GOLD

[Magpie]

A return to the Bretton Woods international gold standard created in 1944 is inevitable

http://fourthcurrency.com/

 

Bretton Woods didn't work though, so if it ends up with a commodity/gold standard in place one would hope that it is better thought through - the problem with Bretton Woods was that it was more or less a dollar standard rather than a gold standard and maintaining the exchange rates became impossible as gold started to flow out of the US - this was pretty much inevitable because of the structure of the system.

 

Keynes' bancor is an interesting concept to look at - he wanted to base it on a basket of commodities, one could imagine a similar system based exclusively or heavily on gold - the thing Keynes addressed that Bretton Woods didn't is trade imbalances and the way they can destabilise a system in the long run.

 

[romans holiday]

Bretton Woods didn't work though, so if it ends up with a commodity/gold standard in place one would hope that it is better thought through - the problem with Bretton Woods was that it was more or less a dollar standard rather than a gold standard and maintaining the exchange rates became impossible as gold started to flow out of the US - this was pretty much inevitable because of the structure of the system.

 

Keynes' bancor is an interesting concept to look at - he wanted to base it on a basket of commodities, one could imagine a similar system based exclusively or heavily on gold - the thing Keynes addressed that Bretton Woods didn't is trade imbalances and the way they can destabilise a system in the long run.

Yes, I think the IMF will eventually institute such a new gold exchange standard. Gold backed SDRs anyone? This would kill a lot of birds with one stone. Break the Yuan/dollar peg. Guarantee the bulk of Chinas reserves as the dollar is stabilzed/ pegged to the new currency at the appropriate level. Restore trade as other currencies are stabilized to the new central reserve gold-backed currency. Necessity is the mother of re-discovery.

 

I think Keynes would agree on a gold backed "bancor'..... being the pragmatist he was.

[Magpie]

Yes, I think the IMF will eventually institute such a new gold exchange standard. Gold backed SDRs anyone? This would kill a lot of birds with one stone. Break the Yuan/dollar peg. Guarantee the bulk of Chinas reserves as the dollar is stabilzed/ pegged to the new currency at the appropriate level. Restore trade as other currencies are stabilized to the new central reserve gold-backed currency. Necessity is the mother of re-discovery.

 

Part of the problem of course is that the US has always used the dollar's role as reserve currency to preserve its hegemony. This has applied as much to the floating rates period as to the Bretton Woods period. Money is power (as Frug says on GHPC).

 

Essentially, no-one has ever managed to solve the problem of how to have free trade, internationally acceptable monetary rules and avoid the problems created by trade imbalances.

 

What you're suggesting above doesn't seem to me remotely certain to resolve these issues. What level does the dollar get pegged at? It is currently still artificially high because of its role as (effective) international standard. Removing even a part of that role would devalue it, the US and China would be at each other's throats about how to resolve this. Chances are it would be done in a way that led to further instability, and ongoing problems of trade imbalance.

 

It's not a bad suggestion, though - I've seen worse. I think it might make more sense to use a basket of commodities rather than gold as the ultimate backing (if commodity backing is deemed necessary). Personally I don't think commodity backing is as important as addressing the problem of trade imbalances, and the instability that builds up from excessive surpluses and deficits. The ongoing "taxation" of any country's surpluses was part of how Keynes wanted to address trade imbalance.

[Magpie]

I think Keynes would agree on a gold backed "bancor'..... being the pragmatist he was.

 

Gold was part of what he suggested, but his idea was a basket of 30 commodities, of which one would be gold. Makes sense to me as it reduces the potential problems that arise from relying too heavily on the barbarous relic, but I know that might be a controversial thing to say round these parts.

 

(Of course all these things may be irrelevant given the approach of the end of oil and the likelihood that the capitalist system based on exponential real growth will implode into chaos. But we might as well try and patch things up in the mean time... )

 

[romans holiday]

Essentially, no-one has ever managed to solve the problem of how to have free trade, internationally acceptable monetary rules and avoid the problems created by trade imbalances.

