of course a few pillage it.)
-What would the US do with its gold if times were bad - Sell it? It never has before, like during wars or the depression.., eh?
-In really bad times, say a 'worldwide' conflict or economic collapse what good is it? What does a nation do with it? Hold it tighter?
-Isn't it the "holder" that really owns it, regardless of the paper owner or how much its leased? Maybe that's the power. Still symbolic.
Other thought:
-With so many people in the world and such ease of obtaining gold, is the bulk of the physical actually in private hands? >>
Why sell gold when you have the power to just print money?
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
<< <i>Why sell gold when you have the power to just print money? >>
There was a time when the gold was held to back the currency. The US removed that backing when foreigners started wanting the gold instead of the dollars. Central banks now hoard gold as a backup plan for when their currency or their paper promises (bonds) will not pay the bills. It is "dollar insurance" for them as well as for the stacker. The fact that central banks continue to hold gold, and continue to add to those holdings, disputes the myth that it is a barbaric relic.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
That's right! Governments and central banks can't do anything right (according to some) yet they are holding and buying gold, so that makes them.. um.. er..
Liberty: Parent of Science & Industry
<< <i>The fact that central banks continue to hold gold, and continue to add to those holdings, disputes the myth that it is a barbaric relic.
That's right! Governments and central banks can't do anything right (according to some) yet they are holding and buying gold, so that makes them.. um.. er.. >>
Note that the FED is not buying gold.
Eastern central banks are holding and buying gold. That makes them...um...er....a wee bit smarter.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>The fact that central banks continue to hold gold, and continue to add to those holdings, disputes the myth that it is a barbaric relic.
That's right! Governments and central banks can't do anything right (according to some) yet they are holding and buying gold, so that makes them.. um.. er.. >>
Even a broken clock is right twice a day.
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
if it were discovered that all, or even a significant % of the US gold stocks (8133 tonnes) had been sold, leased, or rehypothecated in some way? With the US owning the world's reserve currency, this is much more important.
The quoted value of the US gold stocks essentially covers on a 1-1 basis the circulating currency in the US or approx 20-30% of all existing FRN's held around the world. If you agree that the US dollar would be affected by such
a revelation, then by logic you have to agree that gold is performing some sort of "backing" role for the USDollar.
Gold's basic role over the past few hundred years was a final debt extinguisher. As long as you held gold you could extinguish debts (FRN's are just another debt instrument to be extinguished, though that's rarely done). The
larger govts hold gold as a final extinguisher of debts of all types (monetary, political, etc.). Smaller nations have been giving up their gold for protection, political favors or extinguishing onerous paper debts/derivatives placed on
them by the larger gold-carrying nations. Just like Monopoly, the goal is to end up with all the land, oil, railroads, gold, and other resources you can.
It could be argued that the USA has the largest amount of assets outside of its gold holdings of any country and such the value of the gold holdings may or may not have a material influence on its currency.
Knowledge is the enemy of fear
<< <i>There is evidence that when a country sells its gold holdings its fiat currency declines. However, the amount of the decline is highly influenced by other assets the country may have and the decline is measured in terms of US dollars. So the effect can be difficult to measure accurately. When Canada sold nearly 80% of its gold holdings in the 1990, its currency lost about 10% vs the dollar. When Sweden sold about 1/4 of its gold their currency dropped by about 25% vs the dollar. Canada has much more in terms of assets (tangible and intangible) than Sweden.
It could be argued that the USA has the largest amount of assets outside of its gold holdings of any country and such the value of the gold holdings may or may not have a material influence on its currency. >>
Here's the only argument I know. Assuming, that tonight the US will announce that the gold reserves were sold off over the past 20 years to manage the US dollar. You can be currently positioned in either one of these 3 items
prior to the announcement. Which would you choose? You don't have to keep the items once the announcement is made. You are free to sell them at any time.
1. $50,000 in cash.
2. $50,000 in 1 oz AGE's / Buffs or even selected mining ETFs or stocks.
3. $50,000 in assorted US blue chip stocks.
4, $50,000 in ASE's.
5. $50,000 in 10 yr and 30 yr USTreasuries.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
They can change all the rules about what constitutes a good asset; they can keep juggling the Treasury's books (in ways that closely resemble Enron) that would get most private businesses an audit, a hefty fine or a jail sentence; they can exempt themselves from the laws that everyone else has to obey; and the Ministry of Truth can lie about the data or change it at will. It's all "par for the course" these days.
