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Old 12-08-2010, 11:56 AM   #21
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The panel discussion includes lots of comments about Bernanke and QE2, not surprisingly they aren't fans.
I saw the same interview, and I thought it was a bit one-sided. If anything, I took it to validate that gold (while as in an investment, under certain circumstances) it does not work for me.

I would rather invest in a company and have their "output" provide me with a bit of income in the form of share value increase and distributions rather than just have an article of "perceived value" without any "product" generated.

Just my opinion...
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Old 12-08-2010, 12:01 PM   #22
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Of course, this is assuming there was even such a tulip bubble. "Peter Garber argues that the bubble 'was no more than a meaningless winter drinking game, played by a plague-ridden population that made use of the vibrant tulip market.'" See here.
Perhaps we'll all wake up someday and learn the same was true for gold...
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Old 12-08-2010, 12:10 PM   #23
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I wonder if the gold industry is anything like the diamond industry. Where a couple big players hoard and control supply.

Point being, if De Beers released thier diamond hoard onto the market, we'ld be finding them in cereal boxes .... could gold be any different?
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Old 12-08-2010, 12:56 PM   #24
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I'v been directing a good percentage of my monthly savings towards physical silver, and intend to keep doing so for as long as I can. I believe silver to be a better overall prospect, mostly due to its many uses in medicine and technology, and also because of its scarcity (unlike gold, which is usually hoarded and used mostly for jewelry). There is a lot less silver out there than there is gold. And in my opinion, silver at $30 an ounce is just a steal, completely undervalued. I wouldn't be surprised if it hits $100 in the next 2 or 3 years. I started buying when it was around $18 an ounce. I consider it a way to PRESERVE my hard-earned salary, and I'm not into it with any overblown expectations. I simply want to make sure I have a "plan B" should the dollar tank overnight, or should bank accounts be confiscated/regulated/messed-up with by the government. Being from Argentina, I experienced such a catastrophic scenario first hand not too long ago, in 2001. It is possible, and even though all my friends and relatives give me the same "that can not happen here" speech, I foresee some truly game-changing (for the worst) measurements being implemented in the near future by the criminals at the helm. It has happened before many times, and fiat currencies are NOT real money. History has proven time and again that no fiat system is sustainable. That is why I make sure to own the PHYSICAL stuff. Something I can touch, hold in my hand and remove from the criminal banking system.

As an aside, a true story: one good day, on my 18th birthday, my parents surprised me with 18 ounces of gold coins in the form of Krugerrands. They told me they had been buying one per year since I was born. Today, those 18 coins would be worth around $25K. But, of course, stupid me, when I moved to this country I sold them in order to finance the move. Back then, they were worth around $6K or so...

The good news is that I sold them back to my parents.
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Old 12-08-2010, 01:05 PM   #25
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If only I'd bought gold when I got out of tulip bulb futures...
"Looking through the bent backed tulips"--John Lennon (1940-1980)
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Old 12-08-2010, 01:14 PM   #26
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I'm thinking now is the time to dump my gold and silver bullion. I probably have 50 coins around an ounce each, and a few 1/10 ounce gold coins. Maybe $2000 worth. Any silver/gold bugs wanna do some business?

Edit: I just realized silver is up 50% since September 2010. I'm sitting on all these American Eagles and Morgan/Peace silver dollars with basis around $5-6 each.
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Old 12-08-2010, 01:36 PM   #27
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I'm thinking now is the time to dump my gold and silver bullion. I probably have 50 coins around an ounce each, and a few 1/10 ounce gold coins. Maybe $2000 worth. Any silver/gold bugs wanna do some business?

Edit: I just realized silver is up 50% since September 2010. I'm sitting on all these American Eagles and Morgan/Peace silver dollars with basis around $5-6 each.
If you are going to do it consider doing it this year before the new 1099 rules go into effect.
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Old 12-08-2010, 01:48 PM   #28
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If you are going to do it consider doing it this year before the new 1099 rules go into effect.
Good point, thanks! I think I am going to go through the collection tonight and see exactly what I have and if any of it is worth selling individually or whether a couple big lots make more sense.
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Old 12-08-2010, 02:04 PM   #29
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If you are going to do it consider doing it this year before the new 1099 rules go into effect.
The new 1099 reporting requirements go into effect in 2012, so FUEGO can keep his stash for another year before it becomes a factor.

