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Why Governments Hate Gold

Cold Highway

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It is fairly typical in the midst of economic crises like these for gold to come under attack from Keynesians economists and their amen corner in the media. The arguments against gold are usually straw men, based on a fundamental misunderstanding of the purpose of buying gold. Gold is not a typical investment. It is a defense against the predictable behavior of governments to debase a fiat currency under its absolute control. The people who run the printing presses have trouble shutting them off. In order to limit one's exposure to this reckless behavior, it is wise to exchange unsound assets for sound ones.
If you havent started already, buy Gold and buy Silver.

Campaign For Liberty — Why Governments Hate Gold   | by Ron Paul
 

phattonez

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Except that a lot of people have gotten on that bandwagon and it may be slightly overvalued. I agree with the premise that assets are better than fiat currency as an investment, but if you want a good asset, go with oil.
 

rathi

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Gold is seriously overvalued at the moment, and it will correct itself sooner or later. When it drops, it will be yet another lesson in why we switched. Fiat currency has its problems, but relatively stable inflation is far better than the chaos of a market driven commodity. Gold is based just as much on the illusion of value as a penny is.
 

phattonez

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Gold is less stable than fiat currency? Wow, that's quite a claim. And you're basing that on what, exactly?
 

rathi

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Gold is less stable than fiat currency? Wow, that's quite a claim. And you're basing that on what, exactly?
Gold Price History

Annual Inflation Chart

Gold prices right now are based on ignorant consumers buying primarily based on the advice of various media personalities. There is nothing wrong with buying gold, but its pretty much the same as buying stock. Its a risk based investment, not some mythical hedge against currency woes.
 

phattonez

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Gold would obviously be a lot more stable if used as the main currency. Right now, people use gold as a hedge because it is much more stable than fiat currencies since they are so manipulated.
 

rathi

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Gold would obviously be a lot more stable if used as the main currency.
Historically speaking, when gold was used as the main currency, the economy was far more volatile than it was today. We ditched the gold standard for a good reason.

Right now, people use gold as a hedge because it is much more stable than fiat currencies since they are so manipulated.
Except so many people buying gold have caused it to quadruple in price, making it far less stable than our current dollar with low inflation. If your want a hedge, buy bonds from from Switzerland or some other stable country. Gold is simply another investment with typical risk and reward.
 

cpwill

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Gold as a currency is inherently deflationary. Possibly good for the save-to-invester's; but poor for those who choose to borrow money to purchase housing. Governments often like fiat because it allows them to steal wealth from their population in the form of inflation; and dislike Gold for a similar reason.

Frankly, I like Friedmans' solution: have a fiat currency with a predetermined (low) inflation rate. Or, tie inflation to growth in GDP, the CPI, or some other index.
 

Kandahar

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Gold is less stable than fiat currency? Wow, that's quite a claim. And you're basing that on what, exactly?

Yes, this is adjusted for inflation, so this is the actual VALUE of gold. Whatever you think about the free-floating dollar reliably losing a couple percent of its value each year, it certainly is nowhere close to this kind of volatility.
 
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Kandahar

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Gold Price History

Annual Inflation Chart

Gold prices right now are based on ignorant consumers buying primarily based on the advice of various media personalities. There is nothing wrong with buying gold, but its pretty much the same as buying stock. Its a risk based investment, not some mythical hedge against currency woes.
Damn, you beat me to it. I should've finished reading the thread before I responded. ;)
 

Kandahar

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Gold would obviously be a lot more stable if used as the main currency. Right now, people use gold as a hedge because it is much more stable than fiat currencies since they are so manipulated.
That makes no sense. What you are basically saying is "Gold is so unstable right now because gold is so stable."
 

bennyhill

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Common sense dictates that if everyone buys gold it creates a bubble that will burst and then those who bought at the top will become suckers.
My tip pay off your house.
Paying off your debt is the surest way to financial freedom and you can sleep better.
 

masonkiller

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Historically speaking, when gold was used as the main currency, the economy was far more volatile than it was today. We ditched the gold standard for a good reason.



