The Longest Record Broken: Gold/Silver Ratio Hits Highest in Over 5,000 Years
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Gold is the Schelling point flight-to-safety, anti-inflation good. Silver has similar qualities, and might as well be the same thing economically, but it isn't. You're more likely to have heard of gold bugs than silver bugs.
When it comes to a massive market panic like this, people think about what other people think about. Well, they always do that, but when there's a panic people have certain safe haven assets that everyone "agrees" are more likely to be safe than others.
Bonds are another one, though of course there you have historically had massive government intervention, making it a little less unintuitive why people should buy them.
a little more intuitive?
or you made a typo? (context suggests a typo, but the double negative makes it difficult to understand)
With the policy stimulation starting with printed money to buy domestic assets, and moving rapidly towards printed money to finance fiscal support, it's not clear that bonds everywhere are a good hedge.
https://www.tradingview.com/symbols/TVC-IT10Y/
Gold on the other hand, has been a decent hedge universally for a couple thousand years.
Bonds are very much like gold in this respect, doubly so if you explicitly pick the bonds of a highly indebted country with a shaky economy, in the middle of a potentially massive pandemic - like Italy. Italian bonds as a hedge have been avoided like the plague by anyone with an ounce of insight.
IF you are an American, it's an okay hedge.
If you are European or Asian, it's pretty good.
Problem is, you are thinking about your gold against dollars. Against yen, euro, rmb, it a natural hedge for your implicit short dollars.
Truth is that very if (if any) people understand gold, and it's use as a safe haven for market panic is highly questionable. It has certain correlation regimes with bonds and inflation, but given the sparsity of data on market stresses (they are by definition rare events), it is very difficult to draw any sound conclusions.
I explicitly exclude any events pre-2008, as the world now is completely different. The only thing that perhaps translates from the pre-2008 environment to our current situation is the magnitude of the selloffs, but everything else is different.
After 2008, central banks managed to stop every single market stress with a firehose of money. Eventually this became an actual trade. Every single selloff was bought heavily by traders because of the near-certainty that CBs will provide a hard backstop to the panic.
Until last week, where a new regime is starting emerge perhaps where CB tools have suddenly stopped working, at least short term. Perhaps once the selloff stops, the massive money supply support will re-accelerate the buying, but right now we are in uncharted territory. The current market behavior is unprecedented. We saw the 3rd biggest one day loss in the entire history of S&P 500. Intraday volatility is through the roof.
The USD could easily start shifting into high inflation, or exchange rates could decrease significantly. USD has traditionally been stable, but past history doesn’t always predict future performance.
If you own gold, you are going to preserve somewhere between 25% and 100% of your wealth over time in a way that cannot be claimed for stocks or currency.
Someone who held a US dollar for 100 years has wasted their time. Someone who held an ounce of gold still has about as much purchasing power now as then (probably more with the march of technology).
As an ex fund manager, what would you say to the theory that large financial institutions have sold a great deal of precious metal-backed securities ("paper" PMs) over the past couple of weeks to cover stock market margin calls, flooding the paper market, while the physical market is seeing shortages, indicating a price disconnect between the security and the good itself?
What happens next?
Plausible. I had no idea where gold even was stored back when I was speculating on it. By and large, people who speculate on the price have separated the actual assets from the claims representing ownership in them. It's normally the effective thing to do.
> What happens next?
I get the feeling the news out of the US, with its health system being what it is, is going to get worse. There's no way we avoid the news being flooded with more and more issues related to the virus.
There are some interesting arguments by people in the industry that the gold certificates in use today, supposedly backed by gold in mostly London, have only a small fraction of the physical gold behind them from what their denomination proclaims. Indeed, the more you look into the terms and details of the big gold funds, the fishier they look (as an example, their terms explicitly exclude the fund from any custodian risk, meaning they have no responsibility for the gold actually existing).
A thesis is that the paper gold is now being used as an instrument to regulate the demand for actual gold - whenever demand gets too high, more paper gold can be issued to counter the trend. This is managed by creative bookkeeping, where gold bars are leased to other entities (a practice that central banks openly use), who then lease them somewhere else, etc., until the ownership of any one given bar is no longer particularly clear, and may well be 'owned' by a number of entities at the same time. Thinking back to the previous financial crisis, it is not hard to believe a scenario where the financial industry invents creative tricks to make value out of thin air.
Gold price 2020: $1472/oz
And that's not adjusting for inflation.
Why anyone would go to gold during a societal collapse I will never know. The absolute basic necessities of survival will always be the best investments in times of crisis (right now).
Don't believe me? I bet many Americans will see bankruns and possible inflation as a result of our current crisis. Money and other non material assets will become less useful. Hopefully the FDIC will save our asses but if you have more than 250K than good luck if you choose the wrong bank. That's assuming money is still worth something
But rice, beans, guns and water will always be useful
During those periods cash was not accepted.
Even during the venezuela collapse gold is still good.
gold is the ultimate hedge to escape conflict areas. In the future I can see crypto currency as a store of wealth for when you arrive at your destination, but gold is going to get you out
This time beans and bullets might be the better hedge
Depends on the type of collapse. For a localized collapse during which the rest of the world is better off, gold is great to have, as it will generally garner better purchasing power for global goods than the local currency.
But yes, gold won't be particularly useful in anything resembling a global collapse.
Whisk(e)y would become a valuable barter good IMHO.
Except, of course, if you pretend it's a cooperative game, and persuade everyone else to take the same position as you do, later. That's a pump-and-dump scam.
As an ex-fund-manager you know this. So why are you bringing up Schelling points? Maybe there's something I don't understand.
Having said that, with crypto now all but finished, and with roughly $2-3T in stimulus about to hit US and EU economies, I believe gold will see a rise in the next year or so. Especially if you buy it against the euro.
Bitcoin will come out of this stronger than gold.
