patrick.net

Under about 750/oz gold was a better store of value than federal reserve notes.

If our standard of living has fallen over the past 30 years with the increase in two-wage-earner households then I reckon a repeat of Jan 1980 bubble price might be about 1600 USD. But it was a different world in 1980, buyers of gold then did not include folks from Mainland China.

Gold and silver are NOT fiat currency. Fiat currency is money that is declared by government to be legal tender. Gold and silver historically replace fiat currency when it finally became worthless, every time in the last 3,000 years. "Paper money always returns to its original value - zero." Thats the direction of the US dollar, because it is a fiat currency...backed by nothing.

Gold is the money of Kings
Silver is the money of Gentlemen
Barter is the money common men
Debt is the money of slaves

The words silver and money are the same in 14 different languages. And gold and silver are universal, everywhere, easily converted to the local currency anywhere in the world. Thats because they have inherent value.

There is no definition of a dollar anywhere. There is no statue or law anywhere in America the states exactly what a dollar is. Thats because its a fiat currency and the government says it can be used as a medium of exchange, yet it has no value.

Imagine if there was no definition for a "gallon". No standard measure. You pay for 20 "gallons" but only get say, 8 or 10 gallons. People would not put up with that type of dishonesty. But thats the type of dishonest money system we have with a fiat currency system. That is specifically why America needs sound currency, NOT a free floating, fiat currency, without any value what so ever.

Maybe not a formal definition, but here are some practical definitions, at least till they change:

a dollar is equivalent store of value to one twelve-hundredth of an ounce of gold or to an eightyth of a barrel of oil, or a third of a gallon of gasoline.

It's also equivalent to about 8 minutes of the minimum wage.

Honest Abe.,

The only reason why these metals have any value is because we have decided that they have value. There is no "intrinsic value" to any of these metals. People can change their minds at any time around how much of a certain metal they will accept for a certain good or service. The value of these metals fluctuate vis-a-vis goods and services too. They do not have static values for goods and services unless a government steps in and assigns static values for goods and services.

The government could do the same thing with our paper money too. They could dictate what kind/how much/how many goods and services a dollar buys. I believe the Soviet Union tried that with their Ruble. If we have a free market capitalist system, the value of these metals vis-a-vis goods and services fluctuate according to the laws of supply and demand, just like paper dollars.

So, no matter what you use as "currency" we humans decide whether or not something has value and whether or not wee should use any medium for exchange. It's psychology that makes metals, paper notes, shells, knots, ribbons, rocks, etc. have "value." What someone is willing to trade for a certain marker that "stores value" is what that marker is worth.

So, even if we go back to a gold standard, the value of gold will fluctuate vis-a-vis goods and services in a free market system without central planning from a government. There is no guarantee of economic stabilization with a gold standard. It's just another marker that holds value because we humans decided that it has value. How much value can gold hold? Well, that depends on what a person at any given time will exchange for a certain amount of gold. It's the same basic principle of a fiat currency, sorry. Metals have no intrinsic value besides being shiny and having properties that make them useful for industry. Paper bills can be used for other purposes besides using them as currency too (scrap paper, fire starter, packaging material, etc.).

@Abe

Furthermore, you can devalue gold just like paper money. Go mine some more of it. Exactly the same as running a printing press.

It doesn't prevent waste, it doesn't prevent debt, it doesn't prevent inflation.

- People can still waste on such projects. Why wouldn't they? They will try and bring as much money home as possible.
- They can still create debt that requires repayment at some time. In fact create a debt, and loot another countries gold reserves to pay it off! If a country can't get out of debt, what better way than to go to war to get out?
- Inflation is still possible. The cost of gas in gold today is far more than it was back in the 1960's. That is inflation.

Your idea is that gold has a higher cost than printing money, but both methods have a value attached to them. One has a better % yield than the other. You're also using $100 bills, why not $1 bills instead? Since we don't print most of the money we use, your comparison is moot anyways.

You're goal is to make the government less corrupt. Gold and the law never did that in the past. There was corruption in the past, there will always be some level of corruption in the future.

