Aren't they economically the same. If you have, say, USD and are concerned that it will devalue, then buying gold and selling back later for USD is the same as making a USD profit, even if there was no real profit after inflation.

Otherwise, why not just 'store' your wealth in USD?

dead cat bounce continues - gold up 0.5% this morning.


I get the impression that on one side a group of suits are trying to talk the gold price down while on the other side a lot of people in Asia buy when the price dips.

Below 250, I may get the opportunity again in my lifetime, if not plenty of other things where the future value can be predicted with more certainty.

By the same logic one could say a few dollars are used for lighting cigars, however more are produced each year, so all things being equal [they] should fall in value year after year.

...which of course they are doing. The question behind this thread however is which of the two is - in the long run - likely to fall more?

Since both gold and dollars are used as money neither industry nor cigars are relevant in deriving their value.

If you go to the butcher with a bar of gold, I don't think you will get a good exchange rate for your 'currency'. Inflation has not occurred & gold has lost over 30% of it's value V USD so it's down to which seems to offer better value when you exchange.

One ounce of gold will buy you alomost the same amount of meat 10 years ago and today, but in comparision 1000 USD will buy you only a fraction compared to 10 years ago.

IMO GOLD is a store of wealth, even with so much manipulations by the Banks over the value of GOLD, it still holds its value. Nothing else has the same behaviour.

EDIT: There are some videos on youtube by Mike Malone "Hidden Secrets of Money" where he explains why FIAT Currencies are not Money. I found them very logical.

Today they said that inflation fell by 0.1% in the eurozone in December - if they cut bank rates to negative then zero yielding assets like gold will look better?


Incidentally do not know why people are so worried by deflation; Switzerland has had deflation for 2 years now? Anybody have a theory why it does not matter??


The average inflation of Switzerland in 2012: -0.69 %
The average inflation of Switzerland in 2013: -0.24 %

Go back 30 years or 3 years, you get a lot less meat with gold than you did then
It's only a store of wealth if you bought when nobody wanted it, if you pay a high price there is no reason to assume your wealth will be stored, a portfolio of equities will do that overtime regardless of when you bought.

While they do produce more US dollars each year, you are aware they also destroy US dollars each year? And even if gold became so worthless that people just threw it on the ground, it is still physically there, where paper money is shredded.


So that particular argument does not work.

"Focus" reported today that Germany is having difficulties getting the US to return German gold stored there. The US was supposed to return 50 tonnes in 2013 but only delivered 37. Something smells in New York:

http://www.focus.de/finanzen/news/wo...d_3519983.html

They should have consulted with the expert:

I think that's a very good question, and my answer would be no, precisely because the scenario you describe can be interpreted more than one way...

If I buy gold as an "investment" (in the modern sense of always expecting or hoping for a gain), I would typically be aiming to reap some kind of profit, presumably at some 'selling back later' event, as a reward for my clever investing prowess.

On the other hand, if I buy gold as a 'store of wealth' then I know it might go up in value or down, but my aim is simply to own it instead of the fiat currency I bought it with. Should I have to liquidate, I'll have to live with it's present value vis-a-vis my chosen medium of exchange. People can buy houses with the same aim (i.e., not to ride a housing bubble while dreaming of big profits, but simply to park some wealth somewhere durable, instead of in a fiat currency).

The idea of a 'store of wealth' is that it's an insurance measure, often for a significantly long term. Fiat currencies have a documented history of failing. Buying anything as a store of wealth involves the intention of shielding that wealth from the possible negative effects if it were stored in the form of a fiat currency (e.g., the USD).

The point is that store-of-wealth purchases are made to avoid certain risks, not to assure a profit.

__________________
"Live every day as if it were going to be your last; for one day you're sure to be right." — Harry Morant

I think I have to disagree with you on this one and will say that housing is different from gold in this respect: if you buy housing, you are hedging against future housing costs.

Whereas, if you buy gold, you are not hedging against gold (assuming you are not in the jewellery business, etc.) - you are hedging against fiat devaluation and the only way to hedge against that risk with gold, is to make a profit in that fiat currency.

Disagree all you want. It's not for either of us to decide another's motive for transferring wealth from one medium to another. There's no question that a home buyer can enjoy (and even seek) additional benefits (e.g., lower housing costs), and for some, those benefits can surely be the primary reason for the purchase. But that doesn't dictate the primary motive of every home buyer.

The same goes for gold, or any other instrument or commodity. One can't know the timing of fiat currencies or the manipulations of governments, their central banks, and other key players, so not unlike an investment (made explicitly with gain in mind), a store of wealth also has risks. A store of wealth (whether metal, a house, land or any other tangible investment) does indeed provide a shield against the inflationary devaluation of fiat currencies. It may provide additional benefits (in the case of metal, things like portability, durability and compactness, for example), but there's no guarantee of a profit, which is fine with the buyer, because profit is not his primary motive, even if he does happen to profit after all.

From where I sit, it's the buyer's motive that makes the difference. They are only 'economically the same' in the eyes of those who disregard the buyer's main motive and project some other presumed motive (namely profit) onto the transaction.

__________________
"Live every day as if it were going to be your last; for one day you're sure to be right." — Harry Morant

Possibly, tapering by the US Fed may already be priced into Gold. The mere idea of quantiative easing probably sparked the spring 2013 crash. Question is whether the drop of 2013 will prove to have been in 1981, when gold sank from then record highs to begin a 20 year drop.

The gold bears have been singing the same song, even through inflation has not taken off & the $ has risen
They will never admit they were wrong

Don't you mean bulls?

Wrong. Inflation [by definition] = increase in the 'money' supply, which is exactly what all the QE was all about. So inflation itself 'took off' long ago. The negative consequences of inflation have not yet materialized, but they are inevitable, as evidenced unequivocally by the historical record (the interim machinations and manipulations of the 'powers that be' notwithstanding).

Yes sorry Bulls.

Inflation is when things cost more over time, many prices & wages are falling so deflation is the danger rather than inflation which is why gold price has collapsed & will fall a very long way.

Not really. Look it up in an old dictionary (e.g., mid-20th century or older). The primary money-related definition will be an increase in the money supply. (Just think about it — to inflate something (e.g., the money supply) is to make it bigger.) Somewhere along the line, English language dictionaries changed the definition to describe the consequences of inflation (e.g., 'when things cost more over time'), rather than the cause.

Inflation starts with inflating the money supply, and it always has, and always will.

Prices only rise with the ability to pay, so the old dictionary & gold buyers have got it wrong this time.