It got the wrecked for the same reasons gold and silver did. People needed funds for margin calls and safe reserves, and bitcoin markets were already far less liquid than gold and silver. An emerging currency can't help but be volatile.
Coming out of this, it will explode for the same reasons. It's less liquid, and there will be less supply to feed demand when people go for 'safe' assets.
Young people have no trust in gold or silver. It's another metal with no intrinsic value other than being heavy, inconvenient to spend, and really inconvenient to transfer across borders. Bitcoin is at least half a step better than that, and a half step ahead of any other cryptocurrency competitor when it comes to institutional and retail availability.
Not when the Tether scam fully unravels.
Huh. I think I read once where it was pointed out that gold is useful when there are all sorts of controls on capital flight and customs and so on, because you can (or someone who looks well off can) wear something like a gold watch (or maybe other jewelry) that is relatively easy to buy and sell, but doesn't trigger any alarms or barriers.
Mark Cuban compared bitcoin to collectables. Like baseball cards. I've since thought of gold the same way.
[I'm a very simple bear and need ELI5s like Cuban's analogy to sort of grasp what's going on.]
Basically I'm preparing for a global depression. This sudden shock to the economy is unprecedented in any modern time, and we have no idea what could happen.
Hey I remember this prediction in 2008/9. Still waiting for that one to happen...
What is going to change that? The US may be printing money, but so is every other country on the planet.
And if the OP is trying to protect (?) against rising asset prices, then they should invest in the assets that are appreciating not in silver which isn't really correlated with asset prices.
https://fred.stlouisfed.org/series/MBCURRCIR
(Also saying something 'is going up' is a prediction of the future. You only know that something went up in the past tense).
I'm using the standard economics definition of inflation: changes in value of a standardised bucket of goods and services.
For example, let's say that there are 1000 dollars in circulation, and the velocity is 2 - on average, each dollar changes hands twice in a year. So the GDP is $2000.
Ten years pass. We learn to be more efficient. The economy produces 20% more than it did ten years ago. But the GDP is still $2000, because that's how much money there is.
That seems unreasonable to me. If I saved a dollar, why does that dollar give me a claim, not just to what the dollar would have bought when I saved it, but also a claim on a part of all the growth since I saved it?
More or less, yes. The improved efficiency is reflected in the fact that prices are now 20% lower, so the same GDP buys more goods. I'm not saying that prices shouldn't be considered. Prices are an important economic metric—which is exactly why it's a bad idea to conflate natural price signals with the noise caused by artificial changes in the money supply.
> If I saved a dollar, why does that dollar give me a claim, not just to what the dollar would have bought when I saved it, but also a claim on a part of all the growth since I saved it?
Because the improved efficiency and growth are in part due to the fact you chose to save that dollar, meaning that during that time there were $1 worth of extra goods and services available for other people to invest or consume. You created a surplus and essentially loaned it to everyone else by choosing to consume $1 less than you produced. The drop in prices is the interest on that loan.
Of course, it could go the other way too. If people choose to consume capital rather than invest in the future then the economy could shrink, resulting in rising prices. The general rate of return represented by deflation or inflation (in the absence of interference with the money supply) represents the baseline level of return a venture needs to offer in order to be worth investing in, not just for the individual—who would be looking for the best rate of return in any case—but for the economy as a whole. If you can't find anything better to invest in than the real-valued return you would get from stuffing your money in a mattress and waiting, we're all better off if you do just that and avoid taking resources away from actually beneficial investments. An inflationary economy incentivises people to invest more, but if the inflation is artificial then the result is a lot of malinvestment from people simply looking for a safe haven for their money, even if it's still losing real value over time.
Well, no, the "interest on that loan" is the return on the investment. I lent the money to company A, they bought some tools to improve productivity, and they paid me back part of the increased value they produced. That's my reward for consuming less - I got my $1 back, plus some.
But at the same time, company B borrowed some money from somebody else, and used it to increase productivity. So did companies C through Z. Why should I get rewarded for my loan to A by the gains in productivity made by B through Z?
Exactly as I said. The "return on the investment", for saving money in a deflationary economy, is the increase in the amount of stuff you can buy with that money. Which is exactly what I referred to earlier as the "interest on that loan".
> I lent the money to company A, they bought some tools to improve productivity, and they paid me back part of the increased value they produced. That's my reward for consuming less - I got my $1 back, plus some.
Except you didn't literally loan the money to company A, you (in effect) loaned the value of the money to everyone—including companies B through Z in your example—by temporarily taking it out of circulation. You could have bought $1 worth of stuff for yourself with that money but chose not to, so that stuff was available for others to buy, and their prices were a bit lower since you weren't bidding against them.
Money is just a stand-in for other goods. It's not a consumable end product, an intermediate material, or a capital good which can be used to produce other goods more efficiently. If it helps, think of that $1 in savings as one share of ownership in the entire economy—a claim to a little bit of everything being produced. Or an extremely broad index fund. As the amount of goods being produced changes, the value of your share also changes, the same as any other equity investment. When you eventually trade your share in the economy for an equivalent fraction of the available goods, if your investment in the economy helped it to grow (along with others' investments, of course) then one share's worth of goods will be a bit more than it would have been before you invested.
Do you have an issue with the idea that a person can buy shares of IPO stock in a company, funding the company's growth, and then be rewarded later by selling those shares a higher price? If so, I probably can't help you; otherwise, this is essentially the same thing but for the entire economy rather than one company.
I could have it both ways. I could lend the dollar to A, and get paid back a decade later with interest. Now I have (more than) a dollar after the decade. But that dollar is still worth 1/2000 of the year's output, so I also got paid for everyone else's gains, even when I didn't leave them the resources (because A had the resources, because I lent the dollar to A).
Even within your perspective, I have a hard time seeing how that would be considered just.
