"While sitting in the shoeshine chair, Kennedy Sr. was alarmed to have the shoeshine boy gift him with several tips on which stocks he should own — yes, a shoeshine boy playing the stock market.
This unsolicited advice resulted in a life-changing moment for Kennedy Sr. who promptly went back to his office and started unloading his stock portfolio.
In fact, he didn’t just get out of the market, he aggressively shorted it — and got filthy rich because of it during the epic crash that soon followed.
They don’t ring bells at the top, but apparently when shoeshine boys start giving stock advice it is time to head for the exits."
This anecdote illustrates how the market could be seen as a big society-level pump and dump scheme. The guys at the top invest early at a low price, then pump the investment downstream as much as possible, then dump when things start looking too much like a bubble (i.e. "the shoeshine boys start giving stock advice"). If enough people at the top dump at the same time, the bubble bursts and there's a crisis.
Even if some of the guys at the top couldn't get out in time, they are unlikely to get ruined by playing the game. The guys at the bottom on the other hand, usually end up literally paying the price for their risk-taking.
Well, this is essentially how the markets work, in general. The top wealthiest traders with many connections on Wall Street tend to take the earliest tips to get in early, by the time the rest of the country/world start to play they're ready to dump. With a readily connected internet, it's much simpler to gather market sentiment and always get out after a rise. Money makes money.
That would be true if the market didn't consistently outperform inflation over the long run. Dollar cost average...buy and hold. Markets are subject to irrational swings in either optimistic or pessimistic directions. Rich people go bankrupt too. For every short there's got to be someone with equal volume going long...and vice versa.
Past few decades? It's been true for over a century. Even if you rode out the Great Depression and held your Dow index. Now, I'm not claiming the current prices aren't a bubble, but bubbles (booms and busts) are normal part of any market.
It's at all-time highs right now, way over what the stock market was in 2007, 2008. The S&P had already bounced back to pre-2009 levels by 2014. At 3350 right now, it's more than double what it was in 2007 (1500). Inflation has not doubled since 2008. Inflation is near all time lows and interest rates are near all time lows and have been for at least a decade.
We got to see that in action here at HackerNews a few months ago. Tesla was doing great, then suddenly there was one news article after another about how Elon was dooming Tesla and it was practically crashing, then a couple of months of peace, and Tesla is suddenly awesome again. It looked someone with influence wanted Tesla stock cheaper for a while.
By your logic, this is precisely the time to sell non-gold equities -- with comments like Portnoy's "put any 3 letters together and buy that"[1], not the time to sell gold, which is behaving exactly as you would expect it to behave when confidence in other asset classes (especially the US dollar) is sinking.
Unlike gold other equities are actually expected to net a return and therefore it is possible to invest into them in the long run. With gold the only way you can get a return is through speculation which means you must sell it regularly. With other equities you can just sell them as needed.
I have successfully used “has my mother heard of this” as a reason to sell a few times, notably Bitcoin and selling out a political bet position on Pete Buttigieg — essentially at the point my not-especially-well-informed mother has heard of something, I no longer have any kind of information advantage.
very interesting mental model. Coincidentally enough, I got request from janitor (very nice person btw) to help him to buy bitcoin when it cost about $18k. I explained him to do not to, but the fact itself was clearly alarming.
You'd be surprised, there's some people who still aren't aware and start asking some pointed questions when the news start saying Bitcoin reached new heights.
Be careful of people asking where to buy a large amount of Bitcoin... since they probably just re-mortgaged their house.
I experience a very similar moment in line waiting to go through TSA a few years back listening to a group of agents (on break, trading w/ Coinbase on their phones) talk about bitcoin going to the moon (one of them said 100K/coin) when it was already hovering at 17K/coin. I knew how unrealistic bitcoin was back then, as it is now, and once I was through security, I promptly liquidated my entire coinbase account someplace near the peak
The thing that really gets me is that even once you hear these conversations, the price might 2x or 3x from there. I felt this way about Bitcoin by the summer of 2017 but obviously it still had some room to run.
You can also look at this from another angle. I bought today $5 iTunes code using a Lightning wallet, which is the new payment layer over bitcoin, think of it as Bitcoin 2.0. 1 second confirmation time and 20 cents fee (compared to 10+minutes wait and $3 fee with Bitcoin 1.0). The seller didn't need my name and address. Nobody knew about my purchase, and I didn't need nobody's permission to trade.
This is why Bitcoin is going to $1m, and not because of what TSA agents say.
People often falsely tout absurdly high fees because they so choose to try to move the money as quickly as possible on a whim and choose to pay such a multi-dollar fee. Those of us who use bitcoin regularly understand that if one plans to send hours or days in advance, it's simple and straightforward to move millions of dollars at once for 25-50 cent fee, flat rate. Just because 1k people say they paid $5-10 fee to move bitcoin, doesn't mean they know what they're doing.
Not really. price going up 10x is much easier when it's around $10, than when it's $1000. The higher the existing price, the more money that's required to pump the price, so it only makes sense that 10k->100k is harder than 1k->10k.
Why? I mean I got $10 in my pocket. You really think it’ll be worth $100-worth any time this year? Ford is currently trading at around $7. Think it can possibly go to $70 any time soon?
You have to look at market cap, not individual price. Why would all the BTC that’s around be suddenly 10x the value it was a year ago? What would drive that?
> Why would all the BTC that’s around be suddenly 10x the value it was a year ago?
Because currencies can collapse in value, and some of them will. I lived in Russia in the 90s. The hyperinflation was so bad they had to revise price stickers in the stores upwards _twice a day_ at one point. Some stores even switched to electronic price displays back then to make this easier to do. This also drives up the prices more because merchants have to factor in the hyperinflation with the latency of replenishing the stock, meaning that by the time they need to buy more stuff, that stuff could easily cost twice as much, so they'd increase prices further to account for that future cost, and their supplier would, of course, do the same, and so on and so forth, further driving the inflationary spiral.
That wasn't because stuff was getting more valuable, that was because the ruble was collapsing through the floor. Those who had money either spent it on something right away, or converted it to dollars and exchanged only as much as they would need in the very near future. Except this time you don't get to do that because _dollar itself_ could collapse. A lot of the economy turned to barter deals by the way, where one type of goods was exchanged with another, often as a part of a multi-way deal, with little to no actual monetary component.
That's not to say that BTC won't collapse along with the currencies though. It's just that you can't print more BTC on a whim.
Armed with that experience, though, if you have a reasonably stable job, the best thing you can do right now is borrow a shit ton of money at historically low interest rates. If inflation hits (which it looks like it will), you will be able to pay back pennies on the dollar. All of the Russian oligarchs have gotten rich through a combination of hyperinflation and corruption.
How is it implied? You basically said going from $1 to $10 is easier than from $10 to $100. They are both a 10x increase in market cap. Why would one be easier than the other, aside from the mild psychological effect on retail buyers?
Because there is more poor ppl than rich ppl, and poor ppl can buy stonks at 1$, but they can’t buy stonks at 1000$.
So if some idiot says that stonk X is hot at 1$, the amount of money that is available to buy that stonk and pump it’s price up is much higher than for a stonk that’s at 1000$ and that only 1% of the population can put money in.
Lots of places offer the ability to buy partial stocks. Also, BTC and company all allow partial coins. Lastly, idiot retail buyers who can only afford a few bucks of anything won’t move the market.
>They are both a 10x increase in market cap. Why would one be easier than the other, aside from the mild psychological effect on retail buyers?
Let's imagine we're in the future and bitcoin made up 5% of global wealth. In that case, do you think it would be easier for bitcoin to go up 10x than it was back in the early 2010s?
It would be harder. But that would be regardless of the price. Going from $1 to $1.05 is the same as from $1000 to $1050. I am confused by how that’s confusing.
I think your argument is _almost_ right. You should be applying that logic to the total "market cap" of the asset, not to the unit price.
In particular, the huge bull run in crypto happened because mass retail and institutional money came into the market, bidding the price up. Arguably, if TSA agents are already bought into bitcoin (the implication being that TSA agents, as a class of people, are very unsophisticated investors) there isn't a lot more money waiting on the sidelines that could flood the market (not completely true, as there are still untapped pools of institutional money).
I would say so. Same as talking about 1k/coin in 2011. That said, I wish I had unloaded near the last peak. I would have been positioned to quadruple my stake near the last low.