 

What you're suggesting above doesn't seem to me remotely certain to resolve these issues. What level does the dollar get pegged at? It is currently still artificially high because of its role as (effective) international standard. Removing even a part of that role would devalue it, the US and China would be at each other's throats about how to resolve this. Chances are it would be done in a way that led to further instability, and ongoing problems of trade imbalance.

The Chinese are interested most of all in stability, which is why they will mosy probably cling to the peg, or not allow a substantial appreciation of the Yuan against the dollar. It certainly wouldn't allow it to freely float which could lead to economic havoc; capital could quite as likely flow out of China as into it. As long as this peg remains in place, we will see assets inflate and a bubble in China which could easily pop as declining Anglo-sphere GDP can not provide the demand to meet the supply.

 

I imagine the Chinese themselves see the "Chimerican" gig is up, which is probably why they have been calling for a new reserve currency. Like any creditor worried about their debtor, they would only be too happy to take a haircut if that also meant securing the bulk of their reserves. This could be achieved by breaking the Yuan/ dollar peg and fixing the Yuan to a relative level than the dollar to gold. The Yuan would effectively be appreciated to reflect new economic realities, the dollar will be stabilized at a lower level to restore a trade balance and guarantee also the bulk of Chinese dollar reserves. I think any creditor would accept a 20 or 30% loss if the greater part was secured.... or there was a risk of complete default.

[Perishabull]

Surely gold should be up today what with the perceived risk of sovereign default increasing;

 

From Marketwatch;

 

A day after a warning from Standard & Poor's on Greece, Fitch Ratings followed with a downgrade of Greece to BBB+ from A-, news that sent Greek stocks down by over 4%.

 

Meanwhile Dubai stocks also plummeted as Moody's downgraded all six Dubai government-related issuers.

 

And Moody's didn't ignore the major economies either, saying that the U.S. and Great Britain may test the boundaries of their AAA sovereign ratings due to deteriorating public finances.

 

 

[romans holiday]

Gold was part of what he suggested, but his idea was a basket of 30 commodities, of which one would be gold. Makes sense to me as it reduces the potential problems that arise from relying too heavily on the barbarous relic, but I know that might be a controversial thing to say round these parts.

 

(Of course all these things may be irrelevant given the approach of the end of oil and the likelihood that the capitalist system based on exponential real growth will implode into chaos. But we might as well try and patch things up in the mean time... )

I think it would just be gold..... being the strongest symbol of money and cutting across all cultures. Also, in a deflationary period, other commodities are likely to become less valuable against money... where a premium is put on liquidity.

 

The irony of it all. It took a depression for us to go off the gold standard, and then another one to go full circle and return to it. Now that will have the economists scratching their head.

[romans holiday]

Gold was part of what he suggested, but his idea was a basket of 30 commodities, of which one would be gold. Makes sense to me as it reduces the potential problems that arise from relying too heavily on the barbarous relic, but I know that might be a controversial thing to say round these parts.

I wonder if Keynes got it half right with the “barbarous relic” phrase.

 

I’m sure it was the “earlier” Keynes, the good rationalist and monetarist, that said gold was a relic, at a time when massive confidence was placed in reason to analyze then control all the vagaries of life. In the context of an age of near universal optimism and progress [before the depression], gold could be thought to belong to an earlier period of our historical development… and now freed from the constraints of our customs, traditions and religions, pure and critical reason could work to remove the hindrances to progress and development.

 

The later Keynes lost faith and broke with classical economics developing a new pragmatic economics for a new and uncertain age…..a more irrational one. That is why I think rather than speaking complete nonsense when calling gold a barbarian relic, he was being half prescient. When we value gold, we do not do so for clear and distinct rational reasons but for more “primordial“ ones. This proves that economic value is not completely rational; it is based more on human nature, culture and tradition than reason….. things are valuable because…… we value them. There is a “barbarian” quality to it insofar as this valuation is irrational and rooted in basic human nature. This is hardly a criticism of gold, but a criticism of pure reason applying itself to a sphere of life that it has no business in doing so. Economics is not mathematics, geometry or logic.... though it tried to be.