So, if nothing changes and these coin deals valued at more than $600 per year have to be reported, will that affect the desirability of precious metals, and drive down their prices? I'd guess not, since these small purchases/sales make up such a small part of the market. But, for folks who are concerned and don't want Uncle Sam to have a paper trail on what you own, Dec 31, 2011 is the last day to beat the documentation requirement.
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Old 12-08-2010, 02:05 PM   #30
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I wonder if the gold industry is anything like the diamond industry. Where a couple big players hoard and control supply.
Oh, no. Nothing like that could possibly happen.

See, the word is out that a bunch of major financial houses from the Royal Bank of Scotland to State Street Global are buying up gold and tucking it away in vaults. There's gotta be a good reason for this. They've gotta know something!

As a result, prudent investors are playing along and buying gold, largely in the form of various gold bouillon backed Exchange Traded Funds, which are more liquid for individual investors than physical gold. These funds buy gold to back the shares issued, and tuck the gold away in vaults.
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Old 12-08-2010, 04:40 PM   #31
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But why does it have a certain value? A stock has a value because you are buying a portion of a company and the earning power (and growth in earning power) that comes with it. A "useful" commodity has value because of its utility. Gold has value because of this ongoing self-perpetuating, centuries old mystique. But people do change their minds about the worth and utility of things, and gold could be the next "old" thing. Whether gold is going up or down, it seems that the reason it has value at all is just a variation on the "greater fool" theory, and that's not something I'd want to bet a lot of money on.
I can understand stashing away a dozen or two 1/10th ounce pieces along with the canned food and ammo, but I'd have trouble putting a large portion of our savings into it. I don't invest in things I don't understand, and "everyone agrees it's valuable" just doesn't cut it for me.
Darn this annoying I wrote a long response and it didn't get posted so let me try again. Now again I am really not sure what to believe but I know a discussion of this subject with smart people before I invest any money in gold is valuable.

The short answer to why gold has value is that is form of money/currency that unlike paper currency can not be easily manipulated by central bankers and government officials. One of the panelists described money as an encapsulation of labor. So that a $100 bill can be given to my cleaning lady in exchange for a clean house, or to a restaurant owner, to pay other people to do the grocery shopping, cooking, serving, and cleaning up the dishes. (And for $100 hopefully better than I can do.)

Why does the US dollar have value? Now the US government has assets, ships,planes, buildings, lots of lands, oil and mineral reserves etc. but if we divided up all of the government assets by all the money in circulation and all of the future claims, I doubt anybody would be happy about the exchange (for example all of your money for Humvee and 12'x12' office in Denver).

The real value of a US dollar is the promise that if somebody gives us $100 for a good or service today you will be able to exchange that $100 bill at later date for something of roughly equal value. In the case of the US dollar this is backed up by a couple of centuries of history and tradition, laws and institutions, military power, the worlds largest economy. But it is far from true for all countries for all times. In fact most countries at some point in time have defaulted on their debt either directly or indirectly through hyper inflation. Canada, the US, Switzerland and few others are more the exception than the rule of standing by their currency.

If you believe the gold=money then the benefits of it compared to a paper currency are pretty compelling. If Mr. Bernanke decides we need QE3, he can with a few keystrokes create a debit on the Federal Reserve balance sheet of a $1 trillion, use that money to purchase 10 year treasury bonds and the balance sheet of the Fed balances. Now he can argue (probably correctly) that he isn't printing money but if everything works as plan we have lower long term interest rates, and higher inflation. He has created a $1 trillion worth of encapsulated labor, but the actual labor required to create this wealth is minimal. In contrast to create $1 trillion worth of gold means (if my math is correct) that somebody needs to dig up and refined 22,000 tons of the stuff. Now mining 22,000 tons of gold probably doesn't take a trillion dollars of labor. For instance, I bet if we gave 10 million Americans, maps, picks and shovels, paid them $100 a day and had them go prospect for a 1,000 days we would probably end up with more than 22,000 tons of gold. However, it certainly is no where near as easy to get 22,000 tons of gold as it for Bernanke creates a trillion dollars.