I think the phrasing is hiding the logic. All-time high doesn't mean the peak. Quite often, all-time highs are followed by more all-time highs. Things can run quite a bit before a correction.
You by definition would make money. If you sell at max price that means you had to have bought it for lower than that. Assuming you didn’t buy for so close to max such that transaction fees are larger than your margin.
And that's exactly the reason: when the information is so widely circulated, you no longer have the information advantage. The market should have priced those information in. At that time, it's best to exit. Otherwise, the investor is no longer "investing". It's plain gambling without information.
That story is quite funny because the true story is actually about how Kennedy Sr. saw the signs of the top of the stock market and got rich by selling his stock and buying...
gold, which he later used during the depression to purchase distressed assets like real estate.
The parallels between the 1929 crash and now are chilling.
We always talk about 8 or 9 year cycles but never cycles which are every 8 or 9 cycles. In the ocean there are multiple frequency of waves which means sometimes no waves where they cancel each other out and other times where they combine.
I think we're at the cusp of a giant financial movement which will surpass the 1929 crash. And in times of upheaval like this, a lot of fortunes will be lost but a few will be made.
I just hope that we're generally richer now, especially with technology, that we can find a way to minimize the suffering.
I forget where he said it, but at some point Paul Krugman makes the point that the price of gold will tend to rise when real interest rates are low. He makes a similar point here (written in 2019):
"After all, the price of gold soared from 2007 to 2011... So why did gold soar? The main answer seems to be plunging returns on other assets, especially bonds, which were the product of a depressed world economy."
So we should expect the price of gold to rise while the pandemic is out of control. Once the coronavirus is defeated, we should expect the price of gold to fall.
Yes, this is indeed about the low bond yields paired with inflation expectation - low real yields.
But I would not hold my breath that this changes much after Corona. In 2019 the Fed tried quantitative tightening, which resulted in the December stock market correction, and a big overnight lending spike. From there they resumed QE (Which was one day supposed be a temporary measure in the great financial crisis).
They did drop interest rates again in response to Corona, though. Not before.
J Powell already promissed rates would stay as low as they are for 2 years.
But right now the yields of the 10 year, e.g. are going below what a new issue should yield I believe.
Gold/Silver should lose some steam when the DXY goes up, or bond yields increase. (Both of which should also have a negative influence on stock and bond prices).
Also don't marry the idea of inflation to the CPI.
There is asset inflation (think housing market and stock market), and inflation in certain products like food. But other things like transportation (perhaps of lower importance to poorer than for rich).
It's not a black and white matter.
Taleb makes this same point about inflation repeatedly - that the things he plans on spending money on in the future may inflate far more than the CPI.
"Massive indirect unguided subsidies of money by the government."
Where the government does something directly, the results can be good. Look at Medicaid, which is generally thought to be the most cost effective form of health insurance that exists in the USA. The government overseas that directly.
But everywhere the government tries to offer end consumers a subsidy, so they can then try to use it toward some social goal, the result seems to be inflation.
Krugman in his usual arrogance neglects to consider the price and indeed monetary history of gold. It is and always has been "real money" and most people either consciously or subconsciously trust gold more than the pieces of paper we call money, and its price is not a reflection of people chasing returns but rather people having less faith in the current monetary system (which is backed by nothing). The record physical delivery orders at Comex proves this [1].
If the dollar hyperinflates, where would people go? Crypto is obviously interesting, but gold is the supreme form of money that requires zero trust (while crypto is near trust-less, you still need to trust the cryptography to be secure).
There have been plenty of stories of hollow gold bars and, true or not, they've been trending again lately.
Gold hasn't always or everywhere been real money, I've personally worked on an archeology site where I sifted out a tiny shell bead with an even tinier hole punched in it so it could attached to a string like ancient Chinese coins and so on.
I once read a claim that J.P. Morgan said something like money is only worth the character of the person who wields it.
I feel more like interactions with other people are more precious than precious metals.
If the dollar hyperinflates, some people will go into bunkers. I'd maybe starve or hide... I don't have a plan, I'm way behind on stuff as it is.
There have absolutely been cases in history where other forms of "money" have been used, but in a long enough timescale of a civilisation, gold and silver are organically adopted as money due to their unique properties that make them suited for it. Fiat, shell beads, and other forms of currency are exceptions to the rule.
I dunno, I feel like Potosí being the highest population city in the Spanish Empire in the 1600s, even larger than Madrid, even though its elevation was about 13,000 feet, even though Denver's elevation is only about 5,000 something feet high, suggests an inorganic impetus, an illogical fetish for silver
The fact that gold has historically been used as money in some places doesn't mean it's money now. Money is a commodity that is used as a medium of exchange. Today, gold is not used as a medium of exchange, i.e. most people are not paid in gold and don't buy things with it. Therefore gold is not money.
Because the dollar is the reserve currency of the world, it will hyperinflate if and when the international community begins transacting en-masse in other currencies or even in gold, and dumping us bonds. Then all those dollars outside the US, which are most dollars, will go back to the US and hyperinflate. This could happen if the current instability in the US continues.
CPI is also a measure that is altered over time by groups with a vested interest in keeping “inflation” low.
As a very simple example of why this may be misleading, consider that house prices are not considered in the “basket of goods” that Americans buy, despite this being literally the most expensive purchase most people ever make.
The formula itself is also changed from time to time. If we were using the “old” formula, inflation would be MUCH higher (shadowstats.com for current numbers).
>house prices are not considered in the “basket of goods” that Americans buy
This is (widespread) mis/disinformation. The CPI carefully distinguishes between houses as capital goods and shelter/housing as something people consume. If you Google it, you will find that the equivalent rent for homeowners is incorporated in the CPI. Even if they ignored homeowners, the index would be very little changed if it was based on renters alone.
I’m aware of that. The problem with equivalent rent is that it’s seldom actually equivalent.
In order to compute the CPI-U, the people doing the work essentially call up 14,000 people and, if they own a home, they ask them how much they would theoretically charge in rent if they rented their home out.
The problem with this is obvious - most people do not do rent income estimates for a living and so the numbers are often quite far from reality.
More importantly, people find it very difficult to estimate future interest rates and they fail to take into account things like the sunk cost fallacy (see: 2008 financial crisis, where people in crashing markets still guessed they would be able to rent their homes based on pre-crash prices).
There is also the issue of a negative feedback loop, where low interest rates lead to lower than expected inflation, because “house prices only every go up baby!” - or in other words, people are perfectly willing to accept $3000 in rent even if the mortgage is $5000 if the house is increasing by $8000 a month in appreciation. This appreciation is hidden from the CPI because only theoretical rent is considered. The net result of the negative feedback loop is the fed sees that inflation is low, so it thinks it can keep rates low too, which leads to asset bubbles like in 2008. (And, likely, in 2020 with stocks too...)
You're saying sometimes people estimate equivalent rent too high and sometimes too low. How is that an argument that inflation is systematically underestimated, let alone that home prices are ignored?
Separating housing as an investment from housing as consumption is obviously the right thing to do. But if it wasn't separated, it doesn't make sense it would add systematic bias in one direction. Prices go up, prices go down. Inflation would be pushed higher and then lower, relative to the "true" value.
Perhaps, but it's also not a good measure of the market. When the BLS wants to measure the price of other consumer goods, it goes to a store and sees how much something costs. When goods change, it makes quality adjustments. This would be the equivalent of walking down the street and asking people "how much can I pay you for your jacket?" It's a very strange way of measuring the price for something when there is a perfectly well functioning rental market.
> It's a very strange way of measuring the price for something when there is a perfectly well functioning rental market.
They do survey people who rent as well as own, so they are measuring the market directly for that portion.
As far as the owners go, I think you're disregarding the fact that the specific houses that are not being rented do not have more authoritative rents. If you use actual rental data, then you have to have a model using assumptions to map one population to another, which seems fraught with potential problems.
The point of a survey is to collect survey data, and if they don't do it, then it is that much worse of a survey, because there is no 100% substitute.
>The point of a survey is to collect survey data, and if they don't do it, then it is that much worse of a survey, because there is no 100% substitute.
Not 100%, but I bet doing something as simple as looking at the bank accounts of the selected groups in aggregate (over a long time period) and adding in things like tax returns could get quite a bit of the way there.
