Absolutely! The Dow/Gold ratio did not have an affect on the price of Gold when Gold was set at $35/oz. It was always the Dow that caused the ratio fluctuations. Since Gold was freed in 1971 Gold goes up when the Dow comes down.
Posted on 12/06/2005 11:25:43 PM PST by Capitalism2003
December 5, 2005
The market price for an ounce of gold rose to over $500 last week, a significant milestone for economists watching precious metals and commodities markets. The last time gold topped $500 was December 1987, in the wake of the “Black Monday” stock market collapse earlier that fall.
Gold prices historically rise when faith in paper currencies erodes, as investors seek the intrinsic value of gold to protect themselves from inflation. It’s interesting to note that while the U.S. dollar has regained some of its value relative to other paper currencies like the Euro, it continues to lose value relative to gold and other hard assets. This shows the folly of using one fiat currency to value another.
Gold is history’s oldest and most stable currency. Central bankers and politicians don’t want a gold-backed currency system, because it denies them the power to create money out of thin air. Governments by their very nature want to expand, whether to finance military intervention abroad or a welfare state at home. Expansion costs money, and politicians don’t want spending limited to the amounts they can tax or borrow. This is precisely why central banks now manage all of the world’s major currencies.
Yet while politicians favor central bank control of money, history and the laws of economics are on the side of gold. Even though central banks try to mask their inflationary policies and suppress the price of gold by surreptitiously selling it, the gold markets always cut through the smokescreen eventually. Rising gold prices like we see today historically signify trouble for paper currencies, and the dollar is no exception.
President Nixon finally severed the last tenuous links between the dollar and gold in 1971. Since 1971, the Federal Reserve and U.S. Treasury have employed a pure fiat money system, meaning government can create money whenever it decrees simply by printing more dollars. The "value" of each newly minted dollar is determined by the faith of the public, the money supply, and the financial markets. In other words, fiat dollars have no intrinsic value.
What does this mean for you and your family? Since your dollars have no intrinsic value, they are subject to currency market fluctuations and ruinous government policies, especially Fed inflationary policies. Every time new dollars are printed and the money supply increases, your income and savings are worth less. Even as you save for retirement, the Fed is working against you. Inflation is nothing more than government counterfeiting by the Fed printing presses.
I challenge you or anyone to do such a comparison. (I'm not being a smart-ass, I'd genuinely be interested in seeing such a comparison for the last 100 years or so).
Please be sure to factor in the following when computing the S&P return:
1) Taxation on dividends that are reinvested.
2) Brokerage cost of reinvesting dividends
3) Brokerage costs of annual rebalancing (buying AND selling) of ALL stocks that comprise the S&P index
4) Labor costs to monitor market for any changes in the S&P composition, and to rebalance the porfolio
Gold might not look so bad in a "real-life" comparison.
This "talking up" stuff is nonsense on par with the Soviets blaming their annual famines on "record cold winters".
Commodities are up because demand is outstripping supply. Period. Over the last 150 years, intangibles and tangibles cycle in-and-out of bull markets in periods of 15-20 years. We're simply entering a phase of bull markets in tangible goods.
As for "speculators", there are always those in any market. They drive the tertiary and sometimes secondary trends within any primary trend. But they never drive the primary trend.
While we're on the subject of "speculators", I would contend that the current stock market is far more speculative than the commodities or the gold market. Your average stock market "investor" doesn't know squat about what they are buying.
Given how many dollars are out there floating around, this should make things really fun if you're long in gold when the mass buying hysteria hits the general public during the final stage of the bull.
No, I have a "problem" with goldbugs, who lie/misrepresent facts/try to get others to buy gold because they have a vested interest in it/scream that the sky is falling. How about you?
I like a good hearty debate that topples dogmas and myths.
Gold ping
Nice!
Absolutely! The Dow/Gold ratio did not have an affect on the price of Gold when Gold was set at $35/oz. It was always the Dow that caused the ratio fluctuations. Since Gold was freed in 1971 Gold goes up when the Dow comes down.