[Magpie]

The Chinese are interested most of all in stability, which is why they will mosy probably cling to the peg, or not allow a substantial appreciation of the Yuan against the dollar. It certainly wouldn't allow it to freely float which could lead to economic havoc; capital could quite as likely flow out of China as into it. As long as this peg remains in place, we will see assets inflate and a bubble in China which could easily pop as declining Anglo-sphere GDP can not provide the demand to meet the supply.

 

All true - and yuan stability helped the Chinese economy grow to the current level, but has also created that unsustainable imbalance, so it's a hard circle to square.

 

I imagine the Chinese themselves see the "Chimerican" gig is up, which is probably why they have been calling for a new reserve currency. Like any creditor worried about their debtor, they would only be too happy to take a haircut if that also meant securing the bulk of their reserves. This could be achieved by breaking the Yuan/ dollar peg and fixing the Yuan to a relative level than the dollar to gold. The Yuan would effectively be appreciated to reflect new economic realities, the dollar will be stabilized at a lower level to restore a trade balance and guarantee also the bulk of Chinese dollar reserves. I think any creditor would accept a 20 or 30% loss if the greater part was secured.... or there was a risk of complete default.

 

Might have to be larger than 20-30% to keep the system alive though. And if they try to fix it at those kinds of levels, and try to fix a system that keep a permanent Chinese surplus then it is an inherently unstable system.

 

What you say sounds like it reflects the Chinese view fairly accurately, but why repeg the currencies and why have fixed rates at all? As soon as currencies are pegged you are storing up trouble for future in terms of trade imbalances. The formal gold standard never really fixed this problem in the 19th century, I don't see why a new one would fix it now.

 

[Magpie]

I think it would just be gold..... being the strongest symbol of money and cutting across all cultures. Also, in a deflationary period, other commodities are likely to become less valuable against money... where a premium is put on liquidity.

 

There's significant problems with using just gold, based around the restricted supply compared to the size of the global economy and the distribution of current reserves.

 

[romans holiday]

There's significant problems with using just gold, based around the restricted supply compared to the size of the global economy and the distribution of current reserves.

I wonder if the amount of gold really comes into it. A gram could represent the value of what an ounce represented before. Also, if wealth continues to evaporate... assets/ debt/ credit.... then there will not really be that huge amount of liquidity left over to "squeeze" into gold. I would also suggest that gold represents a "quality" view of money as opposed to a quantity one, but can not extrapolate further on this as haven't as yet thought it through.

[romans holiday]

All true - and yuan stability helped the Chinese economy grow to the current level, but has also created that unsustainable imbalance, so it's a hard circle to square.

 

 

 

Might have to be larger than 20-30% to keep the system alive though. And if they try to fix it at those kinds of levels, and try to fix a system that keep a permanent Chinese surplus then it is an inherently unstable system.

 

What you say sounds like it reflects the Chinese view fairly accurately, but why repeg the currencies and why have fixed rates at all? As soon as currencies are pegged you are storing up trouble for future in terms of trade imbalances. The formal gold standard never really fixed this problem in the 19th century, I don't see why a new one would fix it now.

The pegs could be "managed"... repegged to reflect new economic realities. But I think what would happen is that money would find its own level.... the idea of the gold standard, which did work well for the best part of a century, was that of specie flow... when a country consumed more than it produced it lost gold... it then tightened its belt... the country receiving gold felt richer and consumed more... David Hume developed this idea "price-specie-flow ". It didn't quite work in the Orient though as they tended to put a higher value on gold than the mere monetary one. They ended up hoarding. I do not think there is quite so much danger of this happening today as many Asian countries have acquired the appetite for consumption.

 

Maybe there is no perfect monetary "system". But like democracy, gold could be better than the rest.

 

 

http://en.wikipedia.org/wiki/Price_specie_flow_mechanism

The price-specie-flow mechanism is a logical argument by David Hume against the Mercantilist (1700-1776) idea that a nation should strive for a positive balance of trade, or net exports. The argument considers the effects of international transactions in a gold standard, a system in which gold is the official means of international payments and each nation’s currency is in the form of gold itself or of paper currency fully convertible into gold.