Inflationary expectations is a major driver of inflation of prices. If people expect the prices to increase, they will buy earlier. That leads to producers having pricing power, so they tend to increase prices, which leads to... higher prices, and confirms the consumer expectations.
This is also why you can't really use money supply as a measure of inflation. As you note "money is just a stand-in for other goods" - which of course leads to the standard definition of inflation. If money is a stand-in for other goods, then we measure how much of these good money can buy. That's exactly what the standard definition of inflation captures.
Which is completely useless if you don't take into account how much money people have to buy things with. What you want is a metric of prices vs. wages, which neither version of inflation takes into account. Money supply inflation would be a better predictor of prices vs. wages, however, since when the money supply is inflated prices tend to rise faster than wages (and vice-versa). Price inflation is a lagging indicator which incorporates a bunch of noise along with the delayed signal, especially when the supply is deliberately manipulated to achieve specific CPI targets.
So company A paid you back your original nominal investment, which is already worth more than it was at the start, plus interest, which means that whatever they did produced a better-than-average return for them to be able to afford to repay the loan. You did something even better than just hold your money and wait without interfering—you contributed to raising the average rate of return. Resources (others' savings, as well as your own funds) were put to better use due to your wise choice of investment. Ergo, you get a higher reward than those who just passively waited for the economy to improve.
It's been that definition all through the 1970s when inflation was a real problem, so your implications it is that for political reasons is incorrect.
You can keep trying to argue for a different definition, but the OP was clearly trying to hedge against consumer price inflation - otherwise he'd hedge for investment asset inflation by investing in the assets subject to that increases, not a metal like silver which isn't correlated with those increases.
No, what affects consumers is how consumer prices have changed relative to wages. The CPI doesn't tell you that, or really anything else of value. Hypothetically, let's say the CPI indicates that prices are double what they were ten years ago. Is the median consumer better or worse off? Who knows! Maybe wages are the same as they were ten years ago, and everything takes twice as much work to acquire. Maybe wages have tripled in that time and goods seem cheap. Without a fixed money supply, all it really tells you is that someone set a CPI target that resulted in doubling the prices over ten years. In other words, a tautology. Which is a shame, really, since the fluctuations in general price levels would otherwise tell us useful things about how much investment is needed and what the minimum return should be for a venture to be considered worthwhile.
You want to measure both separately so you can do exactly the kinds of comparisons you want to do above ("Hypothetically, let's say the CPI indicates that prices are double what they were ten years ago. Is the median consumer better or worse off? Who knows! Maybe wages are the same as they were ten years ago, and everything takes twice as much work to acquire. Maybe wages have tripled in that time and goods seem cheap.")
Money supply is measured separately since it affects lots of other things too (eg, the relationship between interest rates and money supply). You have to measure all these things separately because that lets you tease apart the relationships.
Again, if the OP is talking about increases in money supply (which I agree can lead to increases in the speculative assets) then you need to explain how buying silver would protect against those increases (since the silver price is uncorrelated with those speculative increases).
Where that extra money supply ends up going, is where the inflation is.
https://www.investopedia.com/terms/i/inflation.asp
If you think he's using some alternative definition then you'll need to explain how silver protects against it.
And now because of the world economy shutting down, those dollars aren't being fed back into the markets outside of the US, meaning that no one can generate the cash to repay their loans.
This is why cash is so high priced right now, even while the Fed is desperately trying to lower it. It's also why gold and silver are taking a beating. In order to raise cash not to default, foreign corporations and governments have no choice but to sell everything they own, including gold and silver (as well as cryptocurrencies).
It's probably the most terrifying thing I've read since this whole thing started.
Now you can see why being able to print money is a feature of a modern economy, not a bug (a la Bitcoin).
Why does the rest of the world deal in dollars, and not Yuan or Rubles? Hint: not because the US is a weak, unstable economy.
From what I recall, all the 'inflation hawks' that were complaining about the Fed's QE were talking about the CPI and turning into Zimbabwe (or wherever):
> The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://economics21.org/html/open-letter-ben-bernanke-287.ht...
> Thus when Bloomberg tried, four years later, to track down economists who signed the infamous open letter to Ben Bernanke insisting that quantitative easing would “debase the dollar,” it couldn’t find a single person to admit that the original warning was wrong.
* https://www.nytimes.com/2018/01/23/opinion/the-durability-of...
> In addition, there is debate about how accurate the inflation figures are.
There are different inflation figures, and they each focus on slightly different things, and there is some debate as to what best measure what "real people" experience in day-to-day life. There are also "perma-too-low" types who say that the books are being cooked, but I think it's been shown that the official numbers are fairly accurate:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
> Some alternative measures are far higher.
Do you have example(s) of these "alternative measures"?
There's certainly nothing wrong with being prepared.
However, the idea that our institutions crumple but your hard currency coins are safe is naive at best. In such a scenario, if the metal has any value, either the government will confiscate it or your neighbour with the gun will take it.
>The government is injecting a massively gigantic amount of cash into the economy
What is "massive"? Right now they are talking about $2 trillion, which is about 10% of GDP. Spending 10% of 1 year of income on "maintenance" isn't scary to me.
You have to ask where those 10% are taken from so we can spend them on maintenance. The smartest move would be to immediately slash military budget in half if not more.
But it will likely be taken from education, infrastructure or healthcare/social services.
Look at the countries that have opposed that since the beginning of the millennium: Libya and Iraq saw, ahem, “kinetic interventions”, and Iran and Venezuela are still being crushed by sanctions for daring to price their oil in Euros and/or RMB.
Have you actually looked at where the dollar has been heading, even with all of this "money printed"? Up. Way up.
The Quantitative Easing program from 2008-2014 (6 years duration) injected about $4T into the economy. Today, a similar amount is being injected in just 1 month, albeit by purchasing different assets.
