Topic: The Real Story of Gold - page 2. (Read 6736 times)

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.  This is just like any other market, and there's no clear answer.  When the state is supporting an exchange rate, and the market leans one way, the state must lean the other way.  There is no question which currency is undervalued, and which is overvalued.  Gresham's Law concerns itself with state intervention, which is distinct from the free-market scenario.

Gresham's Law (or, rather, the principle behind it) would hold even in the case of a floating exchange rate (for example, Bitcoin vs USD). I have explained this here (and in greater detail further on)...

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.

Gold's interesting stuff a better basis for an economy than the rigged casino chips we're using, certainly from a trust perspective but it doesn't really work in a free for all, "let there be greed" scenario, wealth accumulates and eventually there's not enough left to go around, you get an immense class divide and next thing it's pitchforks and flaming torches.

That's redistribution of wealth of a sort but it's not very efficient, the scenarios gold has worked successfully in for very long periods have included sounder means of redistribution of wealth, tithe, charity, etc. Bitcoin has the same issue and its unlikely the western world would take favourably to a coin that gives 10% of your stash to poor people every year and there really isn't much alternative to the smoke and mirrors of inflation and national debt to magic a few percent away from the accumulated hoards.

Gresham's Law (or rather the principle behind it) would hold even in the case of a floating exchange rate (for example, Bitcoin vs USD). I have explained this here (and in greater detail further on)...

I suspect that very few people realize the true meaning of Gresham's Law, and especially as applied to gold and silver.  Gresham's Law really says that, *where there is an artificially supported exchange rate between two monies*, the undervalued money will be hoarded, and only the overvalued money will be left in circulation.

I suspect that very few people realize the true meaning of Gresham's Law, and especially as applied to gold and silver.  Gresham's Law really says that, *where there is an artificially supported exchange rate between two monies*, the undervalued money will be hoarded, and only the overvalued money will be left in circulation.

Unfortunately, silver got completely excluded from the monetary system since about 1870, and that's why it has been trading at well below its long-term exchange rate against gold.  It's a long story, but, essentially, the authorities eventually learned that fixing exchange rates (such fixing, allowing the issuance of paper, being the ultimate source of wealth and power for the very top elites of the modern world) among paper, gold and silver was hard to juggle.  They had to eject one of the three.  Certainly they wouldn't eject paper, so they chose one of gold and silver.

What this means is that, unless the elites lose control totally, silver will be left out in the cold.  Before they lose control, we know they will try (effectively) devaluing paper against gold to lend stability to paper.  So gold is good in two scenarios, where silver is good in only one, and we don't know the relative likelihood between the two.  (Keep reading the news!)

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

The real story of gold is that, during zero-interest deflation that is uncontrollable without the help of a bipartisan Congress willing to cut spending and redistribute wealth, gold will go to the moon without government intervention because people lose faith in fiat currencies as we go from a deflationary deleveraging to rapid inflation as the government tries to stimulate the economy again by essentially printing money.  During the Great Depression, the government confiscated/purchased gold at a fixed price, but gold mining stocks outperformed by a massive amount during this period in history.  It runs very counter to common sense, but that is because we are not in a normal economic cycle.  If you look at gold charts you will see this is starting to get reflected in the price as the Fed acknowledges the situation.

I still love gold, because people can touch, wear it, and use it for cosmetics.

So the value has all around appeal for most people. And as long there is a demand for it, I see profit.

Gold is the primary driver of all PMs (more so for silver, less for palladium and platinum). Thus if you are interested in the price of platinum, you should follow the gold lead. And I'm currently bearish on it. Unless the US gov decides on another round of QE, I'm still expecting the price to hit sub-$1,050 level...

Not until then will I look into gold again

deisik

I would be interested to hear your views on platinum, a lovely PM.

Pt is much scarcer than gold, and has a fair amount of industrial use.  Looking at its industrial use, I saw a comment: "Platinum is for optimists."  Pt has almost the amount of shine (almost as reflective) as silver.  Pt does not corrode either, no need to polish it...

Platinum is also "value-dense" (a little goes a long way), but Pt prices have fallen hard lately.  Nor is as liquid as Au and Ag.

Gold is very special in its properties including outward appearance, that is, color and shine. Silver, on the other hand, is nothing out of the ordinary, you could easily confuse it with tin, for example...

To me, tin has more appeal

I'll also mention another thing.  Maybe it's psychological?

Once most people who have lots of experience with both PMs, you tend to see that most gradually come to like gold better.  They hold onto the gold coin, preferring to spend the silver ones.

If I ever have to spend any of my PMs, I will spend my silver first, no matter what the Au:Ag ratio is.

There seems to be some fairly universal attraction of humankind to gold.  Maybe that's from the very ancient past...

Silver is bad money while gold is good money. The bad money drives out the good money from circulation. That's why silver had been more widely used than gold through history. People spent silver but saved gold specie...

I agree with RealBitcoin, silver has been the money most widely used throughout history among the 2 precious metals, and about the ROI, that is something that I agree as well, one of the reasons for that is that most uses of gold actually preserve gold (examples, jewelry, coinage, etc) while a significant amount of the industrial uses of silver, destroy it. (or make it very difficult to recover)