To be honest, I'm surprised something like mint.com or Personal Capital don't offer their own interest rate measures.
The problem is that consumer prices aren't rising. Right now whatever the central bank/government is doing is only affecting mortgages, student loans (more of a government thing) and stocks (through QE). None of the money is actually going into the "real" economy.
Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. We already have extreme asset price inflation (not to mention the rapid expansion of the monetary base). In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. It is worth noting that every fiat currency throughout history, without exception, has eventually hyperinflated and collapsed to nothing.
> Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value.
That is not actually what hyperinflation means.
> We already have extreme asset price inflation...
Sure, but we don't have asset price hyperinflation.
> In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first.
Dump the dollars for what? Most people have no savings, they have a monthly paycheck that goes right to expenses for the most part. That alone greatly limits the velocity of money and therefore the rate of inflation.
Those people that (rightly) expect inflation (not hyperinflation) have already piled into other asset classes.
Either way, there can't be hyperinflation without a commensurate increase in money supply, which can't be achieved just by people spending their money more quickly.
> It is worth noting that every fiat currency throughout history, without exception, has hyperinflated and collapsed to nothing.
That is untrue. Hyperinflation is exceptional. Inflation over a long time can erode a lot of the value, but that isn't hyperinflation and it's not necessarily a problem either.
> That alone greatly limits the velocity of money and therefore the rate of inflation.
Nitpick. It limits the potential increase in velocity of money. Spending your money as soon as you get it is pretty much as fast as possible. The reason why there is little inflation is that these people don't have enough money to buy all the things they want to buy, meanwhile someone else is sitting on a fat stack of wealth and wondering what to do with it.
"High" inflation is what happens when a government needs money badly but can't acquire more debt. The final option is to just print money. Once there is a precedent of printing money it will be considered a valid policy tool and abused shortly after to expand the government budget. Printing money is actually extracting value from the existing economy. E.g. when you double the amount of money in circulation through printing you essentially steal 50% of value from the rest of the population.
What follows is that people lose trust in the currency and convert their currency into assets that cannot be taken away. This is hyperinflation. The "currency based" economy shrinks and there is less wealth to extract from it. Since there are a lot of fixed government expenses the amount of money that needs to be printed grows exponentially.
I$ = inflation dollar
The economy = the part of the economy that still uses I$
Inflation dollars are equivalent to dollars (I$ = $) in the beginning.
The economy is worth $1000 and has I$1000.
Government doubles money supply by printing I$2000. (100% inflation)
The economy is worth $1000 and has I$2000. I$ = $0.5.
$500 worth of value has been extracted but it circulates in the economy.
Hyperinflation begins: People start losing trust and put half their wealth into gold or something else.
The economy is now worth $500 and has I$2000. I$ = $0.25.
The government still wants to extract $500 of value out of the economy so they need to print money at a much faster rate than before.
Government quadruples money supply by printing I$6000. (300% inflation)
The economy is now worth $500 and has I$8000. I$ = $0.0625.
$375 worth of value has been extracted.
More people stop using the currency which means the economy shrinks again forcing the government to become even more aggressive.
Right now the central banks are following strategies that eventually demand every penny back that they have handed out. If inflation happens they can easily reverse their policies.
There’s no actual definition of ‘hyperinflation’ that I’m aware of in the macroeconomic literature, beyond it being a quantitatively large value of inflation. What you purport to be the discriminante (economic agents’ perceptions, presumably households’?) isn’t actually tenable either, since famously “you need two cretins to make a transaction” (a buyer and a seller, both of whom think they’re getting a good deal).
Yes, this is elementary economics--and I'm not trying to say that pedantically, it's just easily overlooked. Gold is an inert metal that pays no dividend and incurs storage costs, so any rational market participant who believes that they can achieve a risk-adjusted real return above 0% will not own gold. A poor economic outlook reduces expected real returns on equities, and currency devaluation (i.e. inflation) reduces real returns on fixed-income securities (bonds). Combine the two and you've got a perfect storm for skyrocketing gold prices--just look at the 1970s.
Gold is a good investment because it has such low correlation to the broader market. Even though the return of gold is poor, the vol of your portfolio can be significantly reduced.
I actually have a blog post https://cryptm.org/posts/2020/07/09/alt.html where we create a minimum variance portfolio using gold and the S&P 500. And even though gold has high volatility and poor returns, this approach generates a higher risk adjusted return than the S&P 500.
Especially in an age when bonds are no longer countercyclical, gold is an attractive component of a portfolio.
I know that portfolio theory treats the prices of assets like random variables, but I prefer to ground my understanding of asset valuation in human action.
Krugman argues that there’s a special nature to the bond-gold relationship but I would argue that it’s because gold is an asset of last resort. The only thing special is that bonds have typically been an asset of last resort, but governments have sort-of taken them off the table in crisis situations.
I can see how someone might invest in a personal water tank or food pantry but what exactly are you going to do to prevent people from breathing oxygen that was released by your trees?
What if... we don't really defeat it? no, maybe that's too pessimistic... What's the worst case scenario in case we have to live with Covid-19 for a few more years?
Likely a serious recession or even an economic depression, judging from the economic knock on effect of lockdowns, whether involuntary or just people curtailing their spending and activities, that we have observed so far. 10-30% contractions in GDP in the second quarter, in dozens of countries.
I won't touch the market with a stick because it's going in the opposite direction to the economy. There has to be a correction coming. I know there aren't good alternatives, interest rates are so low, etc. But I still think there's a correction coming, that's my two cents.
The thing is, at the beginning of the pandemic panic, this didn’t happen at all. Instead everyone sold gold and the price dropped (same with bitcoin, which went to $3.5k) because they wanted liquidity rather than a speculative investment.
Same thing happened in 2008--gold dropped along with everything else after Lehman, but quickly turned around and was already making new highs while stocks were still bottoming out. Liquidity crises are anomalous events which don't say much about the long-term forces that move asset prices.
Gold is a poor asset no matter how you turn it. Most people don’t hold physical gold when they trade in it. If the current financial system were to fail, do you really believe that people will begin taking delivery of their physical gold positions in their garages? They’ll simply get wiped out, and that will be the end of it.
Even barring a catastrophic nosedive in the level of civilized trading, regular people aren’t equipped to store gold in their homes. The problem of securing such holdings isn’t something the average Joe will be able to solve well, and he knows it.
Unless you are storing the majority of your wealth in gold, it is not that hard to take possession of gold and store it in a decent removal resistant and fire resistant safe in your home. Your average smaller stand up gun safe can store more wealth in gold that I personally have. I personally take delivery of any gold I hold, but I really only hold enough as a unlikely but not impossible to happen insurance policy that society completely collapses.
The issue with doing that, is it is an insurance policy and not a immediately liquidate-able asset that can be traded in seconds. I think it is a sound strategy to take possession and store enough gold that in the event of a reset you can reestablish yourself. It is the closest thing to a guarantee that, that portion of your wealth will carry over into what comes next, in the unlikely possibility that it happens in your lifetime.
I don't know if I buy that. Show me how I can guy a commodity on the market and have it delivered to my house. And the guarantee that process will work when the global financial system starts imploding. For the vast majority of people holding gold, their holdings are only on paper, and that's all they'll ever be.
If I'm stocking up on items with physical value to hedge a complete economic collapse, I'd rather have butane lighters, buckets, vacuum sealed sugar/salt/grains, water storage, and ammo.
Yes you should have all those things in a realistic quantity but after a survival ration, hording those items is not realistically your best bet. Ammo would probably be the best out of the lot, but it will only hold temporal value while the unrest is happening, lets say it's a really long unrest say a decade until peace is restored you still only have a 10 year store of wealth if you put it all in more ammo than you need, while gold will almost assuredly retain at least a decent portion of the wealth you stored in it. It might loose some value in initial unrest when and if people are in pure survival mode but will almost certainly take a primary status in the period between the ending of unrest and the stabilization of a fiat.