The inflation risk is very real.
Central banks know how to stop inflation, that's not a problem for them at all. The problem for the next 10 years will be low inflation, not large inflation.
I wish I had those predictive powers.
[1] https://inflationdata.com/articles/inflation-cpi-consumer-pr...
The problem I had your comment was the rationalization for what you did.
When US was trying to hold to gold standard, population growth was high and the country was barely industrialized, you could expect inflation. None of the reasons that applied then apply today.
(Gold standard is similar to debt in denominated in foreign currency. It can cause out of control inflation and even hyperinflation.)
https://www.treasury.gov/resource-center/data-chart-center/i...
This is not true as the recent decade shows. Japan has tried to increase inflation almost two decades.
Just increasing the money stock does not create inflation if the velocity of money decreases at the same rate.
There are many tools in the toolbox for handling inflation. For deflation, not so much.
If the government prints lots of cash, and then mails a bunch of cash to every person in the country, then there will be inflation. Lots of inflation, if the amount of cash is high enough. And there's no limit to how high the amount can be.
To doubt that, you have to believe that someone of previously modest means who now has a million dollars of cash in hand will just horde it, rather than go out and buy the $40,000 car they've been wishing they had, or the nice $500,000 house they now could live in, or the nifty $10,000 camera and lens set that would be really fun to play with, or the...
Actually, you don't have to just believe that someone will horde immense amounts of cash rather than buy real, useful stuff with it, you have to believe that almost everyone will horde the cash.
People aren't like that.
Look at Treasury yields for next 10 - 30 years. https://www.treasury.gov/resource-center/data-chart-center/i...
people and govt's are addicted to debt, that's why they want inflation.
Anyway, they're not buying subprime auto loans or overinflated stocks. They're buying long term risk-free debt, and are going to start buying commercial paper (which has some risk, but not much).
They really did buy lots of different stuff during the financial crisis, and yet they never lost control of inflation.
From their press release on 3/17: https://www.federalreserve.gov/newsevents/pressreleases/file...
Eligible Collateral•Collateral eligible for pledge under the PDCF includes all collateral eligible for pledge in open market operations (OMO); plus investment grade corporate debt securities, international agency securities, commercial paper, municipal securities, mortgage-backed securities, and asset-backed securities; plus equity securities. Foreign currency-denominated securities are not eligible for pledge under the PDCF at this time.
--
equity securities == stocks. I admit I was exaggerating about the subprime auto loans, but they also state that: Additional collateral may become eligible at a later date upon further analysis., so who knows?
I agree with you they have plenty of stuff old stuff to sell from QE 1-4, but this certainly is a new class of assets from them, and is almost certain to lose money.
That said, silver could become a medium of exchange again, for the same reason it had always been.
To actually hedge against the breakdown of societies, cigarettes are probably more attractive.
Better hurry up, though; ammo prices are skyrocketing, though .22LR has been fairly stable at a touch over $0.03/round.
When the liquidity crunch is over, the Fed will start gradually increasing the rate. That will make rolling over existing overnight loans taken from the Fed less attractive and a lot of money will flow back to the Fed.
I hope people more familiar with the subject will correct me if I'm wrong.
What happens when a major bank goes under and completely depletes the FDIC fund? (e.g. Bank of America)
Another key aspect of monetary metals is lack of counter party risk. When you deposit money with BoA, it is no longer yours; you become an unsecured creditor of the bank. BoA's derivatives counter parties are senior to you, so they will get paid first if say interest rate swaps go against BoA, and they need to post more collateral to that counter party.
Also, the problem with rates 'normalizing' is the magnitude of outstanding Treasury debt, and the fraction of GDP that the interest payments represent. 5% would be devastating, even though historically, that is a typical rate.
Unless people are withdrawing mass amounts of cash, I'm relatively certain you can't have bank runs against the banking system as a whole, you can only have runs against a particular bank.
“Inflation is always and everywhere a monetary phenomenon.” Milton Friedman
Edited to fix elementary mistake as pointed out by forkerenok
Did you actually mean it the other way around as in they can create money by buying govt bonds/treasury bills/etc and retire them by selling them back to the market.
Then, In Friedman's book inflation is related to the amount of money in circulation, yet since the 80s the amount of money and inflation have almost zero correlation in the US. Some of Friedman's concepts were useful to reach that point, but still: we now have been living for 40 years in a world where Friedman's model is unable to explain anything.
Hyperinflation is a completely different issue from inflation, and it's kind of odd for it to become the monetarist bugaboo. When the US has a massive war debt payable immediately, or a complete economic collapse that the government decides to cope with by price controls, then you'll see hyperinflation. But then, hyperinflation will be the least of your problems.
Inflation in the 70s (chart): https://inflationdata.com/articles/wp-content/uploads/2014/0...
To the data: I agree that there are fluctuations there. But average inflation for the decade of the 1960s was 2.45%. For the 1950s, it was 1.82%. The inflation rate even for 1972 was above the average rate for the 1950s and 1960s. 1976, the bottom of the next trough, was higher than 1972. And then you look at 1974 and 1979, in the context of the 1950s and 1960s, and yes, it sure does look like inflation is increasing. Yes, there are decreases (business cycle), but each cycle is higher than the last one.
Certainly the central bank can create as much inflation as it wants, by simply printing and distributing more money (which usually takes the form of the central bank buying assets such as bonds with the new money). There's no limit to the ability of the central bank to make the currency valueless.
In the other direction, they can usually increase the value of money (ie, create deflation) by reducing the money supply, but it is possible that at some point the public might simply stop regarding the government's money as being worth anything. The only thing that might stop that is that people would still need government money to pay taxes.
Not quite true. Every bank can print money (well, the modern day equivalent of increasing a digital number somewhere), and does so when they make loans.
