GOLD

[Steve Netwriter]

I see your point, but isn't there a danger of denial on this subject. It certainly has been making sense to have gold over the recent past, but if the situation really does change, then doesn't it make sense to adjust one's strategy rather than clinging to the old one?

 

If, for the sake of argument, the problems in the financial system level out, and we just have a deflationary depression (just!) - then wouldn't it make sense to give up on one's expectations about gold? If not, why not?

 

 

 

I agree, in an unprecedented situation like the current crisis this is pretty much all any of us can do. Do the best we can and hope for the best.

 

I think as a non-gold person, you may be missing something. Some gold owners view gold as a investment. So price is all.

But there are also real goldbugs. People who see more in gold than just the 'price'.

Some have simply lost faith in the fiat money system. They have, to whatever extent, opted out. In order to go back to it, they will have to be convinced. It's not a matter of questioning the pros and cons of gold. It's simply "do I want to participate in this fiat system".

 

Also, it may help you to think about gold more like an old painting. Someone who buys an "old classic" does not check the value daily. They give it their own value because of what it is. And they look at it as a very long-term ownership decision.

 

So to some, buying gold (& silver) is not the same as buying another fiat currency.

 

Gold also has an aspect similar to owning your own home mortgage free. It gives you a sense of security. Something free from risk.

 

I wonder whether you can see how other people have a different perspective. It's similar to trying to understand a different culture. There are no rights and wrong. Just different ways of thinking.

 

[glass]

can someone send me a private message of how to take advantage of BV

 

also, have you ever tried typing in your BV account name into google, it tells you how much your holding!

[Errol]

also, have you ever tried typing in your BV account name into google, it tells you how much your holding!

 

LOL? Bit of a privacy breach, surely?

[Magpie]

I think as a non-gold person, you may be missing something. Some gold owners view gold as a investment. So price is all.

But there are also real goldbugs. People who see more in gold than just the 'price'.

Some have simply lost faith in the fiat money system. They have, to whatever extent, opted out. In order to go back to it, they will have to be convinced. It's not a matter of questioning the pros and cons of gold. It's simply "do I want to participate in this fiat system".

 

Also, it may help you to think about gold more like an old painting. Someone who buys an "old classic" does not check the value daily. They give it their own value because of what it is. And they look at it as a very long-term ownership decision.

 

So to some, buying gold (& silver) is not the same as buying another fiat currency.

 

Gold also has an aspect similar to owning your own home mortgage free. It gives you a sense of security. Something free from risk.

 

I wonder whether you can see how other people have a different perspective. It's similar to trying to understand a different culture. There are no rights and wrong. Just different ways of thinking.

 

I take your point. But also, your post seems to embody a similar piece of rationalisation. I really don't think most people view gold as similar to buying a classic painting. They mostly see it as insurance, or as a safety net. If the rationale is now being changed it's worth asking why.

 

If I had an insurance policy and the facts changed in such a way that it became apparent it wouldn't pay out as I'd expected, I would certainly consider changing it. I'm not arguing that has happened. But I think it's worth mentioning the issue of denial - where people buy gold for perfectly valid reasons, but then find new reasons to justify keeping their gold when the original reasons no long apply.

 

(As it happens, we still face significant danger of high inflation just now, so I'm a long way from thinking there's no reason to own gold. But historically there have been periods of history when owning gold wouldn't have been financially very smart, like 1980-1999. Of course it's not a matter of right and wrong, but when we're talking about wealth protection there are better and worse strategies.)

 

[Magpie]

I completely agree with you. I think the problem I have is choosing the point to draw the line in the sand and say 'to here but no further'. This stems from 2 beliefs:

1) I think that gold will hold value and be (relatively) worth what I paid for it at some point in the (long term) future (i.e. up to 20 years). Like I said before, if I didn't think this, I wouldn't have bought into it in the first place.

2) The world is in a massive financial crisis, the likes of which could bring about massive social upheaval, the effects of which will last for years.

 

So these beliefs makes it very difficult to say 'right, when the POG falls to $400 (for example) I will call it quits and sell before I loose any more' as I 'know' that this is likely to be a temporary reduction in value. In a deflationary depression I suspect I would have no idea at what point I would loose less money by selling the gold at a 'loss' than holding on to it for 5/10 more years.

 

Essentially I don't think the POG is what is going to shake me out of the market. If they invent a gold making machine, or all gold becomes contaminated or illegal or to life then that will separate us (me and my gold). The only other way is when I need the locking value to buy a house / fund my old age (!) or when I guestimate we are near a peak of value and the financial world is stable enough to go back to the bank.

 

I'm starting to sound like a gold addict (but at least one who knows he can't give it up!)