Except so many people buying gold have caused it to quadruple in price, making it far less stable than our current dollar with low inflation. If your want a hedge, buy bonds from from Switzerland or some other stable country. Gold is simply another investment with typical risk and reward.
Except it never loses value. The dollar amounts attached to it are not it's essential inherent value. Other investments can completely loose their worth but gold historically has always been treated as something with worth, and often used as a medium exchange for that. Fiat currencies? Stable? Opened your eyes recently?

Imagine if gold was the medium of exchange. I'm not talking about paper currency backed by gold, I'm saying people literally walk around with gold coins in their pockets. There would be no possible to way for the government to influence interest rates, therefore no boom and bust cycle. No bad recessions.

Common sense dictates that if everyone buys gold it creates a bubble that will burst and then those who bought at the top will become suckers.
My tip pay off your house.
Paying off your debt is the surest way to financial freedom and you can sleep better.
It's about long term investment and protection from the ever-growing US Dollar. Our dollars keep losing value all the time, but gold is not. The price for trading gold obviously varies as it is decided by how people are placing gold on their respective value scales. But you cannot manufacture more gold. Gold cannot inflate.

Also what some fear is the real possibility of a dollar collapse, and in that case you want as many intrinsically valuable things as you can get your hands on.
 
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MaggieD

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@ Kandahar -- Inflation of U.S. currency since 1979 is 217%. So, to get the same buying power of $200, one would need $468. Gold you bought in 1979 for $200 is now worth $1,186. Unless I'm doing something wrong, I believe your chart disproves your argument.

In any case, gold only has value because people think it has value. The same is true of everything, of course. The people I know who are interested in gold, buy gold stocks. I myself buy the hard asset as a kind of doomsday insurance. I bought it right after 9/11 for around $300/ounce. So while those $300 have lost 23.75% of purchasing power since 2001, my $300 ounce of gold is worth $1,186.

Precious metals have a place in everyone's portfolio. Just like every other investment, balance is the key.
 

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Gold, like any asset on the face of the planet, can go up, down and sideways.
 
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masonkiller

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Didn't you read what I wrote? "The price for trading gold obviously varies as it is decided by how people are placing gold on their respective value scales."

But gold in itself does NOT lose it's intrinsic value. The government could cut the value of the USD in half tomorrow, or quadrouple it. You can't do that with gold. On a side note, if they did cut the purchasing power of the dollar in half tomorrow, then gold prices would be cut in half as well. Would that mean gold lost value? No the value of the gold remains the same.
 

obvious Child

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Didn't you read what I wrote?
And it was irrelevant (and stupid as well). Basically your argument is that some unmeasurable value never goes down. See how utterly worthless that is? How can you say it never loses any inherent value when it is impossible to measure that value independent of another medium of exchange?

Sure you can say it never loses any value...but you can't prove it. In the real world, we value things on the basis of exchange. And gold's value is constantly in flux, thereby proving that Gold does lose value just as it gains value.

Furthermore, when adjusted for inflation, which knocks the chair out of your dollar argument, pricing gold at REAL unchanging dollars shows that it does lose value.
 
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scourge99

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If you havent started already, buy Gold and buy Silver.

Campaign For Liberty — Why Governments Hate Gold **| by Ron Paul
Gold is seriously overvalued at the moment, and it will correct itself sooner or later. When it drops, it will be yet another lesson in why we switched. Fiat currency has its problems, but relatively stable inflation is far better than the chaos of a market driven commodity. Gold is based just as much on the illusion of value as a penny is.
Listen to Rathi. Commodities such as gold that are used for currency only become manipulated by savvy and powerful business men.

Took me a bit to find the example I remember from an American History book I read:
Black Friday (1869) - Wikipedia, the free encyclopedia
Black Friday, September 24, 1869 also known as the Fisk/Gould scandal, was a financial panic in the United States caused by two speculators’ efforts to corner the gold market on the New York Gold Exchange.
More details: http://www.pbs.org/wgbh/amex/grant/peopleevents/e_friday.html
 
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MaggieD

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More recent:
Silver Thursday: Beginning in the early 1970s, Hunt and his brother William Herbert Hunt began accumulating large amounts of silver. By 1979, they had nearly cornered the global market.[6] In the last nine months of 1979, the brothers earned an estimated $2 billion to $4 billion in silver speculation, with estimated silver holdings of 100 million ounces.[7]

During the Hunt brothers' accumulation of the precious metal, prices of silver futures contracts and silver bullion during 1979 and 1980 rose from $11 an ounce in September 1979 to $50 an ounce in January 1980. Silver prices ultimately collapsed to below $11 an ounce two months later. The largest single day drop in the price of silver occurred on Silver Thursday.[1]

Hunt filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code in September 1988, largely due to lawsuits incurred as a result of his silver speculation.[1]
 

masonkiller

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Sure you can say it never loses any value...but you can't prove it. In the real world, we value things on the basis of exchange. And gold's value is constantly in flux, thereby proving that Gold does lose value just as it gains value.