My guess is that this is the product of silver prices being driven by industry much more than gold prices are. We're looking at a supply side decline here which means a decline in demand for the things that go into making other things.
Gold is far less useful industrially than silver.
> My guess is that this is the product of silver prices being driven by industry much more than gold prices are. We're looking at a supply side decline here which means a decline in demand for the things that go into making other things.
> Gold is far less useful industrially than silver.
For whatever reason, there is a common misconception regarding the usefulness of gold. Commonly on any of the popular investment shows and websites, you will see various people stating "gold has no use" without any measure of a qualifying statement.
My perception is that these people likely mean "gold has no use [as an asset]." The degree to which this is correct is not what I'm trying to address, but rather the literal interpretation of the statement that could be read as "gold has [absolutely] no use."
Here is the intro from the article on gold at geology.com[1], which doesn't have a dog in this fight:
> What is Gold?
> Native gold is an element and a mineral. It is highly prized by people because of its attractive color, its rarity, resistance to tarnish, and its many special properties - some of which are unique to gold. No other element has more uses than gold. All of these factors help support a price of gold that is higher than all but a few other metals.
In case you missed that sentence in there:
> No other element has more uses than gold.
Sounds like a very scientific position you've laid out here against the editors ate geology.com. Why don't you send that to them and post there response here?
"Only 10% of the world consumption of new gold produced goes to industry"
Gold does have some industrial use and probably would have more if it weren't so expensive due to people valuing it as a reserve currency.
> "Only 10% of the world consumption of new gold produced goes to industry"
> Gold does have some industrial use and probably would have more if it weren't so expensive due to people valuing it as a reserve currency.
You aren't presenting a scientific argument. My entire point was that gold is useful and actually has more uses than any other element.
Whatever else it is used for or the reasons the price is high do not present anything against my claim.
It is so weird to just state scientific findings and be hated for it.
you have not made a scientific argument that gold has more uses than any other element nor does geology.com
intuitively, gold is less useful and has fewer uses than iron since we tend to measure industrial output in terms of steel and not gold production
tautologically though, hydrogen takes the cake for having the most uses since if you have enough of it, it can be fused into all the other elements.
> you have not made a scientific argument that gold has more uses than any other element nor does geology.com
> intuitively, gold is less useful and has fewer uses than iron since we tend to measure industrial output in terms of steel and not gold production
> tautologically though, hydrogen takes the cake for having the most uses since if you have enough of it, it can be fused into all the other elements.
I'm not clear you know what an argument is.
You have not been able to determine that I stated findings, not claimed news findings.
The scientific uses will not be by volume, but by the properties of the material. So, I'm also not clear you know what science is.
Gold has uses.
You can tell because (a) the way the page is covered in ads, (b) the simple language used to improve search engine traffic and (c) the lack of references.
> You can tell because (a) the way the page is covered in ads, (b) the simple language used to improve search engine traffic and (c) the lack of references.
If the information provided is so poor, you should easily be able to disprove the claims.
Instead, you resort to a sort of ad hominem.
You appealed to authority, it's pretty legitimate to point out that it isn't actually an authority on the subject.
If the information provided is so poor, you should easily be able to disprove the claims.
As previously pointed out, only 10% of gold is used in industry.
> You appealed to authority, it's pretty legitimate to point out that it isn't actually an authority on the subject.
> If the information provided is so poor, you should easily be able to disprove the claims.
> As previously pointed out, only 10% of gold is used in industry.
I'm guessing you are referring to an appeal to false authority, because the acquisition of all knowledge presumably originates from an authority. If you are claiming that geology.com has presented false information, then you need to demonstrate this. Stating that it makes money from ads is not a claim against the provided information. You have inserted an arbitrarily derived claim.
Your statement of percent of gold makes no sense. From the World Gold Council[1]:
> Total above ground stocks (end-2017)
> Total above ground stocks: 190,040 tonnes
> Jewellery: 90,718 tonnes, 47.7% > Private investment: 40,035 tonnes, 21.1% > Official sector: 32,575 tonnes, 17.1% > Other: 26,711 tonnes, 14.1% > Below ground reserves: 54,000 tonnes
Further, if we take the total amount of above ground stocks and multiply it by the current gold price of around $1500, we find that the current markets value the total gold at over $10 trillion. If 90% of gold mined isn't in use, why is it valued at $9 trillion? And if the remaining 10% of gold has such little usefulness, why choose such an expensive mineral?
And all of this supports my original point that gold has uses.
[1] https://www.gold.org/about-gold/gold-supply/gold-mining/how-...
Gold and silver look great in a recession because they (unlike the buyer) do not panic. However, in the long run they provide virtually no value to society (unless you make some fancy jewelry or cover your toilet seat) and frankly I find owning large amounts of gold to be a silly proposition.
If society were to collapse I don’t think anyone would be hoarding gold or silver... unless your Blackbeard or Scrooge McDuck.
Edit: forgot to link :/ (1) https://www.google.com/amp/s/www.nytimes.com/2014/04/13/book...
https://www.goodreads.com/book/show/18050068-money
Well written and fascinating.
What makes gold valuable is exactly what used to make dollars valuable. No BS and you'd be nuts to borrow to buy and hold them (because no yield and storage costs money). That means, in boom times they don't bubble (as much) because ppl aren't buying on credit, and in busts, people see both the intrinsic credibility and price action as a sign of strength.
Silver is a thin market more easily classified as a commodity somewhere between oil and gold. The oil market is in a very unusual situation. When that dumpster fire dies down look again at the movement in the gold/silver ratio.
> you’ve ever— and I mean EVER— examined precisely it is you are buying.
The same could be said about gold. Have you ever melted down the gold to check for impurities? I would hope that most people who invest in stocks or real estate would actually do just that. Investment is a much much different idea than just gambling by picking hot stocks. Haha I also haven’t used good ole Robinhood in several years...