 

Hume argued that when a country with a gold standard had a positive balance of trade, gold would flow into the country in the amount that the value of exports exceeds the value of imports. Conversely, when such a country had a negative balance of trade, gold would flow out of the country in the amount that the value of imports exceeds the value of exports. Consequently, in the absence of any offsetting actions by the central bank on the quantity of money in circulation (called sterilization), the money supply would rise in a country with a positive balance of trade and fall in a country with negative balances of trade. Using a theory called the quantity theory of money, Hume argued that in countries where the quantity of money increases, prices of products would tend to rise and in countries where the money supply decreases, prices of products would tend to fall.

 

The higher prices would, in the countries with a positive balance of trade, cause exports to decrease and imports to increase, which will alter the balance of trade. Inversely in countries with a negative balance of trade, the lower prices would cause exports to increase and imports to decrease, which will heighten the balance of trade. These adjustments in the balance of trade will continue until the balance of trade equals zero in all countries.

 

The price-specie-flow mechanism can also be applied to the entire balance of payments, which accounts not only for the value of net exports and similar transactions (the current account), but also the financial account, which accounts for flows of financial assets across countries, and the capital account, which accounts for non-market and other special international transactions. But under a gold standard, transactions in the financial account would be conducted in gold or currency convertible into gold, which would also affect the quantity of money in circulation in each country.

[Magpie]

I wonder if the amount of gold really comes into it. A gram could represent the value of what an ounce represented before. Also, if wealth continues to evaporate... assets/ debt/ credit.... then there will not really be that huge amount of liquidity left over to "squeeze" into gold. I would also suggest that gold represents a "quality" view of money as opposed to a quantity one, but can not extrapolate further on this as haven't as yet thought it through.

 

It certainly comes into it when you consider how a transition to a new monetary system could be managed. Who holds the gold, do governments seize (or compulsorily purchase) private gold, how does one maintain liquidity of gold reserves, what level of international liquidity does one start from etc etc. Even if you are basically deriving SDRs or bancors from gold as a notional valuation, and leaving every piece of gold where it is now, I think it is problematic, can't see how it would work except in a total emergency. The advantage of a basket of commodities is that it ties money to tangible values without declaring one substance to be "real money" and thus creating new distortions around that one substance.

 

I think you have a point about the rational/barbarous distinction. But I don't see giving in to the non-rational relic as the solution personally. I do agree that people might currently prefer to see money tied in some tangible way to "real value" though, that may be an outcome of this financial crisis.

 

[Magpie]

The pegs could be "managed"... repegged to reflect new economic realities.

 

Hmm, just like Bretton Woods and "occasional devaluations" then. What could possibly go wrong...

 

But I think what would happen is that money would find its own level.... the idea of the gold standard, which did work well for the best part of a century, was that of species flow... when a country consumed more than it produced it lost gold... it then tightened its belt... the country receiving gold felt richer and consumed more... David Hume developed this idea "natural species flow" something like that. It didn't quite work in the Orient though as they tended to put a higher value on gold than the mere monetary one. They ended up hoarding. I do not think there is quite so much danger of this happening today as many Asian countries have acquired the appetite for consumption.

 

It didn't quite work anywhere. The gold standard as an international system was pretty intermittent and there were plenty of suspensions and problems within it. Most major countries were on and off it at various times, it contributed to the long depression, and trade problems contributed to the build up to the first world war.

 

The reasons why this is the case are complex of course and fiat's record this century isn't any better. Neither has fixed the problem of how to make a global free trade system work. The only thing that has given either the temporary appearance of working is the hegemony of imperial (or semi-imperial) powers.

 

 

[Magpie]

Maybe there is no perfect monetary "system". But like democracy, gold could be better than the rest.

 

I agree with the first sentence absolutely.

 

Over the centuries, gold has been a fairly good one, (as has silver) so I half agree with the second sentence - I just think that in the era of global trade there are some real problems it doesn't solve.

 

(Incidentally, apologies to all for blathering about this stuff here, I know it's not the core purpose of the thread)

[romans holiday]

It certainly comes into it when you consider how a transition to a new monetary system could be managed. Who holds the gold, do governments seize (or compulsorily purchase) private gold, how does one maintain liquidity of gold reserves, what level of international liquidity does one start from etc etc. Even if you are basically deriving SDRs or bancors from gold as a notional valuation, and leaving every piece of gold where it is now, I think it is problematic, can't see how it would work except in a total emergency. The advantage of a basket of commodities is that it ties money to tangible values without declaring one substance to be "real money" and thus creating new distortions around that one substance.

