If GOLD is the sought after GOLD Standard....Why would I

Economics Economics Questions
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1

Hello,

Perhaps this is a bit odd, or convoluted but I tend to question the obvious at times. So first a little emperical ground work and some simple guidelines. I’ll try to write this in simple generalalities, so give me a brake on the fine points for the time being and as well, think big picture, wide angle lens.

  • Gold is a metal…a rare metal; useful to industry, but for this topic it’s about it’s desirability as a money.
  • A regular guy would seek, say, coins or troy ounce bars. “Hey Charlie, take a look at this schnazzy coin” to store is value…no need to carry a 100 pound chunk to the store.

Over the last decade or so things have been pretty good in terms of growth, profits, optimism, people making a buck, etc, etc. All done of course with the dreaded “legal tender”. 401K’s have plumped, the driveway was filled with cars, orders were falling in through the mail slot.

Then the recent sour patch. The broad brush of doom and gloom swept across the canvas in large swaths. People clamped down. “maybe we will hold off on the his and hers motercycles”…

Uncle Sam steps up and says, “fellas, have I got a deal for you…I’m going to Stimulate the game board here by spending some serious bucks. We’re going to get the shovels into those dirt piles and get this economy moving again”. Don’t worry that I don’t really have any cash; I’ll just print us all some more and it will all be better in the morning.

Now this gets me thinking…Hmmm. If Uncle Sam pours more cash into the game; my cash will be worth less? (Inflation?). Perhaps I should act?

Meanwhile across town…

Warbuks Inc. has been setting around polishing all the gold they have on hand thinking “now that’s a nice vault full of metal”. And then the idea pops into their head…lets sell some.

Is it me or is every other commercial on the radio these days seem to be about gold and gold brokers?

Ok, back to our story and the office of Warbuks Inc. " Look here guys, the market on Gold is up—lets sell of some of this old gold we bought back in the 80’s for $300 an ounce for $900 an ounce.

So here is my question(s)

If fiat money is so sketchy and on a deteriorating spiral, why would I want to sell off my gold and get PAPER?

And if gold is great to save, but I can only buy things at a future date by re-selling it back into paper for what the market thinks it’s worth…Why would I do that?

Folks I’m confused.

Your humble Carpenter.

2

Gold is bought as a hedge against inflation - if I bought 100 ounces, I can sell it for more or less the same real value irregardless of how fast the Fed runs the printing press(which is why FDR stole everybody’s gold).

3

Because fiat money is still worth something, and the price of gold in dollars does go down as well as up. When the price of gold rises during a panic or whatever reason, it may be a good time to sell. Gold has not historically outperformed other financial assets, and there is little reason to expect it will over a longer time horizon. Does anyone really wish to dispute that?

You’re asking why would you eventually sell gold in order to buy stuff? Answer: to buy stuff. Only if you were selling it for paper that was literally worthless would it be a problem – then you probably wouldn’t sell.

4

I’d say keep the gold (or other precious metals) and sell it only if you really need cash. When the economy breaks down (very likely at this point), or at least when hyperinflation happens, fiat money will be worth less than the plastic it’s printed on but gold has never lost people’s trust in hard times.

5

I’m no expert, but here’s my take. Somebody would not be wise to sell gold now if you are confident it will go up in value in the future, but of course knowledge is imperfect so everyone won’t sell at the exact peak of gold value, they will sell at various points along the way. You would be correct in saying that it becomes increasingly illogical to want the paper money for gold. It is not totally illogical now, obviously, because paper money still has value even if it is declining. But there would come a point, hyperinflation for example, that people WILL stop demanding the currency because it’s purchasing power is so diluted. I think this is the sort of monetary armageddon scenario where people would stop accepting worthless dollars and would, of their own volition, start trading in a currency with value, like gold. So I suppose it is a matter of the severity of the debasement of the currency. At a certain point you WOULD expect people to refuse to sell their gold in exchange for dollars, we are just not at that point in our economy.

6

OK, now that makes a little sense. I buy some gold to have in reserves in the event the govt script becomes worthless or so “funny” that people do not accept it. Following this thinking, the “gold marketers” at the moment must have some measure of confidence if they are pushing so hard to sell gold right now…perhaps the economy will digest this big “housing/banking/over leveraged/credit swaps hair ball” and gold prices will fall agian in a few years; making the brokers returns.

So what I should consider is to get some small reserve of Gold just in case Obamagedon does not work out.

It just makes me wonder when the add says “gold is expected to tripple in a few years” that the owner of somthing so hot would want to sell it (or trade it) into a deteriorating (via govt induced inflation) paper currency.

Let the learning continue…[:P]

7

I’ve noticed more commercials like those you’re talking about, except, the companies advertising are trying to BUY gold instead of selling. They are speculating on very good chance gold prices are going to move much higher in the not-so-distant future because of all the inflation taking place. They are trying to bank on the fact everyday people don’t understand how commodity pricing works.

8

While it is true that you hear quite a few “we will pay top dollar for your old jewelry”, I also hear many, many adds for “gold line” and “leer” and assorted others selling gold…they even have the big radio voices touting how gold is going to triple in value in years and that I should get my free study guide right away.

Frankly, if I had a safe full of anything that was expected to triple in value in the next few years I would not be selling it now for very soon to be inflated US Dollars.

The other part of this is that when you as the seller offer your GOLD up for sale, which has intrinsic value as is, for paper cash, you then need to pay taxes on the income you just made on the transaction (assuming you play somewhat by the draconian rules) further reducing the money you just made.

I often wonder if gold is about to fall off in the market? Now that would make sense to dump it now while the price is higher…

Still searching…for truth.