(1) https://www.federalreserve.gov/faqs/does-the-federal-reserve...
Gold is a natural element with scientific properties I'm generally aware of, even if I've never personally audited them.
[p.s. - I was also was referring to the historical value of the dollar. A "dollar" literally was at the time of adoption in the U.S. a fixed amount of precious metal.]
Gold works as a hedge against loss of faith, because it's a more tangible and less abstract symbol of hope than fiat money.
But ultimately it's all just concentrated hope. If you need food and no food exists, all forms of money are useless.
There's all sorts of uses for it. A good conductor that doesn't really corrode and all that.
But people have hoarded gold and silver to successfully preserve value over the collapse of countless societies and civilisations for many thousands of years.
Why do you think our society and the one following it would be any different?
> I find owning large amounts of gold to be a silly proposition
I literally can't think of any more reliable, safe, enduring preserve of value across all of our existence.
If you dig up one of their hoards in a farmers' field today the value of the savings of a Roman from two thousand years ago are preserved to this day.
Can hardly describe it as silly?
In 5000 years from now, I wonder if people will say the same thing about BitCoin.
As others have said, Bitcoin is a very shallow market. It is "worth" a lot in principle, but good luck trying to convert it to cash.
Its easy to convert to cash in any major city.
Legend has it that it would take beyond the end of the universe to succeed... but legends have been wrong before.
Hypothetical: It's 2021 and a massive earthquake has cause a massive tsunami that has ravaged most of the cities along the Pacific. Shortly after your nation is invaded and a war breaks out. No one has power, food, or water. After a long war with many lives lost and lots of destruction do you seriously think people would care about gold or try and use it as serious form of a new nation's currency?
Not sure why you're so certain about that - societies have abolished slavery only for it to come back in subsequent societies before.
Concrete example - India under the Maurya Empire, only for it to come back in medieval times.
> After a long war with many lives lost and lots of destruction do you seriously think people would care about gold or try and use it as serious form of a new nation's currency?
Yes, because it's happened again and again and again and again and again across countless apocalypses.
Ignoring the time from 1933 to 1971 when it was literally illegal to own more than a few ounces of gold.
And did it retain its value? Yes.
Yes, hoarding gold is kind of dumb, especially if you want to barter with it: absolutely no one deals with it on a day-to-day basis so has no idea how much any amount is "worth".
Someone did a small experiment about trying to figure out would be best for emergency preparedness stockpiling (he lives in an earthquake zone):
* https://www.youtube.com/watch?v=aVkDj8lsR7I
Cash would be best, as after the emergency we'll just continue on people will be happy to have it. If you want to start worrying about bartering then booze is the best option: familiarity, doesn't spoil, 'inherent value' since people would still want to get tipsy even during emergencies. In the US ammunition could be used as well.
Remember: if you “own” gold in some portfolio, you don't really own gold, you own an IOU for gold and you have zero guarantee to get your money back if things go bad. And while fiat money is backed by states, there is nobody to back your fiat gold.
(The same reasoning applies if you own bitcoin or any crypto on coinbase or any other exchange).
https://spdrgoldshares.com/#home
And the futures markets are down too:
https://www.investing.com/commodities/gold
Are other commenters only speculating that the price is going to go way up, and that the price is a good deal right now? If so, that doesn't seem to be supported by financial indicators, and the speculation around it doesn't seem much better than, say, saying that Bitcoin is going to go up in any given environment. I'm surprised to see this discussion on HN. I hope I'm grokking things wrong.
Also flight to liquidity.
But the gold bugs can't really win, because the fiat currency owners wield infinite power, unless inflation really kicks in at some point. So gold is usually not that great of an investment.
That's my perception, I am not at all an expert on these matters.
So the ratio of gold:silver went up
[1] https://www.fiscal.treasury.gov/reports-statements/gold-repo...
Clearly I’m missing something...?
It can be counterfeited or debased. Will you carry around a scale and testing supplies?
If gold gets too valuable relative to labour, more mountains in South America will be pulled down to extract the gold.
Think of the way hundreds of millions of dollars have been put into bitcoin mining ASICS just because someone saw a return could be pulled out if thin air... Gold mining is pulling a return out of rock when the economic conditions are right.
(Technically it will a little until the network difficulty adjusts.)
Sure, mining may increase the supply of gold... a very small amount compared to the existing supply. It's not going to move the needle in terms of supply vs. demand, though.
Napkin math tells me that over 50 tons of gold have been used just in iPhones over the past 13 years. Just like any commodity - if there is demand, there is probably value.
190,000 tons of gold mined in the history of the world vs. 700,000,000 tons of copper.
you didn't list utility. You listed physical properties.
Utility is how those physical properties help/hinder the use of said material for a purpose.
The utility of gold, when society is broken, will be minimal. Except as a barter currency, as it's widely recognized.
However, under such a circumstance, i would say other goods are better - such as food staples, guns and bullets, and a shelter you can defend (like a bunker).
Every Fiat currency is a 'shared fiction'.
Currency is a social contract.
Then, if we all agree that Gold is a currency, then it has value in that regard, and since it always has been a currency across pretty much all cultures, across all time, it remains a form of rough currency.
If 'civilization fell apart' (and it won't) we would still need currency and if anything it would probably be gold.
Now (and really even then) USD is only as good as the integrity of the US Gov and the Fed. If they crash, USD won't be worth the paper it's printed on. In addition, mechanically, physical currency takes a lot of effort to keep going, and with nobody doing that, well it goes kaput.
Digital currencies rely on various layers of trust: networking, security, legal, financial, regulatory, institutional. If any of those break, we can't use digital currency. Technically, there might be some kind of super cook block-chain that could work without needing the internet, surely, but it's too complicated for regular use as a currency. Maybe for larger transactions between fiefdoms!
