Topic: The Real Story of Gold (Read 6739 times)

Hi,
The negativity towards gold prices remains extreme, but this may only be the case for the short-term. For those who are focused on the long-term prospects, it seems gold prices may have a huge “sale” sign stuck on them.
To see where gold prices are going next, you must pay attention to gold miners. Remember that if they can’t sustainably produce at a certain gold price, the supply side gets hurt. If the demand remains the same, you have a solid case for higher gold prices ahead.

http://www.profitconfidential.com/gold-mining-stocks/

...

Miss Fortune

Gold is supposed to be expensive.  It always has been.

Gold is also "wealth dense", perhaps its best characteristic.  Of course, "wealth" is in the eye of the beholder, but for over 5000 years gold has held a lot of value in our eyes.

But, gold can EASILY be bought is amounts as little as 1/10th of an ounce.  Gold 1/10th Eagles are typically available at coin shops and would cost maybe $135.  And there are other options for 1/10th oz pieces (also French 10 Franc pieces at about 0.09 ounces -- slightly smaller, but slightly cheaper too).

If you think that gold is in trouble because it hit a five-year low, read on!

Serious books were recently published, detailing evidence of central bank suppression of gold prices.  If you think about it, this changes everything.  We have been led implicitly to believe that gold is just a shiny object, obsessed over by gold bugs, and even they can get tired of it.

But this news means that central banks' own assessment is that they must suppress the price of gold in order to maintain public confidence in paper.  And their intelligence on global sentiment is probably better than ours.

To get a full understanding of the issues, we must start with the gold standard era.  Why did central banks swear up and down about upholding their "moral commitment" to redeem paper currency for a fixed amount of gold?  The stated reason was that they wanted to safeguard the stability of paper money and thus the economy.

The metallic standards of the past are of course considered mistakes by modern mainstream economists and central banks, though one has to wonder why the "mistake" dominated the Western monetary system for about three hundred years that were littered with periodic and severe financial crises, and was only abandoned when states were about to run out of gold for redeeming paper at the official price.

Given this history, we could be forgiven for a little skepticism.  It's hard to avoid concluding that the real reason for gold standards was to prop up the value of paper currency (or, equivalently, to suppress the market price of gold in paper currency) so that top politicians and banks could continue to receive benefits by issuing paper money and debt.

The way it worked was that the system ensured that it didn't make sense for savers to hold gold.  Gold earned no interest, while paper money was guaranteed by the authorities to redeem a fixed amount of gold, and this promise was credible while the state had enough gold in the vaults.  Meanwhile, holders of gold lived under the same price inflation as everyone else, due to the expansion of the money supply from currency and debt issuance.

However, the incentives for the elites were to issue maximal money and debt, so the system was never fundamenatally stable.  Aside from periodic bank debt crises that came with major economic pain for citizens, in 1890, even the core of the global system, the Bank of England, experienced a run on its gold that needed help from other major countries to restore confidence.  By 1931, Britain had to give up its peg against gold.

Given that the essence of the gold standard was to suppress the "market" price of gold, that system was not very different from what we have today, even though the techniques of suppression are more sophisticated (ie by trading derivatives) and the "target" prices of gold more flexible.

The final unpegging of the dollar from gold in 1971 was a change from explicit to hidden suppression of gold.  The hidden nature of the suppression also made gold price rises (in effect, devaluation of paper against gold when the authorities had no choice) less embarassing.  Between $35 and $1000 per ounce, the dollar has lost 97% of its value.  Armed with the evidence, the Great De-monitisation of Gold has now been discovered to be the Great Devaluation of Paper.

All of this points to the reality that is the polar opposite of conventional wisdom, that the gradual weakening, and then the abandonment of the gold standard were *good* news for people who believe in state-free money.  These events signaled the gradual loss of control by the authorities in suppressing gold.  They made gold more like money and paper currency more like debt.

So, hopefully, we are waking up to a hidden reality that money is not what the elites make it, but what people make it, in the long run.  The elites may have been granted a lot of power by the system, when they first establish a mechanism of manipulation.  But that very power gives these elites the irresistible incentives to undermine their own system, so that the long arm of nature always catches them, in the end.

This power of nature was made clear when China had to punish by death those who transacted with anything other than the state paper money, and then had to go back to physical silver anyway, in the 1500s.  (BTW, China was no Zimbabwe -- the paper money was not poorly run and had lasted for a few centuries, like our own.)

Gold (or any other metal) may not be a perfect monetary system, but given the nature of the elites that humanity must deal with, it may be humanity's best hope.  With the possible exception of Bitcoin, of course.

If you think that gold is in trouble because it hit a five-year low, read on!

Serious books were recently published, detailing evidence of central bank suppression of gold prices.  If you think about it, this changes everything.  We have been led implicitly to believe that gold is just a shiny object, obsessed over by gold bugs, and even they can get tired of it.

But this news means that central banks' own assessment is that they must suppress the price of gold in order to maintain public confidence in paper.  And their intelligence on global sentiment is probably better than ours.

