Newton invented the Gold Standard circa 1700. The Gold Standard undoubtedly ranks as one of his greatest achievements given that it became the backbone of the British Empire. The pound was “as good as gold”, as the saying went, and the pound banknote was accepted around the globe as a substitute for gold itself – but not always. The paper-pound was willingly accepted until there was a banking or financial crisis, which meant the quality of the currency and the reliability of banks became questioned.
At those moments – which occurred with surprising frequency – there was a rush to gold because of its safe haven attributes.
You can not borrow or print your way into wealth. See Zimbabwe or 1920's Germany for confirmation. Canada is also heavily in debt. The Total Public Debt of Canada's 15M taxpayers is around 4 Trillion. Ontario alone is over 300B in debt. Quebec is over 400B in debt. They can't tax their way out as the NDP wants, as Taxes are now the single biggest expense in the Average Canadian Families Budget. Taxes now consume more of the Canadian Families Budget than Food, Clothing and Housing Combined. StatsCan reported in 2008 that 850,000 Canadian Working Poor Families used food banks each month to stretch their paycheques. Canadians need to understand that deep cuts to government spending at all 3 levels of government is the only solution. End useless programs like CBC, Official Bilingualism over 700B spent to assuage the Gaullic Ego is no longer affordable. etc etc..
Gold is nothing more than a fiat currency itself.
That more people think that it is somehow more tangible that paper or electronic bits in a computer bank notwithstanding, it is still a fiat currency.
(and yes I know that gold has industrial/dental/jewlery applications...paper and linen have other applications too)
There is simply not enough physical gold on the planet to be used as a currency and governments will hoard it in reserves and issue, by fiat, paper that represents the gold in their reserves and we will just have to trust the governments that the gold actually exists in their reserves just like we now trust the government that a paper dollar is a dollar.
It's all an exercise in mental gymnastics.
How many people wonder about gold bugs like Ron Paul, who owns gold coin/ingot stores and pushes the gold standard at every turn, and who sell their precious gold to people who buy that gold with paper currency and electronic bits transferred from one computer bank account to another and said to themselves, "Why is he selling me his tangible precious gold for my paper/ electronic bits instead of just physically hoarding it if he really believes I'm using just fiat currency to make the purchase?"
RFB, my favorite statistic is that Canadians spend more than half their incomes on tax.
Just look at fuel, the highest price for fuel in the USA is California, a little less than $4.00US/gallon right now. My price here in Ontariostan is -over- $5.00CDN/gallon, with the Canadian dollar worth $1.02 US on exchange markets.
The difference is all -tax-. In fact the base cost of the California fuel is considerably higher than what we get in Ontario, due to all manner of funky formulation regs from the California Air Resources Board.
But worse than that, the actual cost of our fuel, delivered, with profit included for the producer AND the retailer, is roughly $2.00/gallon. Maybe a little more, maybe a little less, that $2.00 figure is no more than +/- 10% off.
Now go look at -anything- else you buy in your life from candy to tires, and you will see the same kind of breakdown. Add income tax and property tax (renters still pay, its called rent), and pretty quick you get over 50% of your income.
This includes people on -welfare- who get all their money from government and don't pay income tax. They still end up near to 50% because of buying smokes, booze and gas. Because most of their income goes for those three things.
We elected the CPC to turn this situation around. If they don't/won't do it, we will get somebody else.
Or there'll be a civil war, that's a good possibility.
BTW owning gold isn't much of a hedge if the cops come and take it off you. That's been known to happen in civil wars. Better to own lead.
Author James Tulk.
Any relation to Gord?
Oz, "Gold is nothing more than a fiat currency itself."
You are dead right. James Turk is just another pump and dump artist.
RFB, quite right, you cannot inflate your way to wealth. But you can inflate your way out of debt. And the bond-holders will hate you forever for it.
The wisest investor I am aware of, Richard Russell 85 years old, persuaded me to get into bullion at anything below 400 back in 2001 (silver too at 4.50). That lump still sits in a 5,000 lb safe covered with a refrigerator. Bottom line, anyone bullish AU for the last 10 years has done very well. We'll see, but there's a lot of room for error right in here.
As for what Bullion Dealers do with their money, I imagine the dealers take the spread between Buy & Sell and re-invest in bullion. Not sure what Ron Paul does, I suspect the same.
Markets usually go further than anyone believes. The first move from the 30's to 850 in 10 years was a nice ride. Denigrate Gold if you wish, I don't mind. I just know I made more there than in any other single market including Real Estate.
"The first move from the 30's to 850 in 10 years was a nice ride. Denigrate Gold if you wish, I don't mind."
30 to 850 whats?
Dollars of paper currency, that's what.
I would never denigrate gold as an investment, but like all investments you've got to buy cheap and sell dear...for that filthy paper fiat currency.