But gold and other precious metals would probably be used as s currency until institutional trust could be built back up into institutions so that they could have real fiat currencies.
If knowledge and responsibility were very strongly maintained at the local level, it's entirely possible for regional economies to maintain their own fiats. This requires exceptional knowledge and fiscal/monetary discipline.
If you have a populist, dirtbag leader who can corrupt the integrity of the monetary system, it will destroy everything. This is the source of most hyperinflation scenarios.
This is not how other countries saw it.
From https://en.wikipedia.org/wiki/Exorbitant_privilege : "In February 1965 President Charles de Gaulle announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate. He sent the French Navy across the Atlantic to pick up the French reserve of gold and was followed by several countries. As it resulted in considerably reducing U.S. gold stock and U.S. economic influence, it led U.S. President Richard Nixon to end unilaterally the convertibility of the dollar to gold on August 15, 1971 (the "Nixon Shock"). This was meant to be a temporary measure but the dollar became permanently a floating fiat money and in October 1976, the U.S. government officially changed the definition of the dollar; references to gold were removed from statutes."
The average citizen, after the 1930s when the gold standard was abandoned (and for a time, private gold ownership was literally outlawed and people were obligated to turn all their gold in) could not go to a bank and say "give me my $ worth of gold" but other countries could. Between the Federal Reserve Act of 1913 and that, though, one could actually redeem a Federal Reserve Note for gold.
Now the US dollar's value is assessed by comparing it to a basket of other nations' currencies and dollar foreign policy sometimes favors a cheaper dollar. An analogous situation happened with the Swiss franc when the Swiss central bank deliberately devalued it to make Swiss exports more affordable and attractive to buy again.
In 1980, the Hunt Brothers cornered the commodities market for silver by buying up billions of dollars of it and "artificially" pumping the price up over 50$/oz. This is a good example of where metallism (backing a currency with a commodity like gold or silver or both) can fail as long as the commodity itself can also be traded. It would be quite difficult to do the same to the gold market though since silver has many more industrial uses.
The currency of a nation is only as good as the government that issues it, which in a democratic form of government means constant vigilance by voting citizens over the stewards of it.
Also curiously enough if that's your criteria cryptocurrencies would be even better.
And no, anything dependent on computers (an especially on a country's worth of electricity) to function is not a safe bet if we are imagining doomsday scenarios.
How do you counterfeit gold? Alchemy?
This is where all those hours of listening to drummers drone on and on about the metallurgical qualities of cymbal brass--and the audible differences between Paiste, Sabian, and Zildjian--can come in handy.
While this is true, its important to understand that "all value is subjective" the concept of "inherent value" is a fallacy that distorts ones worldview.
A glass of water has a different value at the oasis vs the dessert.
no, water and tuna have measurable and objective value to your biological system.
And even then, water and tuna have very little utility to a biological system that already has plenty of both. The utility of adding more may even be negative.
Someone dying of thirst values water much higher than someone drowning in it.
Someone allergic to tuna will value it much lower than someone who's not.
Gold isn't a currency its money.
A currency is backed by a store of value, money is a store value.
Gold is a great store of value because its rare and doesn't expire this is why humans used it as the first form of money thousands of years ago, and it's why people continued to use it up until very recently.
> what exactly are you going to buy with your gold coins when all supply chains are broken and most goods can't be produced even at a higher price?
Total global economic collapse seems very unlikely, but let's say the US government collapses in that case the US currency Dollars collapses completely, it has no value its just monopoly money.
Today in a war zone where supply chains are broken, local currency or dollars are worthless, but gold will still have the same value world wide no matter what, simply because it is the value.
Tuna goes off after a year so while valuable its not a good store of value.
Gold doesn't go off, it doesn't rust, it has lots of uses in electronics like phones and computer, only a very small percentage of the worlds supply of gold is used for jewellery / decoration.
The thing in this article is caused by falling silver prices. Silver is down 50% this week. It's used in industry, as is gold, but the population of deranged gold hoarders is just a lot bigger, so they are propping up the price of gold somewhat. Goldbugs must be used to losing their shirts by now, since gold has been a terrible investment for more than 40 years.
Sovereign funds / private wealth purchase gold as a hedge against inflation. Ie their short term cash (actual cash) being worth less tomorrow. It has this characteristic because gold fundamentally has zero yield.
When you enter a crisis period or period of deflation. Which we are seeing now. There is a flight to short term cash (USD).
Good bugs who hoard gold or draw parallels to Armageddon and huge price increases in gold do not account for the simple fact that gold is long term cash.
During the GFC the same liquidation profile was observed for gold.
You can't print gold. Even when gold prices wildly fluctuate, gold production doesn't b/c it's already so hard. In times like now, we're going to print lots of USD in one way or another.
Is there a gov't issued currency that's held its price better than gold?
Gold has long been thought of a long-term store of value for this exact reason. Governments cannot help themselves, particularly democratic ones, from following a path of unfunded austerity. It becomes the power cycle, at some point there is a financial reckoning, and citizens' wealth is destroyed.
Then the cycle begins all over again, usually tied to a metal (like gold) before breaking into fiat when the unfunded liabilities exceed the ability of the country to fund them.
US dollars are the best among the worst in fiat. That will change, as it always has historically. Gold will remain as a store of value, as it always has.
The assessment I came to was that gold is a store of wealth, not a currency or investment. It's a way of preserving, not creating wealth. It's what could be passed on to your offspring along with land that holds its value, more or less, over generations.
It damn sure isn't the FRN. If you held on to one of those from 1920ish, you'd have about maybe 3-4% of its worth in terms of buying power (of staples like eggs, bread etc)
Money and currency are for spending to get things of actual value, whatever those things may be.