Also for myself personally, I purchased a simple test kit that most jewelers use. It is an electronic test kit that is very accurate for gold and platinum and when I look to reallocate some of my wealth to gold I buy scrap gold and test it. The kit was about a $200 investment but It allows me to buy the gold at a deep discount (deeper if it is not 24K) under the spot price for the day, you can melt it with a propane torch, that can be purchased from Home Depot and they make plenty of bar molds. It takes me about 5-10 minutes effort (short of procuring the gold) to turn scrap into bars. But if one does not want to go thru the effort, it's pretty easy to buy gold bullion at the spot price for the day + shipping, even on ebay there are plenty of reputable sellers. I don't trade in millions of dollars in gold and I have yet to liquidate any that I hold as I only hold about 3% of my total wealth in gold and I try to keep that pretty stable. Again I view it as insurance, not an investment, that being said if I liquidated it all today, it would have turned out to have been a pretty good investment.
I think the point OP is making is: Say you have $1000 in a gold ETF with some brokerage somewhere. The Zombie Apocalypse comes. Banks are all failing, cities are burning, roads are torn up, and electricity is shut down.
Do you write a letter to your broker asking, "Dear, Schwab, I have $1000 in a gold ETF and shit is crazy now! Can you please have one of your customer care folks briefly stop stocking up on water and food, use a generator to turn your servers back on and verify I have that security? Then please deliver the equivalent amount of physical gold to my address via the postal system which is partially working? Thank you and look forward to continuing business with you!"
Point is, if you ever really need the physical gold behind the security it will not be available. To me, that makes the security worthless.
Society has collapsed several times throughout the millenniums of human existence and gold has been one of the few constant sources of wealth store and retention that has resurfaced with each new incarnation of society. Given this truth, it is a pretty good indicator that it will resurface after/when the next collapse comes. We know gold was used a exchange and storage of value since the dawn of recorded human history and probably was for sometime before humans started recording history and it is still used now, which could be argued that it is of least use to modern society yet it has endured. Simply put gold while maybe not the greatest investment, is one of the most stable sources of wealth. If I have a million dollars today and I want the equivalent of a million dollars in 100 years, gold is one of the best stores of that value. That does not mean I will get a return on my money (i.e my money working for me) but it means I have reasonable faith that I will at least get out close to what I put in and that is what gold has been traditionally good for. I heard it said one that in the 1800's an ounce of gold would buy a man a finely tailored suit. Today and ounce of gold will buy a man a finely tailored suit and that is really the point of gold, it is not an investment, it is a fairly secure long term storage of wealth.
> do you really believe that people will begin taking delivery of their physical gold positions in their garages
They could set up a trusted storage facility to hold the gold in a vault for them. It isn't that hard to imagine. They could call it a "bank" if they really wanted to be traditional.
Just because you don't feel like being imaginative doesn't mean that people won't be when large amounts of money are on the line. People are downright ingenious when it comes to securing their wealth.
The problem of storing gold is the same as the problem of storing paper money, there is no difference. Have you tried storing a million dollars in your own home? It is not for the faint of heart.
There is no difference except that in a crisis gold will retain its value, and the stacks of paper money will only remind you of the better days.
Now, of course neither of them is optimal. The best way of maintaining your purchasing power is with a competent government. But that is even more rare.
Gold is very dense. $1M in gold is 25x 20-coin tubes of 1oz coins @$2000 per coin, which is probably around an 8" square surface area 6" tall. Bottom of pretty much any standing safe you can buy (typical gun safe, e.g.).
Most consumer gold trading is done in grams, tenths quarters and half an ounce, outside of numismatic (old real gold coins, not bullion) due to its insane cost, it's easier to move assayed grams@$50 than $2000 single ounce coins for "regular" people. Also because it's easier to fake in larger ingots and XRF devices are very expensive, smaller assayed quantities move fast and are traded heavily.
> Gold is very dense. $1M in gold is 25x 20-coin tubes of 1oz coins @$2000 per coin, which is probably around an 8" square surface area 6" tall.
Most/all Federal Reserve Banks have a "Money Museum" attached to them. They will have $1 million in one dollar bills, which is a cube approximately 3 or 4 feet on each side. They will also have $1 million in twenty dollar bills, which fits on a 2-3 foot in diameter table, stacked perhaps 12 inches high.
Lastly, they will have $1 million in one hundred dollar bills, which fits in smallish suitcase that's probably less than twice the size of your stack of gold and weigh hardly anything at all.
They are really interesting - you should definitely go to your nearest one when you can, not least for the free shredded cash they give out; you can have the most baller confetti at your next party.
Sure, neither can paper money be eaten. Well, it can, but it is not nutritious. All the problems of gold are the same with paper money, there's no need to type the wheelbarrow story again. And gold might've not been useful in germany, but other places did take your gold. No one took Reichsmarks.
If you are storing a million 'dollars' in assets then you are not storing a million 'dollars', you are storing assets currently valued at one million dollars OR also 500oz of gold.
The last one -- Bretton Woods -- happened at the tail end of WW2. I'd imagine WW3 or something equally destructive would be required to totally upend the system.
The dollar is the worlds reserve currency. It would start with the dollar being severely devalued. What happens after that is unpredictable. One thing holds true however, gold will still be valuable after that.
People have been using money since before recorded history, and bronze age technology is sufficient for gold to be used as reliable money. If any kind of financial system is to arise from the ashes of civilizational collapse, it will almost certainly use gold. So I wouldn't say "meaningless"... just not immediately useful, perhaps.
Assuming you’re talking civilian tossed back to the Bronze Age. Whoever has access to the vault might make use of the gold in such situations, but ownership is unlikely to be tracked back to people in another city etc.
Now, if you personally want to store physical gold that’s a different bet. Though personally storing significant amounts of valuables like that has plenty of obvious downsides.
> Historically, gold isn't that great, but that's past performance.
Crikey. What performance counts as good in your eyes? Gold has been a pretty rewarding investment for the last 20 years. I think the median annual performance for the last 20 years has been something like 10% in USD (worthless metric for an investor I know, but the point is that most years are very solid up years). That is a pretty reasonable performer in my low-risk book. 2010-2014 represented an unusual bad time to buy gold in a decade long trend of great years to buy gold.
In terms of actual return it depends when you pick your start and end date; but the fact that we sometimes have major crisis was always totally predictable and the major governments responses have been reasonably predicable. The only surprise at the moment is the specific fact that it is a pandemic and in 2020. The price pattern on the charts is not surprising.
It’s only over short time periods that gold might look like a good investment. Inflation adjusted gold is flat over the last 40 years. That’s a real ROI of 0 from 1980 to 2020. Which means for every good investment someone else lost money.
Now it’s currently above the historic average so you do get 1% real returns from 1900 to 2020. But, stop in say 2010 and things look even worse.
There are extended periods when gold absolutely crushes everything, and periods when it is totally flat (or worse). In the long run, yes, it is a poor investment because it is an inert metal. But for certain periods of time it is absolutely a great alternative to bonds and equities.
Look at the bottom chart, gold got crushed in that time period when you include dividends. The top chart is effectively meaningless by excluding them as you can’t invest in the S&P 500 without gaining dividends.
As to gold having positive returns in some window, sure but if you can time the market you can make money investing in anything. It’s doing the timing that’s difficult not looking for windows in historic data.
> In terms of actual return it depends when you pick your start and end date
Exactly. The 20 years range is cherrypicked for to make gold look good, it doesn't generalize.
If you had bought stock (and reinvested dividends) at the top of the market in 2008, you would've been better off with stock today. If you had bought gold at the top in 2011, you would've been better off with stock today. If you had bought gold at the bottom in 2008, you would've been better off with stock today.
Really, the only times where gold would've outperformed (to date) in the last 50+ years is around the time of the dotcom bubble and the last ~2 years.
Realistically though, you're going to buy the market at its highs and lows, you're going to exit at some point when you need to, so it's highly subjective.
Peering 40 years into the past to inform investment decisions is fine as far as it goes, but I feel that the investment environment today is different from what it was in 1980.
Gold doesn't do much over a century, it's main property of interest is that it sits in an inert fashion wherever it is left. I'm not too surprised on worried if it has a near-0 return over 50 years.
I don't actually believe it has a positive return over the last 20 years either; but most people don't accept my "the inflation rate is meaningless, stop referring to it to value real returns" argument so I usually don't bother mentioning it.
One interesting advantage for UK buyers of gold coins specifically, is that if they're legal tender they're exempt from (Capital Gains) taxation[0]. Even if the gold content is worth significantly more than their face value, which is almost universally true.
This reminds me of the guy who paid his employees in silver dollars and paid taxes on the nominal value paid instead of the market price. He also ran a separate business that bought all the silver dollars back for the market price right next door.
