Posted on 12/15/2010 8:59:36 AM PST by SeekAndFind
Let me finish that headline for you.
Economy Up, Gold Takes a $500 Haircut. Now only $4500 an ounce.
“If the market seriously goes south, with unemployment into the 20’s and 30’s, and there is extreme civil unrest, will having gold or silver really do anything?”
What are you planning for???
What little gold and silver we do have, it is not for making a quick profit, or even to use in a barter economy.
Gold and silver are for long term, as in YEARS, for maintaining wealth. Anyone who thinks that chaos is a good time to use the gold they have stored is NUTS!!
It is for extreme emergencies, for your children or grandchildren. Period.
$4500? Not very likely.
Gold and silver will be useful on the other side of the crash, after a new order of money is established the gold and silver can be exchanged for the currency of the realm.
The physical things needed for the time of the crisis are water, food, shelter, guns, and ammo. Along with the ability to produce/procure more of these things.
Let's say I want to buy gold today, but I don't like the current price ($1,200 per ounce or something.) Where can I go to buy at a better price? (No, I'm not willing to travel to Africa or Siberia and mine it myself.)
It is also important that in the disaster scenario people won't be able to casually go somewhere as we do today. Gas will be very valuable, some stores will be closed, and it will be plain unsafe to drive around the town; there will be plenty of people interested in your car and your gold and in anything else that you might have that they like.
I don't say, of course, that paper money will be of any value. The comparison is all about various "hard" currencies - including barter items (which are consumed directly, as opposed to being only used for exchange.) Cans of chili (or some other food) will be more valuable than gold certificates or even the gold itself. Not only because you can eat chili; it's also because it takes some effort to verify that your gold is really gold, and not gold-plated lead. (All PCB houses have gold-plating technologies, so this is not something unique.)
With regard to the possibility that the catastrophe is not uniform and some people will be gathering gold in exchange for food, I can't reject that - it certainly can be. People bought and sold for money throughout the history, including some tough times.
But to see what that buys you you don't need to go farther than the fantasy section of your local library. Grab some typical "road adventure" and see what the protagonist pays with at taverns. He often pays with copper, seldom with silver, and never with gold. Gold is reserved for a banker, or for some trusted moneychanger.
In other words, there must be an established monetary system based on gold. You can't pay for a meal with a gold bar; the tavern owner doesn't earn that much in a year; what will happen is that he gets greedy, and doesn't charge for the food. But you will meet his "friends" soon enough, in some dark corner. So a functional society must offer ways to exchange gold for silver, silver for copper, and those must be all good coins - because money has to be accepted on sight, without lab scales and cups of water. So you may have gold, and you may have a moneychanger ... but what will you get from him for your gold bar? Most importantly, what can he give you, besides a sack of paper money that you can't probably lift and can't probably find anyone willing to take. There isn't enough of silver coinage (hardly any!) to change the gold with.
So all in all, there is only a handful of universal barter items that anyone will gladly take and give - canned, non-perishable food items or gasoline or just aspirin. Ammo is also in this category. They are durable, they are immensely useful, and they can change many hands without any decrease in value. Most importantly, when you use these items for trade you don't need to count on a future expected value of an item (like in case of gold) - you get an item that already has a well known value and can be instantly traded for other items.
There is one very relevant literary example - the fate of Baron Danglars:
While leaving Rome, he is kidnapped by the Count's agent Luigi Vampa and is imprisoned the same way that Dantès was. Forced to pay exorbitant prices for food, Danglars eventually signs away all but 50,000 francs of the stolen five million (which Dantès anonymously returns to the hospitals).
The dialog there is very simple: "I want to eat" - "Sure, this chicken costs $1,000,000 francs." Danglars at first was rejecting the offer, but in a few days he had no other options. You can have your gold for a while, but the other guy will have his food for a while too, and when you are ready to trade he will take you to the cleaners. He has an advantage - his product is of inflexible demand (people need to eat) but your product is not only of a flexible demand (optional use,) it actually has no direct use at all. The best the farmer can hope for is to find someone else who sells him diesel fuel and takes gold in exchange. In a good economy that's exactly what happens; but in a bad economy barter is preferred. The stability and consistency of the value of gold is the difference between "good" and "bad" economies.
Aren’t those who are pushing people to own gold really only trying to drive up the price of their own gold?
If things get as bad as some claim, I’m going to trade in my brass and lead for someone else’s gold. ;-)
That is highly likely. The price of a good depends only on how much the buyer is willing to pay. It has little in common with the amount of labor that is needed to produce the good. These numbers get close to each other only when the product is a commodity, available from many different vendors who all try to offer a good price, or else they can't sell. A market of Chinese TV sets is one such example. A market of diamonds, on the other hand, is under control by one company. The rule of thumb is simple: if there are only few sellers they can dictate the price.
Let's see how many gallons of gas one ounce of gold buys you in the year 2000 and today.
Year 2000: gas=$1.30/gal, gold=$300/oz. One ounce of gold buys you 300/1.30 = 231 gallon. Great.
Year 2010: gas=$3.50/gal, gold=$1380/oz. One ounce of gold buys you 1380/3.50 = 394 gallons.
What do we see here? We see that oil increases in price faster than the gasoline. And gasoline is a finite natural product, in high demand, and with the world production going down.
There goes the argument of gold bugs that an ounce of gold could buy you a suit 100 years ago and today. This is not true. A fair price of gold (assuming year 2000 as a reference) would be $3.50/gal * 231 gal/oz = $800/oz. This is because the gasoline price increased by 269%, so the gold price should also increase the same - from $300 to $807. But in reality gold increased 170% on top of that - nearly twice as much! Either the world is awash in free, unwanted oil, with poor Arabs selling it for a song, or something fishy is happening in bullion markets.
The relative stability of ancient, precious metals based monetary system largely depended on the fact that all those metals were hard to obtain (really impossible for a peasant; mines were owned by aristocracy.) Even a King [of France] couldn't make money out of thin air if his gold supplies are gone.
If the disaster strikes tomorrow we cannot anymore depend on coins that are hard to manufacture - modern technology can easily do that, and counterfeiting factories may be the only ones that can afford to run. It will take not more than a week to flood the market with counterfeit gold and silver bars and coins, not even mentioning copper or nickel - those can be made by anyone, anywhere, on a benchtop arbor press. And there is no King (or the government) to chop your head off if you get caught; if you know "the right people" then you are safe.
p
G-d, Guns and Gold...
You’re missing about 5000 years of human history.
Most times and places owning some gold and or silver has been a plus in times of trouble. There is a large range of conditions between “ the economy is booming” and, “TEOTWAWKI, Road Warrior, Zombie Apocalypse complete societal collapse” that the “Guns guns guns” people are fixated on, nad gold and silver a solid plus in 99% of those. Me? I own some gold, silver, plenty of weapons and ammo food, some trade goods and have a skill that will always be in demand. I’ve done what I can, and only need something I can’t supply which is some luck to get my family through any trouble...
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