So when the Chinese, Latin American businessman etc, see Bernanke or the bankers in Ireland, Iceland, Greece etc pull these type of tricks it increases the fear that todays dollar wouldn't be able to exchange in the future for a roughly equal amount of goods or services. This fear is what makes gold valuable. It is why Karloff from Argentina intuitively understands the value of gold, and why rational Americans like you and I have a real hard time wrapping our heads around anybody would want to own it. It isn't to make money it is to preserve wealth.

Now having said all of that I could also make a pretty good case that gold has a value because of the greater fool theory just like you said.
From a practical problem I am also trying to understand how having 5 or 10% wealth in gold really helps. If I find at age 70+ that 95% of my money is gone I'd be pretty tempted to just to shoot myself, or more likely go to Macau and trying to win it back at the poker room...
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Old 12-08-2010, 05:03 PM   #32
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Let's consider the case of the cleaning lady. If she agrees to clean your house in exchange for a good or service (say, you agree to do her taxes in exchange), then there's no intermediate currency and the situation is simple. If you agreed to pay her in rutabagas, that would still be simple, because they are a useful commodity on their own--they have a direct use that is widely agreed upon and that gives them value. Gold and currency are entirely different. Paper currency has almost zero intrinsic value, it is only worth something as long as everyone agrees to trade it. Yes, it can be debased if a lot of it is printed, but it can also lose value for a lot of other reasons--if people just decide that it's not a reliable intermediary for trade because it is not desired/recognized by potential trading partners. Gold also has a very low intrinsic value. If people ever decide that the emperor has no clothes, look out below. One reason this might happen is for precisely the reasons you've cited: Many people in historically "turbulent" countries own it. As the developing world develops, we can expect less turbulence and more opportunities to invest in things that appreciate (rather than just--hopefully--retain their value). Gold will look less and less attractive as the rule of law spreads and equities and bonds offer attractive rates.
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Old 12-08-2010, 05:12 PM   #33
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Right. But the fruit, lead, etc all have an ultimate utility--you can eat the fruit for nutrition, we need that, so it has value. You can melt the lead to make useful objects, we need them, so it has value. Gold is useful stuff for industrial purposes, but we've got enough mined already to last for a loooong time if used only for this, its price would be very low (supply/demand) if industrial uses were the only thing driving demand. It just seems to me that the price of gold is supported almost entirely by speculation and a difficult-to-define consensus that it is valuable. And this consensus is also the only thing that gives paper currency any value. In this sense, gold is just as much a "fiat currency" as govt-printed folding money.

Basically.... yes... just like diamonds are a store of value and the high prices we pay for the DW is not in line with the utility value of the stone... and there are enough mined diamonds of jewerly quality that the price SHOULD be lower if not for a monopoly...

Gold and paper currency at least have a relative value to them as a store of value... but like anything, either can crash if the masses think there is a problem with them retaining that value...
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Old 12-08-2010, 05:14 PM   #34
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I wonder if the gold industry is anything like the diamond industry. Where a couple big players hoard and control supply.

Point being, if De Beers released thier diamond hoard onto the market, we'ld be finding them in cereal boxes .... could gold be any different?
Hey... I really did not see this before I posted my last post!!