It all went well for him until he started a payroll company to do the same thing in multiple states.
Although generally I agree with the thrust of this question, supposing someone is adequately prepared to weather the failure of the financial system to some anticipated recovery (and they are correct at predicting the recovery), then a failure is an opportunity to amass wealth by trading actual useful commodities for these bits of paper at extortionate rates, expecting to be able to collect a greater return once the recovery arrives.
That said, I'm mainly playing with a hypothetical here. I'm highly skeptical the system will outright fail simply because the majority of the wealth (and thus power) belongs to those with a deeply vested interest in not letting it fail and there's generally not much power owned by those who actively want it to fail. Fiat has worked this long, so why not longer?
When the chairman of the Federal Reserve becomes a prepper, then you know it's time to find a shelter.
And a lot of those papers saying that you "own" gold have similar issues compared to those that say you "own" stock/bonds… rehypothecation, leverage, liquidity, etc.
I guess it depends on whether the company with your precious metal in a vault chooses to honour your piece of paper or not. I guess the trick is to tap the "ship me my gold now" button before Mr Robot wipes their database.
More like whether the employees of the company who runs the vault realise that they aren't going to paid at the end of the month and simply run off with "your" gold. In a serious collapse it would seem the logical thing for them to do.
You could, but unless you have tiny 1gm slivers you'll find it hard to buy food with it.
For total meltdown SHTF scenarios soap, alcohol, cigarettes, chocolate, and maybe seeds are much more practical as barter currencies.
Even without SHTF scenarios, physical gold is a poor store of value because selling physical gold to a broker is an expensive business.
A lot of prestige gold coins are sold at a price premium which brokers will just ignore when buying from you. Even on weight alone, you're very unlikely to get anything close to your purchase price unless the price has gone up by at least a double figure percentage.
The real question is how bad the Covid recession/depression is likely to get. If you're assuming there's a depression-scale downturn then "paper" gold makes more sense than a lot of other investment classes.
There are many, many scenarios other than Business-as-usual and Mad Max. Look at how hyperinflation has played out historically. In Argentina in 2001, imported things like medicine became very expensive. People sold small amounts of gold for fiat when these kinds of expenses came up.
To be fair my comment up thread was wondering about a failure of the financial system - which I interpreted to be more like Threads than The Big Short.
Food spoils too fast. Guns and ammo are not legal to purchase for most. Fuel is a better asset, but takes a lot of space. One good thing about gold is that it's compact.
What kind of fuel? Everyone I know tells me gasoline/petrol will start to go bad in six months and will start damaging my car in two years. Crude oil will last millions? of years but we would need access to a refinery and like you said takes a lot of space anyways.
Depends on what you mean by food. If you have enough time, food can be multiplied. One potato, properly handled, can turn into a field of potatoes. One walnut, properly handled, can turn into a forest.
Speaking of apocalypse bunker, I think the movie 10 clover field lane is genius because I used to think how do people fall for seemingly obvious cult propaganda but if I woke up in a bunker and was told to comply I probably would as well.
I think the idea behind an apocalypse bunker is it will remain unsafe to go outside / farm using solar power for a few months to a couple of years but not forever.
It's guaranteed not to happen in the short to mid-term.
Rising interest rates during a recession when the economy is massively over-leveraged and even the low-interest debt can barely be serviced would result in an even greater wave of defaults.
Low interest rates and QE are here to stay. The dollar will depreciate significantly, easing the burden of debtors and making American labor more competitive. Good for exports, bad for people who earn a dollar salary.
Gold appreciating (in dollar terms) is just a side-effect of this development.
The dollar will only depreciate if interest rates in other countries/currencies are higher, right? What leads you to believe interest rates in the US will be significantly lower than in other countries?
That's not true, there are various factors that determine currency valuation.
You can have high interest rates, but if the market believes you are going to increase the money supply, that may not be enough to stop depreciation. That's why debt monetization through QE without QT is such a dangerous game.
Interest rates in the US right now are higher in the Eurozone, yet the dollar has depreciated against the Euro.
Lastly, while it is possible that the dollar will not depreciate against other currencies, currencies will still depreciate against assets.
No, it's not directly related to interest rates remaining low or not. As economical situation improves after Covid-19, money will flow back to other assets and the price of gold will mechanically decrease because people will sell to invest back in those assets. This is what happens during and after every crisis, and what OP meant.
The upwards trend of 2020 is due to Covid-19. There will be a correction when that crisis ends.
There are other catastrophes pending than COVID-19. It can't really compete with the repression of schooling or church service or bars or thrift stores or, or, or...
Krugman's first piece post 9/11 was about how getting to rebuild a skyscraper was somehow going to be a tremendous economic stimulus, as if the loss of so many knowledgeable and wise people being murdered all at once didn't occur to him... AT ALL!
In college I read the NYT everyday, thought it was the best paper in the world. Then one morning I opened my copy to see a full color photo of my rapist attached to a hagiography of how she had been elected to public office.
Now the NYT CEO is still Mark Thompson, who got the job because as Director-General at the BBC he covered up Jimmy Saville's... I don't have a word for it yet.
Walter Duranty won a Pulitzer for using the NYT to cover up Stalin's genocide of Polish people so that American media didn't seriously cover it until the 1980s.
Don't get me started on how many people with Gilead financial ties are acting as if financial incentives might somehow statistically significantly effect their behavior because it seems to just give me sleep deprivation.
You've very conveniently picked a time frame where gold was at a century-long low, to a century-long high. One could easily pick an opposite period, such as 1980-2000, where values dropped precipitously.
It's not that simple. The government fixed the price of gold at $35 in (IIRC) 1933 or so. [Edit: 1934.] They kept the same price until 1970 or so, when they allowed gold to float. Then all the inflation from 1933 to 1970 showed up in a sudden run-up in the price of gold.
That is, the price of gold in 1970 was highly distorted. It was not a market price. You can't use that price as your starting point.
It depends. Once the coronavirus is defeated, it will have accelerated the economic cycle downturn, we might see a very deep and long recession, maybe even one like we have not seen in recent centuries.
And since the world is progressing in a direction of depletion of natural resources, the next deep recession might be the last.
We have seen many recoveries after many recessions, but there is no guarantee that there is a recovery. Sooner or later the earth will be in such a bad condition, that it will be impossible to recover.
> So we should expect the price of gold to rise while the pandemic is out of control. Once the coronavirus is defeated, we should expect the price of gold to fall.
Gold has been rising steadily for years, interest rates have been low for years. That's a lot of excess liquidity already in the market, it's just exacerbated.
Coronavirus disappearing from the news won't make all that excess liquidity disappear.
Gold and other assets will drop when that excess liquidity is removed through rate hikes and QT.
Investors generally don't like gold and would rather put it into any other asset class. When the fear wanes, the liquidity moves from gold into other assets.
Gold price soaring represents the failure of the political establishment to manage a fiat currency. Populist proclamations via money printing, corporate welfare, and the corrupt dismantling of the rule of law (basically stealing TikTok for example) will only aid in the descent of the current fiat system into new lows and hence take gold into all time highs.
Underrated comment. One of the reasons third world countries continue to remain third world is because of gangster corruption such as this. It is really sad that America has fallen to such levels and is no longer the shining beacon.
If Milton Friedman is right, and inflation is always and everywhere a monetary phenomenon, it will be interesting to see how this plays out. There is a huge fight right now between deflationary forces caused by an unprecedented collapse in both supply and demand, and inflationary forces from both fiscal and monetary stimuli. The risk I've read over and over is that the stimulus overshoots the deflation risk and we get higher inflation--I think that's what gold is starting to respond to. But the most interesting thing to me is that gold does best when deflation takes hold because it forces a massive inflationary push from the government to reflate the currency (e.g., Executive Order 6102 and the Gold Reserve Act of 1934 changing the price of gold from $20.67 to $35 overnight). Talk about an inflationary shock! How would they do it now a days? Direct helicopter money into everyone's bank account...oh, wait, we are doing that...But the scary part is that demand is crimped by fear of going out and spending, so we see Amazon beat EPS by 10x because everyone simply spends online instead. What a time to be alive! But joking aside, how do you inflate if people don't want to spend? I guess if/when a vaccine comes, and everyone rushes back out is when we could see inflation jump.