There are apocryphal stories about Jews in WW2 Germany who had all their wealth in gold (as was common back then) who used the malleability of gold to flatten it out in very thin sheets then make thread from that, then sewed the threads into their clothing so that their wealth wouldn't be confiscated when they were fleeing the Nazis. I don't have any citations, though.
Cranky old man perspective: https://grandfather-economic-report.com/inflation.htm
The anecdote on the gold threads is fascinating.
There's just no demand for them as a trading instrument anymore, but gold is still used.
This will possibly change, the ratio go down, as people move from "panic flight" to "considered flight" as the crisis deepens and as people become more knowledgeable. And if the price of gold becomes too high for many people.
Perhaps the best thing is to avoid anything that has speculative value or irrational value at this time. Gold has some irrational value because fewer people trading it have a full understanding of alternatives etc.
The real change starts 1875 where it starts to rise and vibrate between 20x to 100x, trendline inclined at maybe 20x per century. And yesterday's peak was at 123.78x. Maybe I could say the human population is 5000 years high as well, except dips in population is much shallower than for this.
However, now that a highly-scarce, highly-portable, and highly-divisible Bitcoin is on scene, silver is less useful as a monetary metal because it loses to gold and/or Bitcoin on each of these qualities.
Anyone with some semblance of how monetary economics works won't go gold full: maybe, 10 percent. Goldbugs dream that one day every economy will be based on Gold; that train left long time ago. These bugs are busy recruiting new 'fools' on various forums. It is like people hoarding bitcoin, eth, etc, who are waiting for the next btc bull run: imagine all those suckers who hoarded tulips after tulipmania!
> The gold market seems split at the moment: while the price is falling, meaning there are more sellers than buyers, everything I read on Twitter is that physical gold is nearly unobtainable – many banks and refiners have run out of inventory. Apparently there has been a surge in retail demand for gold coins and bars at the same time as the price has been falling. It seems that the “paper” market, the futures and ETFs, is determining the price and does not reflect the heightened demand on the street for hard metal during this time of insecurity.
So the price of physical gold is much higher, for anyone who wants it, anyway.
If one wants to buy 2 lbs of gold jewelry, or even wear a 'gold shirt' every day, that's fine. One such gold shirt guy, Datta Phuge, in India got beaten to death. Another gold man in Hyderabad, who wears 2.5 lbs gold all the time, need four buddies around whenever he goes out.
Or go the wild west way: buy guns, live in a bunker.
https://www.youtube.com/watch?v=iFDe5kUUyT0
Most people also don't realize that the Fed, which buys Treasury's drawn on a bank account with $0 in it, is privately owned - and distributes dividends to its private shareholders holders (who are not disclosed).
Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.
The question would seem to be how the amount of dividend payments gets set.
Silver and Gold have interesting properties. I hope pricing and hoarding don't reflect behaviours which make them harder to "use" rather than be treated as rei-ified value for hoarding.
That said, the tiny size of the gold mountain amuses me. All that digging, so little outcome.
If your objective is to make money "quickly", I'd recommend averaging any cash you have sitting around into a market-wide ETF ASAP. The trick is to not get emotional. You have to hold every last share through events just like this one. If you don't use leverage or purchase options contracts you can literally forget the stock market exists when monster events are occurring. Assuming you diversified, there's really nothing to worry about under any circumstance. Just keep buying the same market-wide funds on a regular basis. Never sell. Ever. Selling is how you lose the game.
All of this fear has created a generational buying opportunity.
Edit: lookup volatility harvesting
If the dollar goes tits up, I think the criminal accounting will take down gold with it, leaving the next in line metals to reap the rewards of integrity.
You cannot trust any of the accounting with gold.
I bought real estate instead post 2008.
But it broke the 1940 record, which means the title is correct and not sensationalist.
As an illustration of the absurdity of such a style, one could equivalently put "in over <x> thousand years" in the headline of pretty much any metric that has been on an upward trend through its history.
1. They're handy for showing your appreciation and getting past a common "I don't _want your money_" barrier in my region.
If I pass out a bunch of silver rounds to friends with krakens on them while loudly proclaiming "8 ARMED SEA GODS, TO COMMEMORATE THE FACT THAT MANY HANDS MAKE LIGHT WORK" everyone who helped me smiles broadly, laughs and receives them. An aura of gratuity emanates from the situation from everyone involved.
If I were to pass out envelopes with a 20$ bill in each, it would make everyone feel weird. Many would get returned, I probably wouldn't have friends anymore.
2. Garage sales ran by older people. I've found a silver coin has, on average, a higher buying power than equivalent cash. For 1oz of silver, a nice gentleman agreed to trade a circular saw, bench grinder parts, an electric motor, lathe parts, a few hammers, a tool box and an angle grinder last year.
3. Gifts for kids. 1 oz silver rounds are not that expensive, shinier than most objects, larger than most people expect, and tend to be received with wide eyed awe every time I've given them as gifts.
Silver is fun.
Gold is the most malleable and one of the most ductile metal (can be stretched into a single-atom wire, or flattened into a single-atom sheet), it's a great conductor of electricity and almost non-reactive (therefore non-corrosive and non-toxic).
But it's always a gamble. If you bought silver in 2011-2012, its value would still be below what you paid for it.
If it's peace of mind, just put your money in an index fund and forget about it for a few decades. The economy, broadly speaking, usually goes up over a long enough timescale.
If you do rolling 5 year blocks over the past 20 years I think right now (as in the last 3 days) is the only time gold out performs the Dow Jones.
And even today - on one of the worst days in stock market history - gold only outperforms it by 12% (26% vs 14%).
The gold price now is ~$1500/ounce. In March 2015 it was ~1100/ounce[1]. That's 26% increase. In March 2015 the Dow Jones was 18127, and now it is 21237. That's 14%
That's not a great record for gold! Your financial advisors are right.
[1] https://www.bullionbypost.co.uk/gold-price/10-year-gold-pric...