 

That all makes sense to me.

 

I also bear in mind the possibility that a period of deflationary depression will tip over into a nasty inflation, so I'm certainly not arguing that the short to medium reasons for holding gold have disappeared. Only observing that one could end up in a state of denial if that finally happens.

 

[Steve Netwriter]

Al talking to David Morgan

 

http://www.kereport.com/audio/1018-05.mp3

 

"Any time you can buy a commodity below the cost of mining it, it's a buy"

 

This is the report he talks about:

 

Gold and Deflation

By David Morgan

 

October 17, 2008

http://www.silver-investor.com/davidmorgan...dDeflation.html

 

The question has been pouring in: “What happens to gold during a deflation? Of course, many of my readers are equally if not more interested in what happens to silver in a deflation as well.

 

The views on this topic vary. Some insist that both metals will do well under almost any economic conditions; some, like Bob Prechter, think neither gold nor silver will do well; and others, like Jim Sinclair and Bob Hoye, believe gold and gold alone will be the only thing left standing.

[G0ldfinger]

can someone send me a private message of how to take advantage of BV

 

also, have you ever tried typing in your BV account name into google, it tells you how much your holding!

Holdings under NICKNAMES are published. They don't publish your account name.

 

If you chose nickname and account name as identical, then BullionVault can't help you.

[Steve Netwriter]

I take your point. But also, your post seems to embody a similar piece of rationalisation.

 

No, I don't think you did at all. It seems to me you are on your one track mind, and haven't REALLY listened.

You don't have a feel for it. You don't 'get it'.

I tried. I failed. I stop.

 

 

 

[Steve Netwriter]

Gold and Deflation

By David Morgan

 

October 17, 2008

http://www.silver-investor.com/davidmorgan...dDeflation.html

 

I think he is right, that is a very interesting article. And many varied views. I'll be spending some time tomorrow reading each one in detail.

 

[romans holiday]

If I had an insurance policy and the facts changed in such a way that it became apparent it wouldn't pay out as I'd expected, I would certainly consider changing it. I'm not arguing that has happened. But I think it's worth mentioning the issue of denial - where people buy gold for perfectly valid reasons, but then find new reasons to justify keeping their gold when the original reasons no long apply.

 

The problem is that many bought gold after buying into the simple inflation story. Now that events are panning out to be a lot more complicated, some are getting anxious.

 

I became quite critical of the simple inflation rationale for holding gold a few months ago, around the time the "credit crunch" was unfolding. I saw deflation and also saw that the simple inflation story did not cut it.... in so far as a justification, from an investment perspective, for holding gold.

 

Some have sketched a more rounded justification which includes deflation, currency devaluation and inflation.... in order to maintain a rational belief in holding gold.

 

Edit: Knowledge as justified true belief.

I would have to say beliefs come before reasons. You have an instinct that something must be true. After checking the belief is coherent, reason then seeks justifications for that belief. If reasons came first it would be very difficult to believe anything.

[Pixel8r]

We should be talking about how Gold & Silver will preform in a currency crisis, Bob Moriarty thinks one is due within 6-8 months.

 

Bob Moriarty gives Al Korelin solutions for investors during this crisis. - 18/10/08

 

 

[Magpie]

No, I don't think you did at all. It seems to me you are on your one track mind, and haven't REALLY listened.

You don't have a feel for it. You don't 'get it'.

I tried. I failed. I stop.

 

Touchy. Sorry to give offense, but I do understand the point you were trying to make. If someone genuinely owns gold for the reasons you give then it's absolutely fair. Nothing I'm saying would apply to you if that is your thinking. Apologies if suggesting you might be rationalising also is irritating.

 

The danger I'm pointing to is a different one, where someone starts out buying gold because they expect it to be the best store of value in a predicted inflation, but then changes their rationale as the situation changes.

 

On the other point you make, about people simply losing faith in fiat and wanting to opt out - that does make sense to me. I suppose that it is more of a moral judgment about the relative virtues of gold and fiat. I don't share that moral judgment but I do respect it in other people.

 

[Magpie]

Let me put that one more way. Let's distinguish two reasons for holding gold (not the only possible reasons I know, just want to make this distinction...)

 

A believes fiat is in danger of high inflation, hyperinflation, or a complete crash. So he holds gold as insurance against these possibilities.

 

B believes fiat is a con, the tool of corrupt government, and a symptom of excessive state control.

 

If the danger of high inflation, hyperinflation or currency crash recedes, it would be logical for A to reconsider the virtue of holding gold, whereas it would be logical for B not to reconsider. A's beliefs are based on possibilities that don't affect B's beliefs.