Furthermore, when adjusted for inflation, which knocks the chair out of your dollar argument, pricing gold at REAL unchanging dollars shows that it does lose value.
I'm never really arguing against the fact the gold does change value (again in relation to how individuals at any point in time value gold) but what I'm saying is that golds value as a precious metal makes it significantly safer than fiat currency. Also in terms of a gold medium of exchange as opposed to a fiat currency medium:

"In fact, under a gold standard, the variability of changes in money's purchasing power are strictly limited by the market costs of changing the stock of money. At its extreme, a gold standard results in falling prices at a rate that corresponds to the rate that economic production expands. Prices rise only in proportion to the reduced costs of gold production. " - Jeffrey Herbener
 

obvious Child

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I'm never really arguing against the fact the gold does change value (again in relation to how individuals at any point in time value gold) but what I'm saying is that golds value as a precious metal makes it significantly safer than fiat currency.
You just said that gold doesn't lose value. Granted, I don't know how you are defining value, but I am on the basis of exchange. And considering the significent drop in gold prices, it may not be safer. In the long run, I'd agree that gold (barring cheap particle accelerators and replicators, then Gold is worthless) is safer then fiat, but it in no way is immune to value decreases.

Give me an original argument.
 

masonkiller

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You just said that gold doesn't lose value. Granted, I don't know how you are defining value, but I am on the basis of exchange. And considering the significent drop in gold prices, it may not be safer. In the long run, I'd agree that gold (barring cheap particle accelerators and replicators, then Gold is worthless) is safer then fiat, but it in no way is immune to value decreases.

Give me an original argument.
Ok I realize I'm not defining my terms properly here. Gold's value according to how people personally value it is one thing, but what I'm referring to as value that doesn't change is the value that comes from gold's scarcity, and it's inability to be reproduced. The way people value the dollar is effected by how much of it is in existence. When one amount of money is in circulation it is attributed a certain value, but if that amount is doubled and then the market is given time to catch on to this increase (theres a bit of a delay there) the value of the dollar just got halved. The only possible way of decreasing the value of gold in this sense would be to mine more of it. And that is very slow compared to the inflation brought on by the federal reserve.
 

obvious Child

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Gold's value according to how people personally value it is one thing, but what I'm referring to as value that doesn't change is the value that comes from gold's scarcity, and it's inability to be reproduced.
*sigh* Gold's value is determined by people applying the usefulness of gold and is relative scarcity, the same thing for all items in a potential exchange.
Furthermore, virtually any element can be reproduced (any I believe). The question is cost. Gold doesn't make sense to reproduce because the easiest and energy related cheapest element to make it from is more expensive.

The way people value the dollar is effected by how much of it is in existence. When one amount of money is in circulation it is attributed a certain value, but if that amount is doubled and then the market is given time to catch on to this increase (theres a bit of a delay there) the value of the dollar just got halved.
Sort of. The value of the dollar is dependent upon the amounts avalible to be used and the amount of potential goods avaliable to be purchased. Doubling M1 while doubling avaliable goods results in no material change to the dollar's value.

The only possible way of decreasing the value of gold in this sense would be to mine more of it. And that is very slow compared to the inflation brought on by the federal reserve.
Um no. Gold act as a currency of exchange and as commodity to be purchased. Gold's value as a currency of exchange is dependent upon the avaliability of goods just like any other currency. In that regard, it can change its value. Gold as a commodity is dependent upon, as you have stated, the amount out there. Therefore, Gold can decrease in value just as currencies do because it does in effect function as a currency. Oh boy. wait till Goldenboy gets here.

You do realize that a gold hedge is the same thing as a currency hedge no?
 
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