The gold standard simply represents another round of humanity's cleverness in assigning economic value to random objects that interest us so that we can exchange this shiny stuff for goods and services.

It's the same as paper money.

I fail to see how the gold standard ensures the people's control over the government. The government's of old borrowed to the hilt when currency meant metal coins. They found ways of making war. Inflation still happened in rich countries where there was an ample supply of the metal coins. That follows the laws of supply and demand.

You still have debt with the gold standard. You still have government overspending with a gold standard. And there isn't enough gold in the world at the moment to handle the world's financial needs to keep economies afloat. A return to the gold standard would slow economic activity because it requires delivery of a commodity and security plus freight charges. There are too many people in the world to stretch the supply of gold around the world so that most people prosper. It would create a highly inefficient economy because in an efficient economy goods and services are distributed such that most people get what they need to live. Our current system may not be the most efficient, but it sure is more efficient than returning to an element that doesn't exist in enough quantity to give purchasing power to enough people in the world to keep goods and services flowing.

@Elvis--

You're not teaching anything. You really need to understand what others are posting.

elvis says

the ability to create unlimited amounts of (worthless) paper money CAUSES inflation

The ability causes nothing. The actual printing can lead to inflation.

Everyone understands what inflation is. And what its effects are. The difference is that we also understand the effects of going on a gold standard as well.

Yes, the USA was on a gold standard untill the 1970s. Do you know why?

I'll tell you why, we have a sports team called the san fransisco '49ers. The USA mined out all of its gold and silver. we mined most of our oil.

It would be idiotic to go to a currency based on a shiny metal only found in 3rd world poopholes. No matter what rationale about how much work it takes to produce it relative to printing a $100 bill.

Natural gas and teraflops are the only reasonable backing for a currency once the world gets tired of hollywood/pro sports teams.

Nomograph says

Most people store their wealth assets

Most people [who actually have wealth]

Most people have a negative net worth.

elvis says

What is the total cost to mine, and refine an ounce of gold? Maybe $800?

Actually I read its around $500/ounce.

Gold is a LIMIT ON GOVERNMENT. Thats the MAIN point. (Well, other than a non-gold currency is unconstitutional).

(gov't CAN paper money for war, it CAN'T print gold for war)

It's not money if no one is willing to accept it as payment.

Everyone’s wealth is stolen by inflation.

LOL, half this country doesn't have a penny to their names.

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All this talk about gold. Come on, let's go back to the really olden days. Everyone should start trading in SALT again. Can it not be said that salt was: (1) a medium of exchange (2) a unit of account (3) a store of value, and (4) used as payment. Arguably, since we need it to survive it can be considered more valuable than gold.

So next time you're in a Target, pull out a bag of salt and see if you can convince the teller to take it as payment. By the same token, try to do the same thing with gold. Let's see how that works out for ya. I suggest you bring your dollars with you, so you can turn around and purchase in dollars.

Nomograph says

elvis says

Everyone’s wealth is stolen by inflation.

Incorrect. Your wealth is only stolen by inflation if you store your wealth in currency. Only a fool stores his or her wealth in currency.
Currency is supplied by the government as legal tender for goods and services. Where on earth did you EVER get the idea that it was a place to store wealth? You actually believe that it is the government’s job to provide you with a place to store your wealth? Where does the Constitution say that government must provide you with a place to store your wealth? Just how big and intrusive do you want government to be, and why do you want the government to watch over your personal finances?
Elvis, I think you need to take a little more personal responsibility for your finances and quit looking to the government to hold your money for you. It won’t end well.

Nomo, you are wrong. You are conveniently leaving out the fact that people's wages are devalued through inflation. I can protect the wealth I have by investing it. By and large, my wage, and the wages of millions of Americans are paid out in dollars, which are devalued everyday. Do they go up? Sure. Do wages rise along with inflation when the government is debasing the currency? Nope.

Oakman, try this: go to google, or wikipedia, type in inflation, and read what it says. A mind is a terrible thing to waste.

Also go to: dollar collapse.com Lots of good stuff there.