But I do not think there is a 'big player' out there... I think the biggest holder of gold is the US gvmt... but I could be wrong...
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Old 12-08-2010, 05:26 PM   #35
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Let's consider the case of the cleaning lady. If she agrees to clean your house in exchange for a good or service (say, you agree to do her taxes in exchange), then there's no intermediate currency and the situation is simple. If you agreed to pay her in rutabagas, that would still be simple, because they are a useful commodity on their own--they have a direct use that is widely agreed upon and that gives them value. Gold and currency are entirely different. Paper currency has almost zero intrinsic value, it is only worth something as long as everyone agrees to trade it. Yes, it can be debased if a lot of it is printed, but it can also lose value for a lot of other reasons--if people just decide that it's not a reliable intermediary for trade because it is not desired/recognized by potential trading partners. Gold also has a very low intrinsic value. If people ever decide that the emperor has no clothes, look out below. One reason this might happen is for precisely the reasons you've cited: Many people in historically "turbulent" countries own it. As the developing world develops, we can expect less turbulence and more opportunities to invest in things that appreciate (rather than just--hopefully--retain their value). Gold will look less and less attractive as the rule of law spreads and equities and bonds offer attractive rates.

The interesting thing about this post is that it can be pushed to the extreme... everybody on this board who looks at their portofolio balance and says 'I have enough for the rest of my life' has to have the same worry... if there were hyper inflation then you would not have enough... you can not eat your stocks... sure, you hope that they still make money and are still able to provide you with enough income to pay your bills... but they might not...


Me, I think that they will fix the problem before it creates an Argintina or Bosnia or one of the other places where bread was more expensive at the end of the day than the beginning...
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Old 12-08-2010, 05:28 PM   #36
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The pervasive notion that gold is a reliable "store of value" is a strange one too. In 1980 gold peaked at ~$800 per ounce. Over the next couple of years it fell by 60% and spent the following two decades in a general downward trend. How is that a store of value? How is that an inflation hedge when CPI rose by 118% from 1980 to 2000, even as gold lost two thirds of its nominal value during the same time?

Even for the things that gold is supposed to be good at, it's actually pretty lousy.
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Old 12-08-2010, 05:31 PM   #37
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Let's consider the case of the cleaning lady. If she agrees to clean your house in exchange for a good or service (say, you agree to do her taxes in exchange), then there's no intermediate currency and the situation is simple. If you agreed to pay her in rutabagas, that would still be simple, because they are a useful commodity on their own--they have a direct use that is widely agreed upon and that gives them value. Gold and currency are entirely different. Paper currency has almost zero intrinsic value, it is only worth something as long as everyone agrees to trade it. Yes, it can be debased if a lot of it is printed, but it can also lose value for a lot of other reasons--if people just decide that it's not a reliable intermediary for trade because it is not desired/recognized by potential trading partners. Gold also has a very low intrinsic value. If people ever decide that the emperor has no clothes, look out below. One reason this might happen is for precisely the reasons you've cited: Many people in historically "turbulent" countries own it. As the developing world develops, we can expect less turbulence and more opportunities to invest in things that appreciate (rather than just--hopefully--retain their value). Gold will look less and less attractive as the rule of law spreads and equities and bonds offer attractive rates.
Why must something have an intrinsic value to be valuable? Supply and demand determine the price of gold. The "Utility" of gold is the issue, not if it has an intrinsic value. The utility of it can be a store of value, easy to trade (some currencies are not), psychological security, etc

As developing countries develop they tend to become more turbulent before they become less so. As the middle class in Communist China grows it will become unhappy with the corruption, restrictions on freedom and centralized government.

Why do governments around the world hold 30,500 tonnes of it?
Gold reserve - Wikipedia, the free encyclopedia
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Old 12-08-2010, 05:31 PM   #38
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One thing that is easily forgotten is that even at today's high price, gold is still not close to its all time high in real terms.
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Old 12-08-2010, 05:33 PM   #39
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One thing that is easily forgotten is that even at today's high price, gold is still not close to its all time high in real terms.
Neither is NASDAQ. Does that make it a buy?
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Old 12-08-2010, 05:39 PM   #40
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Consider this chart showing the real price of gold, for a second. If gold were a perfect inflation hedge, the real price would be perfectly stable. Clearly gold is not a perfect inflation hedge, it overshoots, and undershoots inflation. If this chart shows anything, it shows that we're pretty significantly in overshoot territory, with the historically stable "real" price somewhere in the $500 area.

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