 

I think you have a point about the rational/barbarous distinction. But I don't see giving in to the non-rational relic as the solution personally. I do agree that people might currently prefer to see money tied in some tangible way to "real value" though, that may be an outcome of this financial crisis.

The IMF. In the old system, each country just had a corner of a vault. At the end of the year they tallied the sums... then moved some gold from one countrie's corner to another's... to put it simply. Today, they might not even have to move the stuff... just have it audited and sitting there. Digits could be moved instead.

 

I agree with you here. We won't be going back unless we need to. I am betting that increasing currency instability, bursting bubbles, capital flight and then capital controls and protectionist polices will make the stability and ultimate control of gold look increasingly attractive.

[Magpie]

I agree with you here. We won't be going back unless we need to. I am betting that increasing currency instability, bursting bubbles, capital flight and then capital controls and protectionist polices will make the stability and ultimate control of gold look increasingly attractive.

 

Yes I can see scenarios leading that way. I suppose what I am talking about is trying to come up with a system to prevent things reaching that level of emergency - for me all monetary systems have some level of instability and compromise and the difficulty is finding semi-permanent solutions that keep the peace. I don't really think the end of the dollar system is going to be achieved painlessly though, however it comes about.

 

[romans holiday]

It didn't quite work anywhere. The gold standard as an international system was pretty intermittent and there were plenty of suspensions and problems within it. Most major countries were on and off it at various times, it contributed to the long depression, and trade problems contributed to the build up to the first world war.

 

The reasons why this is the case are complex of course and fiat's record this century isn't any better. Neither has fixed the problem of how to make a global free trade system work. The only thing that has given either the temporary appearance of working is the hegemony of imperial (or semi-imperial) powers.

I think by and large it worked relatively well... it was the basis of the first prolonged period of globalization... our period of globalization could be pitiful in comparison. I think the First World War did more than anything to ruin the gold standard and it never really recovered from it. When Britain did go back on the standard they incredibly [from our perspective] went on to the old pre-war standard... radically appreciating a depreciated pound overnight and ruining their economy. There was no conception for them to go onto a new standard... there was only the gold standard and a mythology of sorts towards gold.

 

I think you have a good point about empire and power. Perhaps these are also inherent in the nature of things....

[hal9000]

One quality of gold that sets it apart from commodities and makes it ideal money, besides rarity, is that it is a luxury item and is not consumed like oil or copper.

 

I was just reading this interesting article about gold re-monetisation (must be the theme this evening) and game theory:

 

http://unqualified-reservations.blogspot.c...ame-theory.html

 

Snippet:

This is a self-reinforcing feedback loop. The more gold the CBs buy, the more incentive they have to buy gold. Because if the game ends with gold winning, the game will be scored by how much gold you got for your dollars. This will be a consequence of how soon the CB exchanged its dollars for gold. Devil take the hindmost! A classic panic scenario. A melt-up for gold; a melt-down for the dollar.

 

In other words, when gold is remonetized, the numerator and denominator on the "gold price" are exchanged. The relevant price is now the "dollar price." What is a dollar worth? How many milligrams of gold can you trade it for? This piece of paper is a financial security, n'est ce pas? Does this security yield gold, own gold, redeem itself for gold, etc? No? If you want it to be worth anything, you might want to change that...

[Traktion]

Why have a national reserve currency at all? Why not have denationalised currencies? Indeed, why not just trade in gold/silver weight - it doesn't need a number attached to it (pound, dollar etc) to measure its worth.

 

The argument for dealing with notes, rather than coins can now be side lined. With mobile phone technology edging ever closer to giving us all a digital wallet (even if most don't realise it yet), why do we need notes or coins at all? All we need to know is that whatever "thing" is backing that digital representation is really there. GoldMoney already have an iPhone applet and I noticed an RBS advert for their new iPhone applet too. How long will it be before people start cutting out the ATMs and EPOS and just swap money via their Internet connected phones?