P.S. Much like the government, my wife has a plan to spend us out of debt.

When you print money, in the future, wages never keep up with inflation. They never have in world history. It's already happened. Prices in the past 10 years have easily outpaced wages.

"Nomo is never wrong. Haven’t you figured that out yet?"

A better slogan would be Nomo just never admits he's wrong.

theoakman says

wages never keep up with inflation. They never have in world history. It’s already happened. Prices in the past 10 years have easily outpaced wages.

That statement is so ridiculous as to be funny.

"That statement is so ridiculous as to be funny."

Yeah well, when you chop off the first half, you can obviously misconstrue the statement.

theoakman says

Prices in the past 10 years have easily outpaced wages.

In my analysis, this is neither here nor there.

At the end of the day, the wage-earner has to pay the bills from income, and I don't know about you but my expenses in order are:

1) Taxes
2) Rent
3) Food
4) Health insurance
5) Energy
6) Stuff

#2, existing housing, has a ZERO cost of production. Rent is a surplus. Taxes, food, insurance, and energy go up, rent will HAVE to go down if wages remain flat.

This is just my general theory, but I strongly suspect rents (and home values) will adjust downwards over the next decade should inflation in other stuff arise. I wouldn't bet my life on it but my experience living in Japan in the 90s (where rent went down in the midst of massive gov't printing) bears it out.

We'll see.

Edit: wut Nomograph sez ^.

"If that was the case, a quart of milk would have been beyond reach for the common man years ago."

Totally unsubstantiated. But yes, a gallon of milk will continue to get more expensive

"A median income earner can afford rent, food, a car, clothing, and luxury items. Wages and prices can never be decoupled. Eventually they must equilibrate."

Zimbabwe and every other inflationary collapse proved this statement to be entirely false. They only equilibration after the currency that was debased becomes no more and new one is introduced.

theoakman says

Zimbabwe and every other inflationary collapse proved this statement to be entirely false.

Comparing the #1 economy with Zimbabwe or Weimar Germany is NOT constructive towards understanding the dynamics at play here.

I don't have all the answer and I don't even know what questions to ask.

BUT, I do know that Japan 1990-now is a better model of what's going on here than Zimbabwe.

This nation is both immensely wealthy and immensely poor. The next decade is going to be most interesting and I don't think ANYONE on the planet has a single clue as to how it's going to turn out.

US Constituition Article 1 Section 10

Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

The "US Dollars" are actually Federal Reserve (a private entity) notes.

patientrenter- THANK YOU for all this info, it's very eye opening!

Section 10 further states -

No state shall, without the consent of Congress, lay any duty of tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another state, or with a foreign power, or engage in war, unless actually invaded, or in such imminent danger as will not admit of delay

US Constituition Article 1 Section 10

Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

OK, do you see the word "state" here? This doesn't proscribe the Federal government from making anything but gold and silver coin a tender in payment of debts.

So, our Federal Reserve system isn't unconstitutional. Only states are prohibited from creating an alternate form of currency. So, try again...

Section 10 further states -

No state shall, without the consent of Congress, lay any duty of tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another state, or with a foreign power, or engage in war, unless actually invaded, or in such imminent danger as will not admit of delay

Again, the word here is "state." California cannot do any of these things. The power to do these things rests only with the Federal Government. Article 1 Section 10 is needed to keep these states united in purpose, cause, and action. It gives the Federal Government central planning power because it takes away functions normally reserved for nations away from the states, which aren't individual nations under our Federal Government.

So, what's your point?

simchaland,

you wanna cite the Constitution, how about looking up its definition for treason.

"Leaders" finance, including those who don't have any of their own kids serving in Iraq nor Afghanistan, have done a lot to damage our economy, arguably more damage to the economy than Al-Queda has done.

elvis says

I disagree for the stated reason above: Government can print unlimited amounts of money (having nothing to do with goods and services)…but can’t “print” unlimited amounts of gold.

Gold absolutely can and has been created in a lab, and (like most precious metals) is a byproduct of nuclear reactions. Gold can also be produced from various gold containing materials (say, colloidal gold) which are not included in usual figures for the world supply of "gold".