>Direct helicopter money into everyone's bank account...oh, wait, we are doing that
Except the amount is peanuts, peer countries are doing 2k/mo without issue but its somehow a struggle or hyperinflationary for the US to do 2400 over 6 months?
Gold is not simply a shiny metal or a collective fiction. I think many historians (e.g. Harari) got this wrong. Humans first learned how to manipulate metal through gold around 40k years ago. It sparked the metal industries that advanced human civilizations. Humans progressed through Bronze Age, Iron Age. Gold was an icon of metal technologies. Its use as money probably predated written history.
Harari sees history as fiction. But I think we need to make a distinction between fiction and physical reality. Gold is a physical reality that got married into human's fiction.
DEC technologies are still around. They just got replicated and extended into other technology stacks. It's not easy to replicate gold. The easy way is to mine more gold. Technologies are ideas. Gold is physical.
Bronze and iron became less popular after BC. Will steel go away any time soon? No. Humans have worked with gold much longer. Gold has had its ups and downs. It has always come back for thousands of years. This suggests it's not going away (Lindy effect).
I feel like I’m missing some underlying point here, since you’re assuming there is a financial difference between buying, say, 100 gram of gold on the stock market vs having it stored at home.
If there is a serious societal collapse, gold is going to be the last thing on your mind. Bullets, fuel, tools... trust relationships with other people... all infinitely more valuable than gold in a crisis. People who own physical gold are preparing for an extremely unlikely event, where society has collapsed in a very specific way.
A HAM radio and the skills to operate it would be worth more than its weight in gold in many disaster scenarios.
Not everybody holds gold as a hedge against complete and utter collapse. It can be a sensible hedge against a weakening dollar, such as is currently happening.
If all the precious metals chatter I heard when I was into collecting, e.g., Peace Dollars is true, you can't actually take delivery of Comex gold you "own", even in non-panic times, and also that there was many times more "ownership" than there was actual corresponding gold. And then the conspiracy theories go up from there. :)
Not knowing how much this is true, my impression, as a layperson, is that the claims would mean investment gold was more of a financial mechanism that only works because everyone is playing along that it has certain value governed by certain rules. If that's true, I don't know when the rules would stop or change. I decided I'd rather just plow my savings into total-market index investing of US stocks, than blindly guess about how and when gold would help.
Which is nonsense. Hyperinflation can occur without the financial system crumbling. And in that scenario you’ll be glad you had a position in gold, even just digitally.
Your broker could change their T&Cs to enact a 1% conversion to USD fee. If you own 100 gold bricks, that's the same as them walking in and confiscating 1 of them. Presumably that's something that wouldn't happen if you owned the actual physical commodity.
The history of paper and leather money is that it was originally considered receipts for the storage of precious metals like gold. In fact this was the case in the US until the 1970s. I'm not a gold bug suggesting a return to the gold standard, just pointing out that the concept of money, value, storage and ownership can shift and be redefined over time.
I bought some about 10 months ago as a practice investment, as I figured it was easier to understand than the share market and it had given an average 10%/year return over the past 10 years (well at least in Australian dollars). Kinda wish I bought more though, but who would have predicted a worldwide shutdown?
That said, the gold price has barely moved compared to how much silver has skyrocketed the past few weeks.
The question I'm pondering is, is the value of gold/silver skyrocketing, or is the real tangible value of the USD crashing? I guess only time will tell ️
> The question I'm pondering is, is the value of gold/silver skyrocketing, or is the real tangible value of the USD crashing?
A strong decline in the value of USD would be reflected in the prices of all commodities and their is no general commodity price inflation at the moment; the gold and silver price increases are an outlier. The price of gold and silver is increasing because the demand for gold and silver is increasing.
That's a good observation! While not a commodity, I'd just add that where I live (Australia) the price of housing has also been sky rocketing the past few years.
If our currencies and financial system were completely based off the value of gold and/or other precious metals where the amount on the planet is finite, wouldn't this eventually cause the opposite of inflation where the prices of goods and services go down as less and less gold is available as the population grows?
Wouldn't that also mean that wealth inequality and hoarding of gold make things even cheaper as less and less can afford to buy/sell at higher prices?
Prices do go down. Smartphones for example, or clothing, tvs, music and entertainment via netflix, etc. Even food is now more attainable than ever. Technology and efficiencies in production naturally generate deflation, but for some reason governments insist on enforcing an inflationary policy.
They insist on enforcing inflationary monetary policy because it is thinly-veiled regulatory capture. No matter what the academics say to try and justify it (it is not justified and does not hold up to critical analysis, see the Cantillon effect), inflation is phenomenon that redistributes purchasing power from the people to those who are relatively closer to the central bank and the printing press (they can purchase assets and spend money before inflation hits the rest of the economy).
Arguably this is what caused the Great Depression. A Gold Standard artificially constrains the money supply, which leads to a drop in economic activity - often after a bubble.
The real problem isn't the amount of money in the system, it's the amount of useful work being done, and the way the gains from that work are distributed throughout the economy. The ideal is a virtuous circle where distributed gains create more activity which creates more opportunity and invention which creates more gains.
The current system is based on control of the money supply, and is the opposite of that. Effectively it's just the Gold Standard without the gold. It leads to the same kind of hoarding and rent-seeking, both of which are economically destructive.
I think it’s worth pointing out that abandoning the gold standard had little to do with gold and everything to do with the practice of fractional reserve banking. The government simply had more foreign dollar debt than they had backed by gold, and foreign governments began to demand redemption of their dollars for gold. It wouldn’t matter what the reserve is, fractional reserve banking inevitably results in bank runs.
Nixon had to either devalue the dollar or completely default, and he chose to default and abandon fractional reserve banking altogether (though at the time promised it was only a temporary suspension of gold redemptions).
The real questions is: Why has gold risen so much and platinum (which is much rarer than gold) stayed relatively flat recently (down since 2009) and is currently worth less than have as much? Platinum was > $2K/oz during the 2008-09 financial crisis...it's now under $1K/oz. What makes gold's intrinsic value so much higher?
"The price of platinum changes along with its supply and demand; during periods of sustained economic stability and growth, the price of platinum tends to be as much as twice the price of gold; whereas, during periods of economic uncertainty,[7] the price of platinum tends to decrease because of reduced demand, falling below the price of gold, partly due to increased gold prices."
Platinum prices have declined every year, more or less, for the last decade. Car manufacturing world wide has increased in that same time frame (even excluding EV that wouldn't need platinum).
No, but s/he might tell you that it is safe to count on God being an important concept to many people for the foreseeable future. In the same vein, gold will likely be perceived as a good store of value for the foreseeable future, which is what matters in this context.
> God being an important concept to many people for the foreseeable future
Just like those tribes in the Amazon, they will exist, but most of humanity will fork off that, it's already happening. Like someone else in this thread said: "You seem to be under the impression that only 'better' things exist. That is wrong." -> I agree with this 100%, old things will continue to exist, but they will be left behind.
You seem to be under the impression that only 'better' things exist. That is wrong.
The fact of the matter is that for literally millenia, humans have considered gold to be valuable. That is unlikely to change any time soon, though obviously the extent that we value it is always in flux.
It doesn't have anything to do with 'better'. It's a description of reality.
In terms of weight, gold is a bit more valuable than twenty dollar bills, pound for pound. And its density is much higher. In no sense would the average person be 'lugging around' a bunch of gold coins for day to day activities.
There are many (better) arguments against the readoption of a gold standard. This one doesn't hold its weight (heh).
It is much costlier to verify that a gold bar doesn't contain some lead than to verify that a $20 bill is authentic. That is why if you buy a gold bar and immediately sell it, you will lose 10-20% of its value.
as though everyone hopelessly consumed by anxiety, existential meaninglessness and insecurity nowadays isn’t argument enough in favor of the religions you’re discounting...old things aren’t inherently simple-minded or useless
I find this argument interesting. I want to focus on the anxiety portion.
Is there proof that people are more anxious today than in the past? Is there proof that religious morals and expectations didn't have a negative impact on folks' anxiety levels in the past? What about religion means individuals would be less anxious, and how do you prove that?
It's not that we believe nothing now; it seems clear that nowadays many people will believe anything. It's unwise to assume that forgoing the complex and slowly evolved structures of the past is going to liberate people...many just replace it with nonsense.