 

There is no reason for governments to be involved in money and I can imagine a world far less manipulated without them involved. A gram of gold cannot be manipulated and has international value. The same can be said for many other PMs too. All the governments need be involved in is the regulation of the companies holding the PMs, if they are needed at all (private audits are likely enough).

 

I can envisage a future where we can simple swap our e-gold/silver as money. Vaults could be distributed around the world, with PMs delivered on demand. Open, clear and simple. People could even choose to let the "bank" lend out some of their money to others. Fractional reserve lending could work fine too, as long as people are aware of the risk of losing their money (no lending is risk free).

 

Hayek discusses such options here: http://www.iea.org.uk/record.jsp?type=book&ID=431. He takes the idea further of having competing currencies of all sorts of types, all operating outside of government control. Whether "hard" currencies would push out the others would only be known from trying it out, but I think a multi-polar, denationalised money world could work very well.

[Magpie]

One quality of gold that sets it apart from commodities and makes it ideal money, besides rarity, is that it is a luxury item and is not consumed like oil or copper.

 

I was just reading this interesting article about gold re-monetisation (must be the theme this evening) and game theory:

 

http://unqualified-reservations.blogspot.c...ame-theory.html

 

Snippet:

 

Thanks, that's an interesting read. The thing that I'm not sure he has taken into account is the political and military dimensions of the problem. China's CB doesn't act in isolation from the consequences of its actions and if it pursues a policy that destabilises the world in other respects there is a serious problem.

 

But I think it's a fair point about how a tipping point might be reached where it is smarter (in Prisoners Game terms) for a CB to keep buying and move towards remonetisation than risk not doing so.

 

[carbon junkie]

Surely gold should be up today what with the perceived risk of sovereign default increasing;

 

From Marketwatch;

The risks have been common knowledge for ages - buy on the rumour sell on the news.

 

Give gold a break!

 

it's been busy recently.

[fexx]

I'm in Sheffield Fitkid but don't have a car so travel arrangements are difficult. Obviously I can use public transport but I am don't particularly want to walk around with x amount of gold coins in my pocket. Do you know any reputable sellers in the Sheffield area or very nearby (Rotherham, Barnsley, Doncaster or Chesterfield)?

 

Have PMed you details of a supplier of sovs at spot within walking distance from you.

 

 

[d2thdr]

It's like a rerun, but this time the game is far more deadly.

 

US is doing all it can to break the Yuan Dollar peg devaluing the dollar brings a tidal wave of inflation to Asia (if they continue the peg!).

 

The pop will be the end of the pegs hyper for the West deflation for Asia.

 

In the meantime Japan is about to pick up the bill for the last twenty years.

 

Lots of fun to come!!

 

 

 

Can you put it more clearly. My limited knowledge is unable to fathom what you have said clearly enough.

[fitkid]

More MSM hyping for people/sheeple to sell the only thing of real value that they probably posses

 

http://news.bbc.co.uk/newsbeat/hi/the_p_wo...00/10003337.stm

 

What's the 'true' value of your old gold?

 

Tuesday, 8 December 2009

 

By Jim Reed Newsbeat reporter

 

There has been an increase in demand for gold in recent years With the price of gold near a record high, it's an offer that's hard to ignore: send us your unwanted jewellery and we'll send you a cheque straight back.

 

Over the last year there's been an boom in the number of shops and websites offering to take those old rings and trinkets off your hands.

 

But Newsbeat's found out that some of the biggest names in the industry are paying just a fraction of the amount that gold could be worth if it was taken to a jeweller or pawnbroker.

 

"Some of the quotes are just shockingly low," said Alonso Ercilla from the Trading Standards Institute.

 

"It boils down to shopping around because, in theory, traders can just offer what they want."

 

'Thought it was a joke'

 

29-year-old Nic from Huddersfield wanted to sell four of her old rings to raise money for Christmas presents.

 

I was just shocked. I was hoping for something around the £200 mark

 

Nic, Huddersfield

"I was off work poorly and the adverts were all over daytime TV. I thought it would give me a bit of extra money," she said.