 

However it is likely that denial and cognitive dissonance will lead A to find new reasons to justify their decision to hold gold if their original reasons fade. That is what I was talking about.

 

B should only be expected to change their opinions if facts are presented that argue against the view that fiat is essentially wrong, immoral or whatever.

 

 

[UpTheKhyber]

A believes fiat is in danger of high inflation, hyperinflation, or a complete crash. So he holds gold as insurance against these possibilities.

...

However it is likely that denial and cognitive dissonance will lead A to find new reasons to justify their decision to hold gold if their original reasons fade. That is what I was talking about.

I hold gold for the reasons outlined in A, and I don't agree with your prognosis of my future actions.

[wren]

Gold appreciates in operational wealth in major deflations.

http://www.gold-eagle.com/editorials_99/ascani030199.html

 

Unfortunately, I cannot find an on-line copy of The Golden Constant by Roy W. Jastram (1977) (it seems that the von Mises Institute had a pdf but the link does not work).

 

This seminal work rigorously analyzes the purchasing power of gold in England and the United States from 1560 to 1976, employing a meticulous methodology that:

 

* constructs unified series of the price of gold since 1560;

* constructs unified series representing the level of wholesale commodity prices in every year since 1560

* determines the statistical relationship between these two series in such a way as to measure the purchasing power of gold since 1560;

* analyzes the behavior of that purchasing power in periods of inflation and deflation; and

* assesses the extent to which gold served as a hedge during inflationary periods and a conservator of purchasing power during deflationary periods.

 

 

The Golden Constant demonstrates conclusively that gold holds its purchasing power remarkably well over time. It concludes that gold prices do not chase after commodities, but rather that commodity prices return to the index level of gold, over and over, and that gold provides an effective refuge in times of upheaval.

http://blog.mises.org/archives/002808.asp

 

And note the year of the book.

 

[warpig]

I agree with you Steve. It is quite tempting to jump out of e-gold today based on Ker's charts, but as you say some/most aren't here to use gold as an investment vehicle, myself included. I moved to gold as a safe haven and I am still convinced of this trait. I have no intention of selling today with the likely prospect of a large drop in the imminent future, because it leaves me exposed and that is precisely what I don't want at the moment, regardless of short term gains. Until this is visibly over I don't care if the POG goes to zero, I won't sell.

 

I think as a non-gold person, you may be missing something. Some gold owners view gold as a investment. So price is all.

But there are also real goldbugs. People who see more in gold than just the 'price'.

Some have simply lost faith in the fiat money system. They have, to whatever extent, opted out. In order to go back to it, they will have to be convinced. It's not a matter of questioning the pros and cons of gold. It's simply "do I want to participate in this fiat system".

 

Also, it may help you to think about gold more like an old painting. Someone who buys an "old classic" does not check the value daily. They give it their own value because of what it is. And they look at it as a very long-term ownership decision.

 

So to some, buying gold (& silver) is not the same as buying another fiat currency.

 

Gold also has an aspect similar to owning your own home mortgage free. It gives you a sense of security. Something free from risk.

 

I wonder whether you can see how other people have a different perspective. It's similar to trying to understand a different culture. There are no rights and wrong. Just different ways of thinking.

 

[Magpie]

I hold gold for the reasons outlined in A, and I don't agree with your prognosis of my future actions.

 

Good for you.

 

Bu cognitive dissonance and denial are extremely common in people holding all sorts of beliefs*. That's why I asserted it was likely.

 

I certainly suffer from these faults in some of my decision making and try to remain on guard against them. No harm in pointing out the risk with regards to the gold question.

 

(*For instance now is a great time to observe cognitive dissonance in those who believed property was a one-way bet...)

 

[wren]

For me personally a (moderate) deflation might be better than inflation. That way gold might hold or increase in purchasing power, but I would not have to pay capital gains tax!

[UpTheKhyber]

Good for you.

Bu cognitive dissonance and denial are extremely common in people holding all sorts of beliefs*. That's why I asserted it was likely.

I certainly suffer from these faults in some of my decision making and try to remain on guard against them. No harm in pointing out the risk with regards to the gold question.

(*For instance now is a great time to observe cognitive dissonance in those who believed property was a one-way bet...)

I guess there is no harm in pointing out that investments go down in value as well as up, although it is a rather obvious point to be making on an investment forum.

 

I'm intrigued as to why you feel it is necessary to point out this truism with particular respect to gold, and what relevance the property bubble had to do with this. Do you think that gold is in a bubble? If so, what is your rationale for this?

[Magpie]

I guess there is no harm in pointing out that nvestments go down in value as well as up, although it is a rather obvious point to be making on an investment forum.