Aside from that -- gold deposits are found routinely and can give arbitrary wealth to countries that produce nothing but the gold itself.

Now, all natural resources do have inherent value -- gold included -- but giving gold an artificial value that grossly overstates its inherent benefits to society is illogical.

"Gold absolutely can and has been created in a lab, and (like most precious metals) is a byproduct of nuclear reactions. Gold can also be produced from various gold containing materials (say, colloidal gold) which are not included in usual figures for the world supply of “gold”."

Ok, well the amount of money that you have to put in to create a gold atom is in the tens of billions of dollars. From that, you get a few gold atoms. 1 problem...the starting atoms were platinum. You are already operating at a loss. You aren't making a case for the devaluation of gold.

Actually, the euro should be going through some of these tests within the next few years. We should see how it's going to play out in countries like Italy. They can no longer devalue their money because the Euro. The Euro in that sense is the same as gold. They can't print more, so they need to dig themselves out. We'll see how they do it! And see if it's a better path than the one we're on!

s&p is made up of market leaders, who should represent what the s&p stands for. Over time, it would be expect if you were buying into A, and it went down, that you would be shifting your wealth into a better company. Simply look at warren buffet. He's done exceptionally well. Stocks work, they can go to zero unlike gold.

Holding gold for 40 years, even though 20 of those are good isn't great. Sure we lost a decade in housing, but over the last 40 years, it's probably been a fantastic investment. 40 years of stocks, again pretty good. 40 years is a long time. I'm guessing gold would have been the worst. of these.

"Holding gold for 40 years, even though 20 of those are good isn’t great. Sure we lost a decade in housing, but over the last 40 years, it’s probably been a fantastic investment. 40 years of stocks, again pretty good. 40 years is a long time. I’m guessing gold would have been the worst. of these."

You sure about that one? Gold was $35 an oz 40 years ago. It's gained 3200% since then. The Dow was 667 at around the same time.

thunderlips11 says

Nomo - CNBC, Money Magazine, Fidelity Investments, the Wall Street Journal, etc. etc. etc. are mostly interested in selling you stocks, the occasional bond, and other paper investments… NAR always pumps up Housing

I think that's the point. You obviously aren't going to go buy a house because the NAR says "it's a great time to buy", just as you shouldn't believe what a website says that's devoted to selling you gold...
thunderlips11 says

The Stock Market is like a teacher who throws out all your failing grades and only counts the passing ones

Not really--you are describing survivorship bias which is really more applicable to mutual funds. The S&P 500 does alter it's portfolio based on market cap, but it doesn't throw away the results of the delisted stocks. If Montgomery Ward was in the S&P 500 in 1970, the results for 1970 reflect the gain or loss of it. So, it doesn't throw out any failing grades.... Anyone can match the S&P 500 results simply by buying those stocks and adjusting their portfolio whenever the index does.

One point seems clear to me anyway.

Gold is a much better investment today than housing. The government is in hyperdrive manipulating the housing market higher. The government cannot continue like this and housing must fall in relation to gold.

thunderlips11 says

In the past 40 years, it’s about 2 good decades for gold, and 2 for stocks. 50%/50%. That’s a lot different than the dominant financial media’s take on stocks v. gold.

Its not an investment. Its speculation on price. Stocks can pay dividends which provide income stream during retirement which is why its wiser to hold stock. Whats the annual cash dividend from holding gold ?

thomas.wong87 says

thunderlips11 says

In the past 40 years, it’s about 2 good decades for gold, and 2 for stocks. 50%/50%. That’s a lot different than the dominant financial media’s take on stocks v. gold.

Its not an investment. Its speculation on price. Stocks can pay dividends which provide income stream during retirement which is why its wiser to hold stock. Whats the annual cash dividend from holding gold ?

At present all investments are so starved for yield that the dividend does not really matter. Gold will hold value with interests rates this low. It is the value of the dollar that is at risk. When interest rates get towards 20%, that is the time to sell gold and silver. And if the government keeps acting this recklessly I suspect we will get there.