TPTB can spout whatever drivel they want, but my analysis of the debt load and the economy isn't so good. Say what you want, the place is leveraged to the hilt and nobody even cares about how much is being financed, how much is being spent, or even what it's all being spent on.
I refuse to be a victim in a replay of the 1930's, in which stocks must be sold under pressure because the mortgage & taxes still need to be paid. If all that sounds irrational, I can live with it. I'm surprised the system has lasted this long.
I knew it would happen.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>I'll take the $50K in silver eagles.
Option #4 added to the list.
Option #5 TBonds.
I'm still waiting for someone to select the "cash" option.
India buys gold because it's society has been gold lovers for centuries.
Central Bankers are buying gold to give them leverage against a dying Euro and eventually the dollar. But the Euro and dollar will decline because of CONFIDENCE. As the stock market rises, interest rates will rise. As interest rises, economic growth declines, thus the eventual continual decline in confidence.
The rise and fall of the dollar means nothing to the rise of gold.
You would get double benefit.
Knowledge is the enemy of fear
<< <i>How about $50,000 in GDX?
You would get double benefit. >>
Another good option and added to the list. Still waiting for someone to pick "cash" since many think there will be no effect on the US dollar in our "non-gold backed world."
The US has sold its gold before. It sold off reserves from >20,000 tonnes in the peak years to just over 8,000 tonnes today. Those tonnes went to extinguish debts when our TBonds and currency were presented in exchange
for our gold. The closure of the gold window in August 1971 put a stop to that lunacy. We were not going to continue to give up our gold for mere paper. The gold inventory has been basically unchanged ever since.
Gold does not enable the USA to control the oceans, air, or space. It doesnt not guide missiles with pinpoint accuracy. It does not keep researchers from finding cures for human ailments. It does not increase productivity. It does not prevent human technological advancement.
The discovery that life can continue without a God can have a unpredictable consequences.
Knowledge is the enemy of fear
<< <i>Any decline in the value of the dollar would be 100% psychological, and perhaps short-lived (few years max). >>
Historical dollar value declines thus far (100+ years) have been quite real, permanent and not imagined. So, this time it's different?
<< <i> Gold does not enable the USA to control the oceans, air, or space. It doesnt not guide missiles with pinpoint accuracy. It does not keep researchers from finding cures for human ailments. It does not increase productivity. It does not prevent human technological advancement.
The discovery that life can continue without a God can have a unpredictable consequences. >>
These are not the purposes of an insurance policy. You mistake caution for religion.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Only insurance is insurance.
Knowledge is the enemy of fear
<< <i>Are you mistaking gold as an insurance policy. Lots of good folks bought into the insurance policy concept only to see their investment wiped out 30-50%, or worse yet, have seen 10-15% (or more), or their investable lifetimes elapse. Some have even died waiting for this insurance to pay off.
Only insurance is insurance. >>
"Only insurance is insurance" is a misconception held by those who believe only dollars are money. A healthy lifestyle is insurance. A weapon is insurance. A good education is insurance. Insurance is protection from and it is preparation for an unknown future. What it protects one from will dictate the form it takes. There are prices at which gold is not a great investment in the short term; that does not affect its long term role as insurance and, historically, its long term role as an investment.
A life insurance policy purchased 20 years ago has seen its value (purchasing power) wiped out much more than 30-50%. All life insurance policy holders have died wating for that insurance to pay off. A dollar insurance policy (gold) does not die with its owner, it gets a new owner. It keeps on ticking, it keeps on protecting as it has done for centuries. The only thing that changes is who holds the policy. It is an insurance policy that takes the form of an inflation protected savings account - it can be subtracted from or added to at the discretion of its owner. It is not an "end of life" item.
History shows that gold will pretty much purchase the same amount of a good or service over time in the face of a declining, rotting currency. I consider gold to be a pretty good insurance policy and savings account that offers me dollar protection. On the other hand there are those that don't feel they need the insurance. Hopefully they will realize that they at least need to be stockpiling dollars to maintain purchasing power. Gold is a cheaper and easier way to stockpile value.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Are you mistaking gold as an insurance policy. Lots of good folks bought into the insurance policy concept only to see their investment wiped out 30-50%, or worse yet, have seen 10-15% (or more), or their investable lifetimes elapse. Some have even died waiting for this insurance to pay off.