 

I'm intrigued as to why you feel it is necessary to point out this truism with particular with respect to gold, and what relevance the property bubble had to do with this. Do you think that the gold is in a bubble? If so, what is your rationale for this?

 

Gah, I'm not sure you actually read what I said. Sylvester, who I responded to, understood my point perfectly well, not sure why it's so hard to grasp.

 

All I'm saying is that there is a danger for someone who holds gold for the reasons you do of getting into a state of denial if the situation changes. If we don't end up with inflation, but have a long deflationary depression, surely it would be wise to reconsider your expectations? I'm not saying that that moment is now, in fact I think there is still significant danger of high inflation. But when I saw someone saying that there was no point at which they would sell gold because the price had fallen, it did make me think about the issue of denial. As Steve points out, one can hold gold for other reasons than wealth protection, but if wealth protection is the aim, one needs to respond to the economic situation as it develops.

 

Gold may not be in a bubble now, but it is reasonably likely to get into one at some stage - it has happened in the past after all. That makes a comparison with the property bubble reasonable enough, even if one believes that we are at a very different stage of the cycle for gold.

[G0ldfinger]

...

Gold may not be in a bubble now, but it is reasonably likely to get into one at some stage - it has happened in the past after all. That makes a comparison with the property bubble reasonable enough, even if one believes that we are at a very different stage of the cycle for gold.

That' why some people closely follow certain measures for the value of gold, e.g. here:

http://goldismoney.info/forums/showthread.php?t=195370

 

For instance, it could be a good idea to get out of gold once the price of an average UK home has dropped below 100oz (which doesn't mean it couldn't drop to below 50oz, BTW).

 

EDIT: Not sure why this whole discussion takes place on the gold thread, since these considerations apply to any asset. I have to suspect another motivation behind this discussion.

[Magpie]

Not sure why this whole discussion takes place on the gold thread, since these considerations apply to any asset. I have to suspect another motivation behind this discussion.

 

Absolutely. But there is a tendency for gold to inspire fervent belief so it is a fairly obvious danger. You know I'm a gold sceptic, so no need for any complex theory as to why I'd question whether people have too much faith in gold. It's an obvious question for me to ask. Funnily enough Sylvester didn't mind the question when I addressed it to hm, it's everyone else who's jumped in to slag me off.

 

Anyway, off to the park with the little one, so I'll leave you to it.

 

[id5]

Let me put that one more way. Let's distinguish two reasons for holding gold (not the only possible reasons I know, just want to make this distinction...)

 

A believes fiat is in danger of high inflation, hyperinflation, or a complete crash. So he holds gold as insurance against these possibilities.

 

B believes fiat is a con, the tool of corrupt government, and a symptom of excessive state control.

 

If the danger of high inflation, hyperinflation or currency crash recedes, it would be logical for A to reconsider the virtue of holding gold, whereas it would be logical for B not to reconsider. A's beliefs are based on possibilities that don't affect B's beliefs.

 

However it is likely that denial and cognitive dissonance will lead A to find new reasons to justify their decision to hold gold if their original reasons fade. That is what I was talking about.

 

B should only be expected to change their opinions if facts are presented that argue against the view that fiat is essentially wrong, immoral or whatever.

 

I agree with you Magpie but I think that you should have included ‘C’ the gold bug who just likes looking at it as there will be those that will not have digested your second sentence fully and believe that they are included in ‘A’.

 

‘A’ would sell when their trading plan says that the investment has declined beyond the limits that they have decided based on a number of factors including the base currency that they trade in. If my base currency was USD then I would have dumped gold a while ago but as it is GBP I have not.

 

For all investments you need to plan your trade and then trade your plan. If your investment is getting to one of the value boundaries that you have set then it is often best to execute the exit strategy for the trade regardless. If your trade is winning then you are better off, if your trade is losing then you will break the ‘denial and cognitive dissonance’ as Magpie has eloquently put it.

 

This is just good investment sense

 

 

 

[wren]

I agree with you Magpie but I think that you should have included ‘C’ the gold bug who just likes looking at it as there will be those that will not have digested your second sentence fully and believe that they are included in ‘A’.

And what about 'D'? the gold bug who thinks gold is good during deflation.

 

[Pixel8r]

And what about 'D'? the gold bug who thinks gold is good during deflation.

 

Like this guy;

 

One of my favorites is from Dan Ascani, who wrote essentially about Professor Jastram’s very long-term study on gold, and he essentially states that Jastram studied four pronounced price deflations taking place. In all four deflations, operational wealth in the form of gold appreciated handsomely. When one sees that just by holding gold for 13 years, from 1920 to 1933 operational wealth would have increased 2½ times, one realizes that gold can be a valuable hedge in deflation—however, a poor one in inflation. See full article here.