My original point was that discounting past things like "religion" in black/white terms ignores that these things were the basis of advanced civilizations that led us to today and managed to withstand circumstances much worse than what we're facing today. Tons of horrible issues, but focusing on the bad parts is too easy and narrow-minded.
Paper currency is the oldest Ponzi scheme that exists out there. I can wipe my nether regions with it. If there is a collective delusion that it has value, I can exchange goods for it.
My point being, Gold is a delusion, just like paper.
Paper currency is backed by the fact that you have to pay taxes in it. On tax day when the tax collector comes around with his security escort, you better have something ready if you don't want to end up in jail and your property confiscated. In the old days you paid taxes with a part of your harvest or with gold you got from selling your harvest at the market. Somewhere along the way governments figured they could play all sorts of economic games if they collected taxes using fiat paper instead. They print paper and pay their soldiers with it, you sell your harvest to the soldiers, and the soldiers come around once a year to collect the paper.
Notice how this entire system depends on the government's monopoly on violence. The real modern delusion is the many layers of indirection that insulate us from the real source of power in the natural world. Whether the thing that has value is gold, silver, paper, or bottlecaps doesn't matter. What matters is that the one holding the guns says it has value.
> Indeed, money is probably the most successful fiction ever invented by humans. Not all people believe in God, or in human rights, or in the United States of America. But everybody believes in money, and everybody believes in the dollar bill. Even Osama bin Laden. He hated American religion, American politics and American culture — but he was quite fond of American dollars. He had no objection to that story.
I think Harari is wrong when he suggested gold is a collective fiction. The first metal humans worked with was gold. This happened 40k years ago. Through gold, humans accumulated knowledge and invented metal technologies. We then progressed through metal ages, e.g., Bronze Age, Iron Age. Gold was an icon of metal technologies. It's not just a fiction.
And paper money really exists as a physical thing and required technological and societal advancement to exist. Currency is an abstracting fiction to make trade easier. Confusingly they are separate in the same way money has no utility in itself but is portable and may easily be exchanged giving it high utility.
I think paper money is a novelty. It's a good invention. It detaches the concept of money from gold. It makes money easily transported. But that can run amok. The Gold Standard was in place to protect societies from detaching too far from physical reality. "Good" paper money should be backed by physical reality. The US has a large gold reserve, education, research, military etc. But we're now at the verge of running amok with paper money.
Not when the supply of gold isn't fixed even disregarding relative economic values.
A bit pedantic but even if the value of gold rises from increased demand the fact one can mine it and get in on it means they would have gained from it while being newer. Furthermore it technically takes from the older holders by reducing the demand slightly.
The price is going up for two reasons: 1) fear due to the virus and its economic consequences 2) the USD is falling rapidly.
Gold as a commodity is almost exclusively priced in dollars globally. If the dollar plunges, gold will spike higher accordingly.
US spending being out of control right now (pointing to aggressive dollar debasement as the Fed 'prints' - runs QE infinite to monetize the ever expanding debt) and concerns about the condition of the US economy near-term with the virus, have pummeled the dollar lately.
So the price of gold is up due to the drop in the dollar, and there is a considerable fear premium on gold right now as well (likely to the tune of several hundred dollars). As that fear fades you'll see a drop in gold, from whatever new high it puts in, as in 2011-2016. It'll set a new higher low due to the dollar losing real value it will never recover from the spending spree going on (there is probably going to be $5+ trillion in unexpected spending that will occur over several years due to the virus, which was not baked into the dollar or price of gold previously).
> 1) fear due to the virus and its economic consequences
so, in "lures investors and pays profits to earlier investors with funds from more recent investors", the mechanism of "luring" is fear.
> 2) the USD is falling rapidly
seems to be a part of 1)
> Gold as a commodity is almost exclusively priced in dollars globally. If the dollar plunges, gold will spike higher accordingly
Isn't gold priced by a market? if the market has to move, the people must be willing to pay more dollars (or to say it another way: they have access to cheap dollars). It seems like people are exchanging their cheap dollars for gold, this is the part that doesn't make sense to me.
>* It has a special tax-free status in some legislations.
don't you mean jurisdictions?
>* It can hardly be destroyed (you can easily loose your bitcoin when your hard disk dies)
>Seems like a good choice if you see the risk of [..] a state taking your money.
This doesn't really make sense. Sure, you'd lose your bitcoin, but only if it was the only copy. Since bitcoin is stored as information, you can store as many copies as you want. You can't do that with gold. The non-physical nature probably makes it better than gold if you have a proper backup plan. Also, if your goal is to guard against someone (including the state) taking it, bitcoin is also hard to beat. Gold takes up space proportionately to how much you have, so it becomes harder to hide the more you have. With bitcoin you can hide an unlimited amount anywhere - between the pages of a book, under a rock in your garden, even inside your head.
Another important point is that it can be blended.
Also, to add to the jewelry point, humanity has a nearly unlimited desire for luxury and will always seek out status, which is why so many thousands of years later humanity still has such an immense desire for gold jewelry when we very obviously don't need it. Status seeking is not going away.
The continued expansion of human population, rising living standards and finite quantity of gold, ensures it will grow more scarce per capita (driving up its perceived value persistently).
At the median our soon to be eight billion people will have a higher standard of living than when we had only one billion people. There isn't nearly enough gold to match that extraordinary change.
you are correct, but what is high status now may not be high status in the future. For example: it used to be high status to have gout, but not so much now.
> * It's very divisible allowing smaller denominations
So, you're telling me that I go up to buy something that is worth .25 oz in gold with a 1 oz gold coin, I can break it up on the spot and hand it the cashier?
It's very divisible because (as i understand it) Gold can be reformed back into larger units after broken down... whereas some things (say diamonds) actually lose value as they're broken down. a 1 carat diamond is worth less than 1/2 of a 2 carat Diamond.
i've seen it go down to 1g of gold for ~$90 in today's prices.
> It’s relatively rare and production is naturally very limited (in contrast to e.g. diamonds that can be produced from carbon)
What about the gold-rich asteroids we can mine?
> It has a special tax-free status in some legislations.
This is a non-starter for me, someone can lobby the government to undo this easily
> It can hardly be destroyed (you can easily loose your bitcoin when your hard disk dies)
You can literally lose gold, just like how you can "loose" your bitcoin (who stores bitcoin on their hard-drive now anyway, it's 2020, there are paper wallets too, in fact, I can literally memorize 12 words)
> it’s beautiful and you can use it for jewelry and art
Gold has little to no utility. There are a few practical uses for it, and very limited when compared to other precious metals (silver for example).
The price is based purely on speculation that it will go up. Which is frankly not much different from Bitcoin in its current form.
In order for gold to have more utility it either needs to be used as a medium of exchange or other new uses that utilize its precious metal properties.
With Bitcoin, I can at least use it for transactions online. Which is almost 100% of my method of procuring stuff now, I also work for a company that facilitates that!
You mean just like all of the <insert random scam>coins out there or <insert random wallet> that gets hacked? You realize there are brokers who help exchange gold right?
You realize you can manage a bitcoin wallet yourself right? I'm a software engineer, I trust the code that I can verify myself. And, regarding the brokers, I'd rather trust a decentralized public ledger than some dude's private ledger. Thanks.
Like, keeping gold in your house is gonna prevent you from being hacked (to death)
In the modern world people don't buy gold to make transactions but to store wealth. No wealthy person would store their fortune in fiat (paper) currencies such as dollars, but in things with real value such as shares in a companies, property, or other things of value such as gold or silver. At any time these floating currencies can change their value (think hyperinflation, or just exchange rates).
Compared to other "real" things, gold can be liquidated into dollars VERY quickly if you need to make a transaction, and since it's a real thing, it cant disappear.
Also, often gold is stored by the company you bought it from on your behalf, so you can sell it back instantly online. So no need to have to have a home safe.
Also, at an average return of 10%/year over the past 10 years (at least in australian dollars) it's has been out performing many other investment options.
> Compared to other "real" things, gold can be liquidated into dollars VERY quickly if you need to make a transaction, and since it's a real thing, it cant disappear.
What happens when someone sticks you up and takes your gold away?
> Also, often gold is stored by the company you bought it from on your behalf, so you can sell it back instantly online. So no need to have to have a home safe.
Isn't that how the dollar got started and here we are.
