Gold and aggregate demand.

  • Thread starter Thread starter morganist
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Quote from veritas007:

Gold is a bubble. It will much more likely see 500 before it sees 2500.
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Then short it. But keep in mind:

Central Banks are now net buyers of gold.

There's a reason for that.

If you want to bet against the house - good luck.
 
Quote from Rumblefish:
A guy who owns 1 ounce of gold when he bought in 2004 for $400/ounce and now the gold is worth $1,500
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As opposed to a guy who bought 1 ounce of gold in 1980 for $800/ounce and in 1985 the gold is worth $300?

Anyway, if you do some real historical analysis, gold has been a pretty lousy store of value. Simple test - lets take workers compensation (skilled/manufacturing labor per hour) and see how many hours a worker would have to work to buy an ounce of gold:
Year Gold (US$/oz) Hourly Wage (US$) Hours To Buy 1oz
1800 19.39 0.04 485
1825 19.39 0.05 388
1850 20.67 0.06 345
1875 23.75 0.12 198
1900 20.67 0.14 148
1925 20.67 0.5 41
1950 35 1.55 23
1975 161.49 6.02 27
2000 280.1 19.36 14
2010 1270 26.79 47

Labor cost, in general, is the best indicator of inflation and gold did not do too hot as an inflation hedge over that period. You could do other tests (check gold vs CPI, gold vs real estate prices etc) and the results come out the same.

So, my conclusions are (a) gold is an instrument just like any other and (b) while it has it's uses against currency debasement, it could easily fail.
 
USD was a very very very strong currency since world war 2

many fiat currencies have become obsolete currencies.

Preserving the 'value of the currency' is the job of the central bank and the central banks mandate.

you have to understand that fiat money is just paper.




Quote from sle:

As opposed to a guy who bought 1 ounce of gold in 1980 for $800/ounce and in 1985 the gold is worth $300?

Anyway, if you do some real historical analysis, gold has been a pretty lousy store of value. Simple test - lets take workers compensation (skilled/manufacturing labor per hour) and see how many hours a worker would have to work to buy an ounce of gold:
Year Gold (US$/oz) Hourly Wage (US$) Hours To Buy 1oz
1800 19.39 0.04 485
1825 19.39 0.05 388
1850 20.67 0.06 345
1875 23.75 0.12 198
1900 20.67 0.14 148
1925 20.67 0.5 41
1950 35 1.55 23
1975 161.49 6.02 27
2000 280.1 19.36 14
2010 1270 26.79 47

You could come up with a number of other measures of "worth", and gold does not do too.
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Quote from Rumblefish:
USD was a very very very strong currency since world war 2

many fiat currencies have become obsolete currencies.

Preserving the 'value of the currency' is the job of the central bank and the central banks mandate.

you have to understand that fiat money is just paper.
More...
Huh? What does USD have to do with hourly wage/price of gold?

Think about what sle said a bit, I'm sure you'll figure it out.
 
Quote from Rumblefish:
USD was a very very very strong currency since world war 2
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Not true. Since 1970 (the index inception), DXY has lost (with a shortish bumps in the 80s and late 90s) about 40% of it's value. You could, if you want, use synthetic DXY do the same analysis over the last 60 years to reach similar conclusions.
 
Quote from Larson:

So now you are speaking in terms of "legal tender" recognized by gov'ts. Is that what you are saying? Gold is easily converted to whatever currency you want to exchange it for. Then pay your bills with the" legal tender." The currency component is what makes it rise and fall opposed to fiat which has governmental liability attached to it. Gold has no liability attached. Surely you people are smart enough to figure this out for yourselves without parroting Wall St. and Buffet, unless you have a vested interest in a certain market(s).
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Whether or not payments in gold is recognized by governments is irrelevant. What you're describing is an asset. Technically, I can sell my house for "legal tender", and then pay my bills with it. Does that make my house a currency? Surely you are smart enough to figure this out.

A currency is a medium of exchange. Gold is not currently a medium of exchange. Go try to negotiate with someone an exchange of goods/services for a set amount of gold. They will tell you you are nuts.
 
Quote from veritas007:

"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take?

Which is going to produce more value?"

Warren Buffett
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==========
T007;
Well thats an easy pop quiz;
Dave [FOX ]Ramsey doesnt like it also.So as i wrote some time ago;
i guess gold will have to trend without them.Not a prediction.

Frankly i like gold & silver & farmland.....................;
& since most of us will never buy ''all the framland in the US'',
flood /drought/hail never hurt gold much, plenty of farmers get flooded:D

XOM does have a nice dividend /yield

:D
 
Quote from Kassz007:

Whether or not payments in gold is recognized by governments is irrelevant. What you're describing is an asset. Technically, I can sell my house for "legal tender", and then pay my bills with it. Does that make my house a currency? Surely you are smart enough to figure this out.

A currency is a medium of exchange. Gold is not currently a medium of exchange. Go try to negotiate with someone an exchange of goods/services for a set amount of gold. They will tell you you are nuts.
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Why do Central Banks still hold gold in their reserves, if there is not a currency component? Gold has been used as money for thousands of years, even though today's fiat system bars it from being used as legal tender.
 
Quote from Larson:

Why do Central Banks still hold gold in their reserves, if there is not a currency component? Gold has been used as money for thousands of years, even though today's fiat system bars it from being used as legal tender.
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Yeah. It is like the currency behind the currency. Or the value. In England on our notes there is a strip of metal to denote value. It is not full value but it indicates the backing of the reserve. Promisary notes are currency because they are easy to use. However the value and security of the promisary note comes from the reserve in most cases gold or stirling.
 
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