Sit on it when people aren’t panicking or past when the paper currency becomes worthless and you’re hooped because it’s only an investment if you sell it dear(for the other fiat money) and that investment depends on other people esteeming gold(buying into the meme) in the same way that a gold bug does.
And what happens if the paper currency and the system supporting it collapses?
Then it's barter time and gold is worth what that other service or commodity held by the seller of that service/commodity says it is, nothing more or less.
In such a situation a gold bug couldn't buy one of my canned hams/bacon/cakes for a pound of gold or 5.
You can't get nourishment from gold.
Gold, like all investments, is dependent on a functioning market.
I hope for all our sakes the market keeps on functioning and if people like you, RCGZ, can profit from the "idea" of gold because other people share that idea(panicked or not) then good for you.
Sincerely.
OZ, you're absolutely correct in that there can always be a scenario where a can of ham is worth more that a lb of Gold or a 5 carat flawless diamond for that matter. I like the idea of trading dollars for farmland right now, yet I can also imagine a scenario where that land could be confiscated.
Ultimately balance, diversification, and nimbleness are the tools for dangerous times. Right now, some think it's all going to work out. I'm simply not so sure seems a good idea to take measures.
CGH yes you can inflate your way out of debt, if the country does not rebel and string you up. And in the end you are left with truckloads of worthless a*swipe, unless you do as the Chinese have been doing and as quickly as possible trade in the worthless paper for millions of acres of farmland in africa, and ship the food home and get the dummies in the west to keep subsidizing africa with food and money as you plunder. Or use it to buy oil and gas reserves etc. Anything of real value....
Meanwhile, even the Economist is admitting the depths to which expectations for monetary standards have sunk in decadent developed world welfare states like the UK:
The price of gold, in sterling terms has risen from £324 an ounce at the start of 2007 to a recent record high of £958...the pound has just been devalued by 66%...[by way of comparison] there was a 25% decline when Britain left the gold standard [in 1931] and a 30.5% devaluation in 1949. It is not too hard to imagine that a central bank governor would have felt obliged to resign after presiding over such an event in the old days; instead, Mervyn King has just been knighted.
http://econ.st/kOAW8O
That leaves anybody who wants to die in some semblance of comfort with only one realistic plan:
1. Move all your liquid assets into gold and silver, and/or offshore.
2. Sell your less liquid assets in your decadent welfare state to whatever fool is the highest bidder.
3. Tell your spouse you're getting out and that they can come with you or get a divorce---it's their call.
3b. Then do it. If the divorce is necessary, get it. And once you go, make sure you stay gone.
4. (As Captain Capitalism says:) Enjoy the decline!
I am a bit of a gold bug. There are many interesting points presented here. You cannot eat gold, this is true, but one of the main purposes of money is to act as a medium of exchange. Its easier to use money than make change for a goat. I bought gold at 300 usd, which was more than 500 cnd at the time. I bought silver for 9 cnd, which seemed like a insanely expensive about given that I have paid less than 3 not long before.
I hope that i never have to spend this gold, but if I do, I will probably convert it into paper money at what ever the going rate is at the time.
Almost all cultures for all time have considered precious metal to be money. If our paper money system collapses, as all paper money systems do eventually my gold will have some value to someone somewhere, the bits of paper in my wallet or electrons in the ether will cease to exist.
As an investment, it doesn't pay dividends or interests, so from that perspective its crap. I usually invest in things that produce an income stream. The only way I can make money out of it is to sell it, and I don't want to. With any luck I will leave it to my children and they can do with it as they please.
"Canadians spend more than half their incomes on tax."
This Yank wants to know how much of that is due to the respective health care plans. I paid about $200/week ($US10,000 a year) for health insurance for 2 adults last year. I figure that I'd pay at least that in Canada in extra taxes if part of one of the medical care plans... right?
Gold is definitely not a fiat currency. It may have little intrinsic value for many and it could lose nominal value if governments ever get their acts together and quit devaluing their currencies. It doesn`t offer a real return. And it sure won`t feed you if there is no food to be had. But there is one attribute it does have that makes it more than a fiat currency: governments can not conjure it up out of thin air. It`s been tried many times before, but it`s a heck of a lot harder to debase than paper currency.
I consider gold like the speed of light. always the same. the rest of currencies hang off it. so the appearance of gold going up is in fact the other currencies going down.
all is relative.
What Oz said. Sort of.
Gold is commodity money, not fiat money.
Oz is correct that there simply isn't enough gold in circulation to cover all our transactions. Gold backed currency takes as much monetary discipline as a system not backed by gold. And when it's rigorously followed, the currency is not elastic enough to maintain adequate liquidity.
The gold standard ties up a precious resource - one of the most useful elements on the periodic table.
Gold can and does frequently lose value, so it's not a hedge against...anything.
You might as well buy some copper to have commodity money. One lb of copper is $4. A bit heavy to carry around but sufficient to buy you a meal.