I don't see it as insurance as much as a tangible alternative to ever declining paper currency. Of course it will rise and fall against the dollar, as will any asset, including the all time touted investment.....the home.
If one wishes to have a stable, yet decaying asset, the bank account or CD is the way to go. Each day the $100,000 will be worth a $100,000 plus of course the 1% interest that the banking system is now generously paying. Of course that money once bought a luxury home, a cottage on the lake, a boat and a Mercedes Benz.
Today it buys the Mercedes, as long as you don't get too nutty on the options.
<< <i>
<< <i>I'll take the $50K in silver eagles.
Option #4 added to the list.
Option #5 TBonds.
I'm still waiting for someone to select the "cash" option.
The value of all of your choices is still measured in dollars isn't it? There is no guarantee that any of them will maintain their value after the announcement is made. If the world wasn't coming to an end before the announcement [and assuming the gold had been gone some time before that] why should it come to an end after?
I knew it would happen.
Its not uncommon for the insurance company to reject your claim for some reason or undercut the payout if they so deem.
With the physical, you decide. But that again is prone to human blunder. Especially if your wife finds out you have it.
I often consider in my planning the extended value of PMs after I'm gone and realize its value will likely last as long as a new car.
History shows that gold will pretty much purchase the same amount of a good or service over time in the face of a declining, rotting currency
I dont disagree, except perhaps on the symantics.
In 1954 a $20 Saint was about $45, now about $1500. Up 33x
In 1954 the SP500 was 30, now 1978. Up 65x
In 1954 an acre of land in Florida was about $200, now $7500. Up 37x.
In 1954 a barrel of oil was about $3, now $105. Up 35x.
Now just to show that I am not partial to stocks or any other asset class, let go back 3 years and use the high of gold at 1950. Then its up 43x. And we'll use the SP500 price as of 3 years ago at 1250, up 42x.
My point is, and Ive written this many times, is that all asset classes will have similar returns over the course of ones lifetime. None are more special than another. They all have their moments out outperformance like stocks have done recently and gold a few years before. Gold offers no more "insurance" that stocks, real estate or oil. Why do they all have similar returns? Because they are all based on the same "declining" currency. So now, at this very minute, with the equities having doubled the return of gold, does that make gold a relative buy right now?
Knowledge is the enemy of fear
<< <i>As I understand it, all paper currencies throughout the entire history of the world have eventually gone worthless, yet gold has been used for money for about 3000 years. >>
But somehow this time it's different?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
the financial crisis hit already so there is some history, everyone fled to the dollar, even gold went down, so actually those who had the cash and deployed at significantly lower prices into gold, silver, stocks, real estate, those people made big returns and gold & silver were the smallest of gains(if one sold, worse if held) compared to innumerable stocks of great companies & real estate income properties with added equity gains...
<< <i>well in my lifetime gold is not insurance, maybe never will be...
the financial crisis hit already so there is some history, everyone fled to the dollar, even gold went down, so actually those who had the cash and deployed at significantly lower prices into gold, silver, stocks, real estate, those people made big returns and gold & silver were the smallest of gains(if one sold, worse if held) compared to innumerable stocks of great companies & real estate income properties with added equity gains... >>
Chart by Deutsche Bank (dated Sept. 2013) showing global asset perfromance since the Lehman collapse in 2008. Note gold and silver take the number one and two positions (regardless of stock market "new highs" being touted ever since). While the S & P 500 had risen 45% since the collapse of Lehman, silver was up 80% in Sept 2013 despite a 56% correction from its earlier high. This stellar overall performance of metals gets drowned out by the Wall St. driven "new stock market high" reports and creates the mainstream media managed lie that the best returns are in stocks. Additionally, a belief that financial crisis has come and gone is a path to financial ruin. There is no recovery, only delay. Dollar insurance is more important now than it has ever been. Despite price corrections, what made Gold and Silver numbers 1 and 2 will keep them at 1 and 2 when the approaching (but well played down) renewed crisis strikes. That light at the end of the tunnel just might be another train.
Gold was great insurance in 2009, but more importantly it will be a higher value policy over the next few years. Our previous debt fueled "financial crisis" is accelerating into a currency crisis. Believing that a debt problem can be cured with more debt is a fool's bet. While one may not have seen the last crisis coming (and most didn't) there is no excuse for not now having one's eyes open. The current eye opener should be the fact that even in the face of a few year's deflation, the purchasing power of most currencies has continued to decline. What do you thing will happen when a little (or lot) of inflation surfaces?