To get a full understanding of the issues, we must start with the gold standard era.  Why did central banks swear up and down about upholding their "moral commitment" to redeem paper currency for a fixed amount of gold?  The stated reason was that they wanted to safeguard the stability of paper money and thus the economy.

The metallic standards of the past are of course considered mistakes by modern mainstream economists and central banks, though one has to wonder why the "mistake" dominated the Western monetary system for about three hundred years that were littered with periodic and severe financial crises, and was only abandoned when states were about to run out of gold for redeeming paper at the official price.

Given this history, we could be forgiven for a little skepticism.  It's hard to avoid concluding that the real reason for gold standards was to prop up the value of paper currency (or, equivalently, to suppress the market price of gold in paper currency) so that top politicians and banks could continue to receive benefits by issuing paper money and debt.

The way it worked was that the system ensured that it didn't make sense for savers to hold gold.  Gold earned no interest, while paper money was guaranteed by the authorities to redeem a fixed amount of gold, and this promise was credible while the state had enough gold in the vaults.  Meanwhile, holders of gold lived under the same price inflation as everyone else, due to the expansion of the money supply from currency and debt issuance.

However, the incentives for the elites were to issue maximal money and debt, so the system was never fundamenatally stable.  Aside from periodic bank debt crises that came with major economic pain for citizens, in 1890, even the core of the global system, the Bank of England, experienced a run on its gold that needed help from other major countries to restore confidence.  By 1931, Britain had to give up its peg against gold.

Given that the essence of the gold standard was to suppress the "market" price of gold, that system was not very different from what we have today, even though the techniques of suppression are more sophisticated (ie by trading derivatives) and the "target" prices of gold more flexible.

The final unpegging of the dollar from gold in 1971 was a change from explicit to hidden suppression of gold.  The hidden nature of the suppression also made gold price rises (in effect, devaluation of paper against gold when the authorities had no choice) less embarassing.  Between $35 and $1000 per ounce, the dollar has lost 97% of its value.  Armed with the evidence, the Great De-monitisation of Gold has now been discovered to be the Great Devaluation of Paper.

All of this points to the reality that is the polar opposite of conventional wisdom, that the gradual weakening, and then the abandonment of the gold standard were *good* news for people who believe in state-free money.  These events signaled the gradual loss of control by the authorities in suppressing gold.  They made gold more like money and paper currency more like debt.

So, hopefully, we are waking up to a hidden reality that money is not what the elites make it, but what people make it, in the long run.  The elites may have been granted a lot of power by the system, when they first establish a mechanism of manipulation.  But that very power gives these elites the irresistible incentives to undermine their own system, so that the long arm of nature always catches them, in the end.

This power of nature was made clear when China had to punish by death those who transacted with anything other than the state paper money, and then had to go back to physical silver anyway, in the 1500s.  (BTW, China was no Zimbabwe -- the paper money was not poorly run and had lasted for a few centuries, like our own.)

Gold (or any other metal) may not be a perfect monetary system, but given the nature of the elites that humanity must deal with, it may be humanity's best hope.  With the possible exception of Bitcoin, of course.

If only they can substitute the fiat money with something better. And no, Bitcoin is not any better, it has the same major problem that gold had when it had been money, i.e. money supply totally detached from the needs of an economy...

Credit money is perfect in this respect, but it is easily misused and heavily abused

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deisik & BobK71

I think all three of us agree that a system like a Gold Standard or gold coins being circulated is likely unwieldy and not even desirable.  

Fiat is with us and likely always will be.  Yes, it is easily abused (now is but one of hundreds of examples we see in history), but fiat works well as a Medium of Exchange.  All societies need currency for the economy to flow smoothly.  If our US$ fails us, then another currency will come along.  And it will likely not be "backed" by anything either.

Gold will serve perfectly in its role of Store of Value.  That is its highest and best value.

...

deisik & BobK71

I think all three of us agree that a system like a Gold Standard or gold coins being circulated is likely unwieldy and not even desirable. 

Fiat is with us and likely always will be.  Yes, it is easily abused (now is but one of hundreds of examples we see in history), but fiat works well as a Medium of Exchange.  All societies need currency for the economy to flow smoothly.  If our US$ fails us, then another currency will come along.  And it will likely not be "backed" by anything either.

Gold will serve perfectly in its role of Store of Value.  That is its highest and best value.

Thankfully, there's a growing awareness that, among all the gold-based assets, only physical gold is worth the proverbial powder.

Money has been around for millennia, while paper money has only been around for 400 years.  Human experience seems to suggest money is very useful to the economy.  E.g. it provides a way to save for old age.  Having little intrinsic value, money requires faith.  It's just that modern elites have managed to extend that faith to a system whose incentives make it inherently unstable and exploitative.

Hopefully, with growing awareness, the elites will eventually have no choice but to dismantle this system.

