I’d much rather take the inflation risk than the huge volatility of gold prices (I hate to think how badly things are likely to bottom out in a year or two).

I’m currently doing a Bachelor of Commerce and have economics as a core subject. Amongst other things, the fact that gold is still a kingpin in foreign trade and has a reserve value is baffling. It truly shows how outdated world trade patterns are. It harks back to the era of royalty and extreme elitism. It’s just silly!

As said before it has no real use, and you just gotta have the feeling that one day people are gonna see gold for what it is (a yellow metal), and investors are gonna be caught with their pants down. So to say!

Our perception of what is valuable is so distorted, globally.
Tycoons, investors, entrepreneurs, etc. are in a rat race to take out this metal from the earth, as much as they can in the quickest time, totally ignoring the things that are actually valuable! The natural environment surrounding mines is WAY more valuable. So is the youth, skill and uniqueness of the people that are in these mines everyday. Wasted potential on a silly metal, or should I say, a silly perception of value.

Really baffles the mind!

PS great blog. I’ve been looking for something like this

I believe that a large percentage of the price increase of gold in any currency is simply due to the loss of value in paper currencies (not backed by gold). This loss of value has become more accutate over the last decade as individuals and governments were amassing huge sums of debt.

Gold keeps government honest only when the currency is linked to gold – ours is not. Our currency was de-linked from gold in 1971. Without the gold link, government can to inflate the currency and put as much of it in circulation as it wants to. This dilutes the value of the money already in circulation and makes the money we have already earned worth less.

It steals wealth out of people’s pockets without most of them even knowing it. This is why monetary inflation is called the Stealth Tax.

This is happening now with our own Fed. It dumped bucketfuls of money onto the books of the too-big-to-fail zombie banks to prop them up in the bailout in late 2008, and it is reinflating the housing bubble by buying up huge numbers of mortgage backed securities. It recently finalized a $1.25 trillion purchase.

Mr. Bernanke’s helicopter is running 24/7.

This would work for a little while, until the people figure out that they were getting less valuable coins. In a sense, the gold insured that coins could only be produced when the kingdom ran into more gold, which was generally at a very slow pace.

All this to say that gold is valuable because it keeps governments honest… In other words, they are limited in the amount of new currency they can put in circulation.

There are alternative currencies in the US created by local communities, such as “Berkshares” in the Berkshire region of Massachusetts, and “Ithaca Hours” in Ithaca, New York.

There is growing support for a national alternative currency. The proposed Free Competition in Currency Act would allow private mints to create currencies to compete with Federal Reserve Notes. Such currencies would have no linkage at all to government.

It remains to be seen whether confidence in our monetary system will decline to the point where this act will receive popular support. I find it interesting that confidence in our monetary system is so low that last fall the Fed hired a PR firm to burnish its image.

K Smith

I studied the origins of money a while back, and it was interesting to hear how people theorized that money originated. Many assume that it was instituted by government, but it’s more likely that it spontaneously arose… and that it did so in the form of gold for several reasons:
1) Gold is easy to divide and shape (a relatively soft metal)
2) Gold has no expiration date (advantage over cows or rice or eggs)
3) Gold’s perceived value is concentrated, and therefore it is easily transported (unlike that cow)

If we did experience some sort of disaster, whether it is hyperinflation or semi-apocalypse, and moved back to a barter system, that system wouldn’t remain in place for long. Some sort of currency would arise because it’s easier and smarter to use a currency than to barter one-to-one. I wouldn’t be surprised if that currency did end up being gold for the reasons it did long ago, but that’s only one of many scenarios.

Gold as an investment, though (and not as a hedge against disaster) seems to miss the point.

As my high school English teacher Mrs. Bring admonished,”Proofread, proofread, proofread!”

K Smith

If you ascribe to the hyperinflation scenario, gold can be a store of value as your nation moves thru hyperinflation and currency devaluation. If you bought your gold prior to hyperinflation and devaluation, you bought your gold with pre-inflation/devaluation dollars. Once the dust has settled you will be able to convert your gold to the newly devalued and stabilized currency.

If you ascribe to the Carter-years-style-inflation scenario, gold can still be a way to protect part of your assets against the debasement of the dollar.

Gold is not meant to serve as a means of exchange. It is a means to protect assets held in fiat currency from evaporating away during times of inflation.

Central banks were net sellers of gold beginning in Oct 2009. They don’t intend to use the gold as a medium of exchange in their countries. They hold lots of dollar denominated assets, and the gold buys indicate that they seek a store of value against the inflation of the dollar.

If you are seriously considering items for barter, some things to think about include cans of tuna, whiskey, butane lighters, duct tape, batteries, salt, cigarettes, and razors.

K Smith