A Question About Gold Values

Look at the 30 year gold chart, it is what it is because of fiat currency systems. I do think it's a run a little too hard in the last couple of years, but I don't see it as over-valued.

Gold has served as money for thousands of years. Your statement above certainly has merit regarding "a volatile economy" but "loud shouting from right wing radio" has nothing to do with it.

99.9% of the world has no idea what "right wing radio" even is, let alone what they might be saying.

Want to see an interesting chart? Overlay the U.S. National debt with the price of gold for the last 25 years. They are mirrors.

sel: This makes me wonder something. Does the aggregate past inflation completely (or nearly completely) determine currency valuation? For example, I know my Canadian dollar (divided by USD) has been on a slow up-trend for 15 years now, and I suspect inflation in Canada has been slightly lower as a cause/result.

The reason I ask is that the "chart" you mention may be currency-specific if inflation and currency are not completely linked.

I guess I need a macroeconomics lesson here!

Gold, and other commodities, are "rising" for basically one reason - More money chasing a relatively static supply of the commodities. Measuring the price of anything with a rubber yardstick (I.E. paper money) will give you false results. Measure the value of commodities by what they will buy and you will have a true picture of their real value.




All governments throughout history, regardless of political persuasion, have eventually stooped to debasing their money supply. It is not a Democratic nor a Republican thing even though the Democrats typically do it faster. Would a Republican administration cause gold to crash? Not likely, although I would assume that initially there would be a pullback.

Now if the Republicans, or any other administration, drastically cut spending to equal the income, there would be a very sharp crash when measured in U.S. dollars. However, the intrinsic value of the gold remains the same. And the value would not change in other currencies unless those administrations also cut spending to equal income.




Yes, every bubble eventually bursts. Are we there with gold yet? I don't think so. Even though there was a sharp pullback recently, the general uptrend for gold and other PMs is intact. Until that uptrend is broken, there is no chance that we have seen the end of the uptrend. Perusing any long term chart will show you that.

More than that, when people lose faith in their leaders ability to successfully run the government it causes them to lose faith is all aspects of the government, including its currency. Gold and silver are stores of value. Dollars lose purchasing power over time while gold and silver tend to hold on to theirs. Yes, there are times when the markets gyrate wildly and weird things happen even to gold and silver. When that occurs, it affects everything else too, so nothing provides perfect financial protection from loss of purchasing power. It's just that gold and silver are the best things out there than most people can acquire for this purpose.

Inflation is insidious. It is constantly shrinking the buying power of currency. The fact that it tends to do this slowly does not mean it is not happening. What it does mean is that it is happening slowly enough to escape the notice of most people. Milton Friedman, a Nobel Laureate economist once wrote that "Inflation is taxation without legislation". He was right about that. Inflation is primarily caused by the Fed and their setting of the amount of currency available. Increase the number of dollars in circulation by 10% from one year to the next and whammo, you get 10% inflation with dollars buying 10% less goods and services than they did last year.

None of this is a Republican or Democrat specific thing. It IS a politician specific thing. Everyday people understand that spending more money than one has is a bad thing. At least, most of them do... NOW. Neither the government nor The Fed seem able to grasp this simple concept. Until they do, the entire world will be awash in debt and the problems that come from spending more than one has. Until they catch on to this and start running nations with the same financial propriety that successful businesses have, investing in precious metals is very likely to be a wise financial move.

One final thought is that there is no gold bubble. Gold has move up sharply in the past few years because a lot of big investors, institutions, and banks have bid up the price of gold. The stock and commodity markets are auctions, so bidding sets the prices. For gold to be a bubble, it would have to be much more commonly owned and the mining company shares would have to be bid up by a similar amount to that of the metal itself... and neither of these is true at the moment. What IS true is that Bernanke & Co. have printed trillions of extra fiat dollars out of thin air, the US government has sold trillions of dollars worth of government paper (bonds), and the price of gold has moved up in direct response to these moves as well as many other financial problems, particularly in Europe but also to a lesser extent in Japan.

I agree, Sel. In fact, if one wanted to do so, it would be entirely possible and appropriate to say that gold has a fixed value and that it only appears to be changing because the various currencies in which gold is valued are themselves changing.

Many scientific studies contain something, such as a control group, which is fixed in place and not changing due to the conditions of the experiment. As a scientist, I tend to look at gold in an economic system in the same way. Whether that is correct or not is often due to a person's viewpoint. It seems to work for me, though, and your example of the high quality luxury car and what it costs in gold works well for this.

In fact, it works well for an average car as well. A Model T, for example, sold for around $500 back in its day. With gold at about $20 an oz. back then that would be 25 ounces of gold. That same gold would be worth about $45k today. In gold terms, then, the price of a low end car has actually declined. A car that is roughly equal in stature to a Model T today can be had for about 1/3 of the $45k gold equivalent. Not that cars then and now make great comparisons due to all the improvements in technology, comfort, reliability, capability, and safety but the message is clear... gold retains value over time.

I was buying gold after listening to Alex Jones years ago. I completely disagree with his views on 9-11, but his views on the economy were spot on years before it happened. As far as the reasons people are buying gold everything that I believe has already been stated above.

My feelings on both gold and silver are that they are indeed a store of value. I have a little and have replaced the fiat $ with this type of investment because the past 2 years I have lost my faith in the FRN. If I am wrong well at least the US has regrouped and the silver and gold will still have value. If wrong I will have the silver and gold and the fiat will have little or no value. Nickels are a win win as well no premium, if economy gets to be great. Just deposit or spend. If bad the base metal will most likely appreciate