RE: Good thing nobody was stupid enough to tie our currency to gold.
Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and global equities, by currency-related crises, interest rate volatility and international tensions, and by increases or decreases in the prices of other commodities.
The price of gold reacts to supply and demand changes and can be influenced by consumer spending and overall levels of affluence.
We are experiencing one of the worst recessions ever, caused by a financial disaster a scale of which has been unprecedented, and which effected practically every economy in the world. In order to avoid a total monetary collapse which began this time three years ago, central banks around the world were compelled to provide monetary assistance. They provided bail out packages to some of the largest financial institutions as well as various stimulus packages in order to kick start their economies.
However, it appears that the economic stimulus has been a dismal failure, only stimulating government interference in the economy, while piling up massive debt. Most western countries still suffer from low GDP growth as well as high unemployment.
So, getting back to “stupid enough to tie our currency to gold.”....
One of the major driving forces behind the Gold bull market has been the declining value of the US dollar.
Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise. The U.S. dollar is the world’s reserve currency - the primary medium for international transactions, the currency in which the worth of commodities are calculated, and the currency primarily held as reserves by the world’s central banks.
However, now that it has been stripped of its gold backing, the dollar is nothing more than a fancy piece of paper. The dollar has been in an overall downtrend since 2001, and this longer-term down trending pattern seems well established and likely to continue.
The Dollar Index which is a widely used index that measures the US dollar relative to a basket of foreign currencies has already dropped more than 30% since 2001 while gold has risen more than 400%.. (The currencies in the Index include the Euro, Yen, Sterling, Canadian Dollar, Swedish Kroner and Swiss Franc).
LONG TERM -— Gold has maintained its value in terms of real purchasing power in the long run and is thus particularly suited to form part of central banks’ reserves. In contrast, paper currencies always lose value in the long run and often in the short term as well.
The fundamentalist argues that in the short-term, gold is falling for 2 reasons:
1. The US$ is strengthening story (presumably relative to yen as it forms a component of the US$ index).
2. Stock markets go overdrive into risk-on mode, rallying on Bernanke’s confirmation on Tuesday, 26 Feb 2013 that despite committee members differing in opinions on QE, he makes the call, easy money flow is on tap till he turns it off.
In terms of fundamentals, I don’t see anything changing at all.
Obama is still President, Our debt is still going UP tremendously, Bernanke is still printing money to buy our debt, and I don’t see anything in the budget battles reversing that trend.
Don’t forget speculation on gold price. That’s a big one.
That fancy piece of paper had less year to year fluctuation than did the dollar back by gold. Good job FED!
A central bank can control to an extent the amount of inflation or deflation a currency has. They err on the side of inflation because deflation causes depressions. So yes paper money does lose a small amount of value each year, but by intentional design. It’s better for business transactions than gold which is subject to wild speculative swings.
It’s entirely possible to devalue a currency based on gold.
It’s also entirely possible for congress to continue overspending with a currency based on gold. They’ll just promise your kids will repay the lenders in gold. Which would probably set your kids up on the wrong end of the biggest short squeeze of all time, when that bill comes due and there is not enough gold.
Don’t forget speculation on gold price. That’s a big one.
That fancy piece of paper had less year to year fluctuation than did the dollar back by gold. Good job FED!
A central bank can control to an extent the amount of inflation or deflation a currency has. They err on the side of inflation because deflation causes depressions. So yes paper money does lose a small amount of value each year, but by intentional design. It’s better for business transactions than gold which is subject to wild speculative swings.
It’s entirely possible to devalue a currency based on gold.
It’s also entirely possible for congress to continue overspending with a currency based on gold. They’ll just promise your kids will repay the lenders in gold. Which would probably set your kids up on the wrong end of the biggest short squeeze of all time, when that bill comes due and there is not enough gold.
S&F you are sooo much nicer than I am feeling today!
I saw his post and considered replying to it as well. But my reply was going to be more along the lines of, "Jeeze man, you really don't have a clue do ya?" or "You forgot the /sarc".
lol! You are a good man Seek and Find.