 

Nic went online and ordered a free postal packet. She sent the rings off and waited a couple of weeks. Then a quote came back for just £27.

 

"I was just shocked. I was hoping for something around the £200 mark," she said.

 

"I sent them an email asking if it was a misprint. The valuation was so low I thought it was missing a digit."

 

She asked for her rings back and was later quoted £125 from a local company in Huddersfield offering a similar cash-in service.

 

What's it worth?

 

We wanted to try it out for ourselves so asked Tony Jarvis, an independent gold bullion dealer in Mayfair, London, to value a bunch of old earrings, chains and lockets.

 

He told us that a "fair price" for the nine carat scrap gold would be around £300, although daily variations in the gold price could push that number up or down slightly.

 

We double-checked and took the gold anonymously to a number of shops in London's famous old jewellery market, Hatton Garden, specialising in scrap metal.

 

The value of gold can vary slightly from day to day Sure enough, the best price we were offered was £318.

 

We then sent exactly the same set of rings and chains to three of the biggest players in the postal market.

 

American giant Cash4Gold has grown quickly off the back of heavy TV advertising, including expensive primetime slots in this year's US Superbowl.

 

It claims that 94% of its 900,000 customers in the US accept the valuation they are offered.

 

The firm is now expanding internationally and opened its British operation over the summer.

 

Customers call a telephone helpline or log on to the firm's website and order a free gold pack containing a pre-paid envelope.

 

As with all the other firms featured here, the value of the package is insured up to £500. You drop in your old jewellery, fill out a basic form and put it in the post box.

 

Staff at the firm's British headquarters value the metal and a week or so later send you a cheque back which you can either bank or return within 12 days to get your jewellery back.

 

'Hassle-free'

 

So how did Cash4Gold compare with our "fair valuation" of £300?

 

The firm sent us a cheque for just £63. When we called to ask for our jewellery back that offer was increased to £100.

 

The firm's boss, Jeff Aronson, makes no apologies for pricing, claiming that some people are willing to accept less for their gold in return for convenience and speed.

 

"Our customers are not interested in going to a pawnshop or a jewellery store," he said.

 

"They would be mortified if a friend saw them doing that. We are serving a new industry that we have created. We are not here to price fight against a jeweller."

 

Crewe-based CashMyGold is the most high profile British company in the market. Like its American namesake it spends heavily on advertising, especially on daytime TV.

 

It works in an identical way: users call or go online, order an envelope, post off their gold and wait for the cheque to arrive.

 

Continue reading the main story

We offer a fair price for those who are looking for a hassle free, door-to-door service

 

CashMyGold statement

The company uses the slogan "best prices paid for your gold" but its offer was the lowest of the three at just £60.20.

 

We called to ask for our jewellery back and a sales rep immediately offered to increase the offer to "£150 maximum".

 

In a statement the firm said it has a "very different business model" to high street gold dealers with "different costs such as postal insurance and administration" to consider.

 

"Taking this into account, we believe we offer a fair price for those who are looking for a hassle free, door-to-door service," it said.

 

Finally high street jeweller H.Samuel launched its own postal gold service over the summer.

 

Unlike other firms, it always telephones customers to ask if they will accept an offer rather than sending a cheque straight back.

 

Its quote? The highest of the three at £182 rising to £210 if we agreed to take gift vouchers instead of a cheque, still significantly below the £300 quoted by our gold bullion dealer.

 

Again the firm claimed its offers are fair.

 

"By using our service customers are dealing with a well-known and established high street jeweller with national store coverage," it said.

 

"If the customer does not want to accept our offer the jewellery is returned at no cost to them."

 

'Shop around'

 

We put the findings to the Trading Standards Institute. Its joint lead officer for fair trading, Alonso Ercilla, said offering a low price for gold might be irritating but it's not illegal.

 

"Unfortunately there isn't much Trading Standards can do if people are getting a bad deal, provided the trader is not actually misleading the seller about the gold's worth," he said.

 

"Customers need to shop around and try to establish the price per gram.

 

"If you are using a website, read their terms and conditions. And don't automatically take the first price you are offered."