Gold has been abstracted into a digital form so anyone who wants to invest in options and futures can now own digital gold, which makes it easier to trade, since no physical delivery or storage is required. Greed is extremely powerful. As is fear.
Good points, but you're being a little too hard on the offline uses. You can't directly spend it at Starbucks, but wherever (or whenever) you are, you can go any pawn shop (and they're ubiquitous) and sell the gold for the local currency, and then use that.
Have you actually done this before? did you get a fair price?
If you're thinking about doing this with jewelery:
Do you know that gold jewelery mixes other metals to make it a bit more durable? and you pay fees on making it too
Gold probably started out as a toy. Humans learned to manipulate metal with gold around 40k years ago. It sparked metallurgy industries (e.g. Bronze Age, Iron Age). They advanced human civilizations. Gold use as money probably predated any written history. It's likely making a comeback after a 30-year recession.
for most of history you could use it offline, and it was actually the primary currency. until governments starting banning domestic redemption in gold. it’s only the last 100 years or so that we got off the gold standard. and it wasn’t until the 70s that the US got off the gold exchange standard internationally.
The US federal government is making poor choices in monetary policy - it's "fixing" the covid problem by printing US money, which, until now, was the new gold standard. As result, people are going back to an old, albeit, archaic gold standard. If the US government could have fixed covid with a real solution, we would not be observing extremely retarded stuff like people investing in gold. Sigh.
I use to scoff at gold investors, I was one of those 'only the sp500 is the right asset class, it always beats every other asset class over the long run' type people.
then in 2019, I saw a chart of asset prices over the last 20 years. Gold, oil, and real-estate out performed the sp500 over that 20 year period (to me, a reasonable 'long period of time').
its actually still true today in 2020, probably will remain so for a long time.
gold aug-2000:aug-2020 = 409:2000 or 4.89x
sp500 aug-2000:aug-2020 = 1471:3327 or 2.26x
that is serious under performance over a 20 year period, which has been true for ever a year now. not true with oil anymore though.
For stocks[1], August 2000 is just about the high water mark of the dot-com bubble; for gold[2], August 2000 is the bottom of a "V" that extends 20 years in either direction.
I'm not saying you cherry-picked August 2000 as a starting point to make gold look good (20 years is a nice round number and a reasonable time span), but if you were cherry-picking you couldn't do better than that.
That's true, but stocks are also at all time highs now, so its not a completely unfavorable position for stocks. This is the reason why I said it will likely out perform over that window for a few years.
The problem is, someone who is working and saving money away doesnt get to choose the window they are in.
I wouldn't buy gold here, but if gold ever drops around the range of 1500, I am not going to miss that chance again at having some of it in my portfolio.
Compare that to all the other 20 year windows. So unless you think this 20 year period is useful for predicting the next 20 year window, it’s not very helpful.
Gold really sucks over long term investing windows (eg 30-50 years) although it, like pretty much everything, will have specific windows of outperforming the s&p.
> "Compare that to all the other 20 year windows. So unless you think this 20 year period is useful for predicting the next 20 year window, it’s not very helpful."
No window is good at predicting any asset. As in, previous returns can't be used to predict anything.
Nobody cares about 50 year windows if that is well outside of their investment window. realistically, a person has about 20 years to build up assets before they need to switch to more safer bonds so talking about 50 year windows is like me saying I want to live in this geography for nice weather and you saying 'well over geological epochs, this place is far more stable'.
I think the sp500 should be most people's primary investment. but I also hate people who say the sp500 is infallible, when they used research that only looked at 1952 - 1999. so when you see people parrot 'the sp500 beats all asset classes over any long period of time'. well 20 years is a long period of time.
I’ve never met anyone who says s&p is infallible, it’s usually that it is better than any alternative.
I want a 50 year horizon for intergenerational wealth. For myself, I started at 20 and probably wont retire until 65-75. Although it won’t all be in s&p at 75, some of it will.
The 20 year window is useful for retirement, but the fact that one 20 year window in the past 100 years out performed isn’t that handy as the s&p usually outperforms gold.
I'm not a gold bug, and I certainly won't buy it now at the all-time high prices.
That being said:
I have enough Krugerands and similar gold coins in a very secure safe (in ground, in concrete) so I could GTFO if I had to and go somewhere else. All 4 of my grandparents had to pack up and leave suddenly and having something small you can pawn/hock/sell is handy. (Two fled Lithuania, one fled Belarus, and one fled Gaza City in 1929 when all the Jews were suddenly expelled. The families had all been living comfortably in the respective location for hundreds of years--or thousands in the case of Gaza.)
I was thinking of buying some gold mining company or gold ETF shares a while ago. Still time for the ETF buy I suppose, but maybe wait for a dip before buying the former.
Or just buy the real thing? The problem is since we can't know the future, it's hard to tell if it's a dip or not. I've bought a small amount in the past year by deciding on a price that I'll buy at if it drops below that. It worked out for me, buy it could have equally not dropped or plunged. #prettyMuchGambling
The real thing is the best thing, but typically you lose about 10% in transaction costs (dealers have around 5% spread on both the buy and the sell). You can decrease that somewhat with larger transactions, but you'll take a pretty big hit upfront.
Absolutely! Although I've been getting closer to 2-3% for gold. Silver though has a much larger spread, the price has to increase significantly to not loose money.
IMO: if you have tens of millions, buy 10KG of gold and 100kg of silver and bury it just in case. As an investment it sucks when compared to the rest but then a tiny percentage of your networth is nothing when considering that it may be useful if SHTF
FWIW, during the (first) IMF default in Argentina, when the local economy and monetary system was in total collapse, gold was the most sought after item for trade and barter. People consistently said afterwards that they wished they had kept more savings as gold.
>>I heard once that their still finding caches of gold from the fall of the Roman empire. It didn't help those rich papos, why would it help you?
Maybe some where helped by it, we don't know. But better to have it than not to, unless you announce to the desperate masses that you have lotsa gold
>>I truly don't see gold being of any use in a collapse where suddenly food is the most valuable asset.
You can do without food for weeks, and many will trade food for gold ("I have enough food" etc etc). plus, you can provision for food too. The idea is to make believe you don't have x% of your networth and buy gold/silver/guns/food/land with it for that one moment in time.
And yet velocity of M2 has decreased sharply.[1] Therefore, hyperinflation seems unlikely unless the real economy unexpectedly recovers rapidly. However, since money is not neutral in the short run[2], we could actually get additional output from the increased money supply. That said, I'm personally skeptical of that claim in this crisis. Additional M2 can have zero effect on output when the law itself has forbidden workers from showing up and producing goods, and in some cases has discouraged them from trying to do so.
Indeed, velocity has decreased sharply. I also do not think hyperinflation is likely, even if the economy recovers quickly. But I do expect to see asset price inflation.
>> money supply has increased sharply
> velocity of M2 has decreased sharply
I don't think M2 takes into account money going into derivatives, does it??
I'd propose that most of the stimulus is going directly into propping up the US financial market.
My take is that bubble might burst when markets realize that the situation is still getting worse i.e. earnings and GDP continue to decline winter 2020/spring 2021.
Whoops! As long as it's less than the rate of return I guess?
I managed to find a company that offers "pool allocated storage" for free, with an option to "cast" it to a shippable product for a small fee. Perhaps it's worth you shopping around for cheaper storage?
I wonder if that's where the programming term cast comes from.
Yeah, I will have a look into that. I bought my gold in 2009 so not much to complain. Luckily, if it's securely stored it's hard to get stolen. 100% sure gold is better protected than your typical bonds/stock at the high street bank.
Not really. If that was true, stocks would be tanking but they're also at a high. There's just a lot money around and low interest rates so all assets increase in price. I just wonder how long that can last for and how it will end.
"While sitting in the shoeshine chair, Kennedy Sr. was alarmed to have the shoeshine boy gift him with several tips on which stocks he should own — yes, a shoeshine boy playing the stock market.
This unsolicited advice resulted in a life-changing moment for Kennedy Sr. who promptly went back to his office and started unloading his stock portfolio.
In fact, he didn’t just get out of the market, he aggressively shorted it — and got filthy rich because of it during the epic crash that soon followed.
They don’t ring bells at the top, but apparently when shoeshine boys start giving stock advice it is time to head for the exits."
https://www.businessinsider.com/how-to-spot-stock-market-bub...