Don't cherry-pick a post, attempting to make it something it isn't and perverting what I actually said!
It appears that we have a long ways to go before the ratio returns to its norm.
If you had bought shares of stocks, options, or even futures on Black Monday and kept them through the end of '87, you would have increased your wealth by leaps and bounds. If you gad bought and kept those shares for a few years, you would have become wealthy beyond your dreams. If you had bough gold, in October of '87 and kept it until today, you would finally be about even.
He talks about gold and "other hard assets" being better than paper money. What "other hard assets" is he talking about? You can't go into the grocery store and pay for your food with gold or the deed of your house. You can't use a check against gold stocks or bars of gold.
Then he talks about the American government "creating money out of thin air". That's hyperbolic codswallop! Both gold and money are worth what governments and/or the market says they are worth; no more and no less. Gold was set at $30 an ounces and it stayed there for many decades. Today, it trades at free markets exchanges, where people set the price/worth in open bidding. The fact is, gold has absolutely NO stable, intrinsic value and never has had.
Inflation comes and goes. It was at its highest, when American money was BACKED BY GOLD AND SILVER and we used gold and silver coinage! Panics and recessions and depressions more prevalent then too. In the Depression of 1893-1898, four million were out of world; that's one person out of every five workers.
For as long as coins have been made out of gold and silver and copper, people have "shaved" them and worse. While paper money can be and is counterfeited, there's nothing that most people can do to it, to devalue it.
Do you know where the term "two bits" comes from? It comes from the practice of Americans breaking off two bits from Spanish pieces of eight. And since nobody was all that accurate, when they broke the coins apart, some people were jipped and others got more than they should have.
Now, as to gold and silver backed paper...ever hear of Bryan's famous speech..."CRUCIFIED ON A CROSS OF GOLD"? Obviously, Ron Paul hasn't and doesn't really know why that speech was given.
Just to read and not to engage in, I see.
There used to be people here, who had vested interests in goldbuggery bucketshops. They post thread after thread whose article was goldbug "newsletters" and tried to push the letters and gold. They've all been banned, now.
Rearview mirror thinking is for dreamers. Noone can call the top or the bottom. For the sake of comedy, I'll play along and compare apples to apples. You take your perfectly timed low, I'll take mine. Your perfectly timed purchase is up 100%, mine from 1992 is up 350%. I'm not sure what this proves. We could start in 87, which makes Gold unchanged for 17 years, with the Nasdaq up 900%.
I didn't call the low, but I was close. Millions of people including myself bought Dell, Microsoft, Intel and Cisco in '93. At the time it was the nasdaq high, and it felt we were way overpaying. But they were widely held big cap stocks. Each have split 8 times since then. I doubt anyone would trade those results for a gold-like return.
Yup. It means people with money to buy gold are willing to convert their dollars and euros to metal. They are expecting inflation.
Were you so impressively outspoken against the Wall Street machine that encouraged people to keep throwing money into tech stocks all the way down?
Ron Paul knows nothing about finance.
If the economy expands faster than the gold supply, then we would have deflation on a gold standard. The history of our country shows just how devastating that can be -- including in the late 1800's.
And in any case, if Ron or anyone else thinks the US Dollar or assets denominated in US Dollars represent a bad risk and/or poor returns (fools), then he or anyone else can sell all of his / their assets and buy gold.
The last gold-bug economist to hold any responsible position (under Ford -- when gold ownership was legalized) was Alan Greenspan. Yes, the same man who is now Fed Chief and has presided over a remarkable period of price stability. During Greenspan's tenure, by the way, gold as an investment sucked.
Between his gold advocacy and his peace alliance w/ Dennis Kucinich, Ron has founded his very own political planet. When someone figures out what black hole he and it are in orbit around, please let me know.
How are debtors supposed to repay loans in a deflationary environment? With spitballs?
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