I'd say both the state and the banks can go to the seven circles of hell and the world would be far better for it, imho money is the religion of our age and we're worshipping with blind faith but I agree with what you say completely, the two work hand in hand to gain power. What I meant in that post is attempting to integrate with any part of that existing system, the markets, what's traded on them, their legal framework, etc. only re-enforces that blind faith, in keeping with the topic the belief that paper gold is real. As things stand very little value is placed on that distinction, a contract for something that may or may not exist versus something provably real so giving value to that distinction brings the blind faith into question, an economic renaissance.

Fiat has reached it's breaking point. Private Space companies like Planetary Resources will eventually succeed in the coming decades and the increased supply of PM will crash their prices. Crypto is the only game in town on a long enough time frame.

True but it's only one part of the story, its given the investment banks absolute dominance of the markets and so the ability to pump and dump any part of the global economy at will, in comparison to that the gold market has about as much chance of escaping their grip as the bitcoin market does, ie. none. The sooner folks see QE and the bailouts for what they where the better, it was the biggest land grab in history, shiny beads for real estate and fists full of real assets globally and lots of that about to get dumped so they can scoop up even more.

That saw tooth pattern on the major indexes is no accident but just like the PM markets most of it it worthless paper with nothing real behind it, maybe this time around all that will end and they'll kill the goose that lays a golden egg every 7 or 8 years but it wont happen simply by switching to gold, it has to go way deeper into the foundations of value. Lots of things have been currency at one time or another, for example risk is a currency to investments and carries a far higher value than dollars. Trust has been a currency at various times and its one the investment banks and the markets they live on have a very weak position in, personally I have great hopes for it.

If you think that gold is in trouble because it hit a five-year low, read on!

Serious books were recently published, detailing evidence of central bank suppression of gold prices.  If you think about it, this changes everything.  We have been led implicitly to believe that gold is just a shiny object, obsessed over by gold bugs, and even they can get tired of it.

But this news means that central banks' own assessment is that they must suppress the price of gold in order to maintain public confidence in paper.  And their intelligence on global sentiment is probably better than ours.

To get a full understanding of the issues, we must start with the gold standard era.  Why did central banks swear up and down about upholding their "moral commitment" to redeem paper currency for a fixed amount of gold?  The stated reason was that they wanted to safeguard the stability of paper money and thus the economy.

The metallic standards of the past are of course considered mistakes by modern mainstream economists and central banks, though one has to wonder why the "mistake" dominated the Western monetary system for about three hundred years that were littered with periodic and severe financial crises, and was only abandoned when states were about to run out of gold for redeeming paper at the official price.

Given this history, we could be forgiven for a little skepticism.  It's hard to avoid concluding that the real reason for gold standards was to prop up the value of paper currency (or, equivalently, to suppress the market price of gold in paper currency) so that top politicians and banks could continue to receive benefits by issuing paper money and debt.

The way it worked was that the system ensured that it didn't make sense for savers to hold gold.  Gold earned no interest, while paper money was guaranteed by the authorities to redeem a fixed amount of gold, and this promise was credible while the state had enough gold in the vaults.  Meanwhile, holders of gold lived under the same price inflation as everyone else, due to the expansion of the money supply from currency and debt issuance.

However, the incentives for the elites were to issue maximal money and debt, so the system was never fundamenatally stable.  Aside from periodic bank debt crises that came with major economic pain for citizens, in 1890, even the core of the global system, the Bank of England, experienced a run on its gold that needed help from other major countries to restore confidence.  By 1931, Britain had to give up its peg against gold.

Given that the essence of the gold standard was to suppress the "market" price of gold, that system was not very different from what we have today, even though the techniques of suppression are more sophisticated (ie by trading derivatives) and the "target" prices of gold more flexible.

The final unpegging of the dollar from gold in 1971 was a change from explicit to hidden suppression of gold.  The hidden nature of the suppression also made gold price rises (in effect, devaluation of paper against gold when the authorities had no choice) less embarassing.  Between $35 and $1000 per ounce, the dollar has lost 97% of its value.  Armed with the evidence, the Great De-monitisation of Gold has now been discovered to be the Great Devaluation of Paper.

All of this points to the reality that is the polar opposite of conventional wisdom, that the gradual weakening, and then the abandonment of the gold standard were *good* news for people who believe in state-free money.  These events signaled the gradual loss of control by the authorities in suppressing gold.  They made gold more like money and paper currency more like debt.

So, hopefully, we are waking up to a hidden reality that money is not what the elites make it, but what people make it, in the long run.  The elites may have been granted a lot of power by the system, when they first establish a mechanism of manipulation.  But that very power gives these elites the irresistible incentives to undermine their own system, so that the long arm of nature always catches them, in the end.

This power of nature was made clear when China had to punish by death those who transacted with anything other than the state paper money, and then had to go back to physical silver anyway, in the 1500s.  (BTW, China was no Zimbabwe -- the paper money was not poorly run and had lasted for a few centuries, like our own.)

Gold (or any other metal) may not be a perfect monetary system, but given the nature of the elites that humanity must deal with, it may be humanity's best hope.  With the possible exception of Bitcoin, of course.

In the case of truly floating exchange rates, when A's price drops against B, you could argue that A is now undervalued, but you could also argue that A was never worth as much as its old price