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Sure you can. An investment in the SP500 is an investment into the SP500, not 500 separate stocks. Or maybe it would be better to show a component such as IBM which is up over 100x since the 1950's, or GE (up over 150x). How does gold fare against those companies? My point was to use an investment in the stock market, not an individual stock. The point is that a $10,000 investment in any asset class will over the long term have similar returns.
"Insurance" is not the same as "return"
Funny, because the insurance and return offered by gold has been the same (virtually negative) for vast stretches of ones lifetime. If you bought gold in as insurance in 1978 at $200 (because fear of inflation, inept President, Middle East concerns, Russia flexing its muscle)---wait a minute was that 1978 or 2014?--then how did you feel about that insurance in 2004 when gold was at $400?. Imagine that, buying gold at 25% of its peak and then realizing after 25 years you have only doubled your value. You got in at a low price and still didnt make any money after 20 years. Maybe your right, gold is like an insurance policy.
"Only insurance is insurance" is a misconception held by those who believe only dollars are money
I'll assume that comment is not directed at me as I have stated many times on this board that I believe anything can be money and IMO the most pure form of money is human knowledge and labor.
Knowledge is the enemy of fear
Gold and silver did go down just as hard as stocks, but they recovered much faster and stocks would still be struggling if not for the advent of QE.
Since QE to infinity did become the Reality, the best move for a speculator would have definitely been to have rotated into stocks (or depressed Florida real estate) with the first QE decision, and then to have ridden it back up. Sure 'nuff.
I do believe that there is a general awareness that someone is going to cry "fire" in the stock market's crowded theatre someday, and when it happens there won't be a way out. There's a serious and concerted effort being made to keep the dollar and the stock market afloat, no doubt about it.
It's basically our whole way of life now to consume and borrow, while pretending that a certain amount home equity is enough to finance a comfortable retirement. This ain't your father's monetary system. Be darned careful.
I knew it would happen.
<< <i>well in my lifetime gold is not insurance, maybe never will be...
the financial crisis hit already so there is some history, everyone fled to the dollar, even gold went down, so actually those who had the cash and deployed at significantly lower prices into gold, silver, stocks, real estate, those people made big returns and gold & silver were the smallest of gains(if one sold, worse if held) compared to innumerable stocks of great companies & real estate income properties with added equity gains... >>
Gold went up 4.9X and silver 12.5X from 2001 to 2011....and that includes the 2008 financial crisis. During that 10 yr period the DOW was FLAT. So where's the problem or lack of insurance during this 10 year period when stocks had numerous ups and downs but essentially went nowhere? How is a 4.9X gold increase vs a flat DOW not insurance over a 10 yr span? If you prefer we can compare from 2001 to March 2009 (8 yrs) when stocks got halved and gold was up 4X (an 8X out-performance). Gold, silver, and most commodities out-performed >90% of everything in the stock market during this period. It was a 10 year bull run with a clear 3 waves up and 2 significant corrections. In comparison stocks got blown apart from Oct 2007 to March 2009 losing a lot more than gold did in 2008 (-53% stocks vs. -34% gold). But even stocks didn't have an uninterrupted run from March 2009-present as the 2011 dip took a heavy toll (stocks net flat from 2001-2011). Even an insurance policy that pays out in dollars/FRN's is not immune from cycles. All insurance policies have risks associated with them. None are free and a sure thing, gold included. In my lifetime nothing has been insurance, not even insurance...lol. Insurance is only as good as the payer. Those who had cash in October 2007 and bailed out of stocks saw great opportunities in 2009 after things crashed...and then again in Sept 2011. I thought we all concluded long ago that all markets are cyclical and this drives what is insurance and what isn't? PMs were hard to beat from 2001-2011. Stocks were hard to beat from 2011-2014. Stocks had a great run from 1982-2000 but they got hammered during the 1987 crash. Did that make their 18 year run any less impressive?
I agree, a financial crisis hit already. There's a bigger and badder one yet to come though. The next one won't be so easy to paper over as the 1st one. It's easy to bash PM's that are now 3 years into a bear market and to boast about how infallible stocks are 5 years into a cycical bull market. The same comparisons were made in summer 2011 to show how lousy stocks were and how great PMs were. Just recall what it took to force PMs down from July - October 2008 (ie 200 BILL in otc silver derivatives and $650 BILL in otc gold derivatives or approx 14 years in world silver production and 4 years in world gold production). What properly regulated markets are allowed to trade like that? The recovery was so swift from that October 2008 bottom that you could tell manipulation was used to take it down hard in July 2008. Let's not forget that even during the Sept 2008 Lehman crisis that gold rose back to over $900 during 4 separate weeks (to $931). That was only -10% from the March 2008 peak. But, they had to get one more crush in during the next several weeks as they forced gold down another $350. It didn't last long at all....only 3 months before it was back above $900. The insurance worked. Numerous attempts to keep it down all pretty much failed. Does the SEC allow a single bank to carry 14 years production of oil or wheat shorts? Is there even an explainable reason why a single bank needs to hedge such a vast quantity of production even if they handled every gold or silver producer in the world?
I would agree that after a 10 year bull run, gold was no longer the needed insurance that it once was. Markets cycle and change. That 10 year bull was predicated on numerous things, one of which was a falling dollar and rising yen during that entire period. Once that was yanked away things were much different. You buy insurance for your future needs and adjust it as those needs and conditions change......it's no different for all investments. They all act as insurance when they are in multi-year rallies. Rare coins were great insurance from inflation during 1971-1980 and then 1982-1990 and again from 1996-2008. In my lifetime I've seen rare coins, precious metals, collectibles of all sorts, classic muscle cars, and stocks all act as insurance during their best periods. What didn't act as insurance were whole life policies and other assorted insurance industry crapola.
<< <i>There's a serious and concerted effort being made to keep the dollar and the stock market afloat, no doubt about it. >>
....as well as keeping mid to longer term interest rates low. When....sorry if, 10 year US notes rise to a historical 4.5% yield and debt service triggers a domino scenario. That is why the fed keep up the mantra of under 2% inflation. The lady in the supermarket knows it is BS, but perhaps international bankers are dense enough to follow the program.
Make no mistake about it - it's ALL about government bonds. Everything else is just smoke.
I knew it would happen.
Been under 2% for going on 15 years now. They probably laughed at the fools who locked in at 1.5% in 2000--seems it wasnt a bad deal afterall.
Knowledge is the enemy of fear
Anyway, the article this chart came from is almost 2 1/2 years old. The DOW was around 12800 then with the S&P at 1350. It's a testament to the power of unlimited ZIRP + $5 trillion = Skyrockets. Here's the old link if interested: Sober Look
Been under 2% for going on 15 years now.
And now for the "rest of the story".
There are a finite number of outcomes. There will come a point when yields rise on Japanese bonds, and if you thought that their economy was sluggish now, just wait until then. The alternative is outright default, which won't do much for Japan's ability to exist on trade after that happens. I imagine that Japanese fishing isn't too good now either.
The only other possibility is that their rates continue to be very low, headed even lower. What would that imply? It implies that the Japanese people would become impoverished and disenfranchised while wealth concentrates further in the banking system.
As it's already been pointed out, Japan is a nation of savers. As rates continue low and down, the savers simply watch while their savings fail to perform the way they had planned. This will wreck Japan's savings ethos. Nice going, BoJ.
I knew it would happen.
<< <i>This will wreck Japan's savings ethos. Nice going, BoJ. >>
What will also wreck Japan's savings ethos is the aging population and extremely low birth rate. As the old timers cash in some of the paper to cover living expenses, where do you find the next generation of greater fools to buy it up at 60 basis point yields?
Japanese debt is $10.5 Trillion spread over a population of 127 million. That is $82,000 per citizen and what, $165,000 per worker?
Tough to see a happy ending.
Then call me Gwen Stefani.
Knowledge is the enemy of fear
I googled her, and I still don't recognize her.
So, in your mind there's no manipulation going on. Libor scandal? JPM billing clients for nonexistent bullion storage? Goldman frontrunning their muppets?
What's it gonna take to get your attention? Or, as long as you can trade it - who cares?
I knew it would happen.
<< <i>Gwen Stefani
I googled her, and I still don't recognize her.
So, in your mind there's no manipulation going on. Libor scandal? JPM billing clients for nonexistent bullion storage? Goldman frontrunning their muppets?
What's it gonna take to get your attention? Or, as long as you can trade it - who cares? >>
Add Bernanke "earning" $250k per evening for schmoozing with Wall Street execs.
Who's zoomin who?