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Paper gold may well bring the 'price' down but not the availability. Then physical gold will become scarce to non existant. Premiums will rocket. There won't be gold for sale. We have already had a taste of this. I think people buying gold as inflation only hedge are tits personally. Gold is a bases loaded sayonara home run. Inflation, deflation, and the last swing of the bat, the safe haven home run. The only trouble is deciding which inning we are now in. (sorry about the basesball analogy-cricket just doesnt do it).

 

Yep, that sound about right. You want to give cricket a go though. The tests are better than the one day circus... or even worse 20/20. It's great.... five days of gentlemanly leisure....where more often than not no-one wins. :lol:

 

A bit like the medieval contests before the French started taking thngs so seriously.

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Yep, that sound about right. You want to give cricket a go though. The tests are better than the one day circus... or even worse 20/20. It's great.... five days of gentlemanly leisure....where more often than not no-one wins. :lol:

 

A bit like the medieval contests before the French started taking thngs so seriously.

Don't get me wrong, I much prefer cricket. Just that it doesn't work in this analogy... Though I'm sure

you could think of a good one if you put your mind to it. Baseball has that immediate gratification factor fix.

BTW are you in NZ or Korea now?

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Don't get me wrong, I much prefer cricket. Just that it doesn't work in this analogy... Though I'm sure

you could think of a good one if you put your mind to it. Baseball has that immediate gratification factor fix.

BTW are you in NZ or Korea now?

Still earning Korean Won for only another six months before relocating back to NZ for good.

 

I see China has been diversifying into Korean bonds these days. I'm hoping it will be more than a token amount, and it helps to support the currency, which is looking shaky. :unsure:

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I think O'Brien's error is the assumption that deflation is bad for gold.

 

The idea is deflation will bring the price of commodities down ergo gold will come down. The error consists in not seeing that gold is now effectively monetized and acting as a currency not a commodity.

 

This will happen again, when everything is screaming deflation, and gold will come off a bit. Because many gold holders have bought gold out of inflation expectation, they may have a moment of revelation, panic and sell.... right at the wrong moment.

 

I agree.

 

The October 2008 deflation scare DID bring the gold price down from the 900's to 680, temporarily.

 

If there is a stock market crash again, I am sure that gold will once more be sold from leveraged

investors for the cash that will be needed, to cover losses and financial demands elsewhere.

 

The difference this time is that investment interest in gold worldwide has increased substantially since then. Evidence arises form the fact that the gold price has refused to drop below the 200DMA for 2 years.

 

This is the fundamental reason, that the price correction this summer has been small. I note that jewellry industry

interest resurfaced at the 1160$ level. I expect this level to hold once more in a stock market crash. The decline

of the Euro will provide support to the gold price.

 

Personally, I completed the repurchase of all PM sold in spring, on Friday.

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Am I right in saying that a lot of people here use GoldMoney?

Me. About 1/3.

 

Also, interesting article: price suppression causing shortages?

 

You'd never get an article like this in the western press, would you?

 

http://www.thehimalayantimes.com/fullNews....p;NewsID=254400

Kuvera Chalise/Eliza Manandhar

 

KATHMANDU: In the wake of complaints lodged by a few gold traders, Nepal Rastra Bank on Tuesday directed the banks to ‘temporarily’ suspend gold supply.The suspension has resulted in shortage of gold supply in the market spurring price hike, say gold traders.

 

“While price hike due to gold shortage is making a big hole in customers’ savings, the government is losing revenue as well its stack of Indian currency,” Tej Ratna Shakya, president of Nepal Gold and Silver Dealers’ Association (Negosida), told The Himalayan Times. The central bank move of temporarily stopping the supply followed some traders’ complaint that they were not getting enough of the yellow metal.

 

Shakya said Negosida made efforts to manage gold supply among the traders by recommending maximum 200 grams per trader per day. “But the demand has gone up to 35 kg per day,” said Shakya, adding, the NRB-prescribed 20 kg per day is not enough to meet the market demand.

...

 

Today gold was traded at Rs 36,500 per tola (11.664 gram) — Rs 50 more than yesterday. Yesterday, it had jumped by Rs 510 than a day ago and was traded at Rs 36,450 per tola.

 

Though the price has been continuously soaring since start of the week due to international market, yesterday and today’s price hike is simply attributed to shortage of gold in the domestic market. This week alone, gold price rose by Rs 750 compared to Sunday’s opening price of Rs 35,750 per tola.

 

There is growing suspicion over the increased gold import. “The demand is picking up every year, where is it being consumed?” governor said.

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Also....interesting that a physical market is leaving the paper market behind??

http://www.thehimalayantimes.com/fullNews....p;NewsID=254501

Shortage sparks a bullish phase in gold

Himalayan News Service

 

KATHMANDU: Shortage in the domestic market propelled gold prices this week.

 

Though, the domestic price depends on the price in the international market, this week there was a difference of around Rs 2,000 per tola (11.664 gram) between the international market and the domestic market price.

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Yep, that sound about right. You want to give cricket a go though. The tests are better than the one day circus... or even worse 20/20. It's great.... five days of gentlemanly leisure....where more often than not no-one wins. :lol:

 

A bit like the medieval contests before the French started taking thngs so seriously.

Only five days? Wasn't there once a game between South Africa and England which was designed to be played until everyone was out? IIRC it lasted 9 days and had to be called off early because the England team's boat was due to leave. They called it a draw.

 

 

 

Goldmoney? I do.

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Paper gold may well bring the 'price' down but not the availability. Then physical gold will become scarce to non existant. Premiums will rocket. There won't be gold for sale. We have already had a taste of this. I think people buying gold as inflation only hedge are tits personally. Gold is a bases loaded sayonara home run. Inflation, deflation, and the last swing of the bat, the safe haven home run. The only trouble is deciding which inning we are now in. (sorry about the basesball analogy-cricket just doesnt do it).

 

I am not sure that the motives of people to store wealth in gold and silver are necessarily linked to classic inflation or hyper inflation (although these are highly likely) - just an understanding that whatever happens in the future, (as you point out) - societal breakdown, martial law, war, pandemic, capital controls, two-for-one swap with a new currency - in fact all possible permutations will make people increasingly understand that physical gold is ultimate store of wealth.

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But you've just derided [by implication] non-Brights here with; "the superstitious, who bind themselves with their own imaginary creations" :lol:

 

Not at all. Some people like to be "bound" by rules or conventions. Many find religion makes them feel better, makes their inevitable death less scary. I have no problem with that, nor do I deride them for it. It's understandable.

I simply contend that it's a man-made system, and limits thought to those concepts that fit within that system.

 

I do find it fun watching people tie themselves in knots over a self-invented/created system though.

 

It's almost like "what a tangled web we weave"...

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Price is in the eye of the beholder

 

Schaublin said:

 

http://www.greenenergyinvestors.com/index....st&p=179701

I agree with this but the problem is; the purchasing power of an ounce of gold fluctuates - say within a month, it may purchase 5 percent more or less than the nominal dollar price of an item. Within this short time frame, a loaf of bread or gallon of fuel will be the same or possibly a bit higher priced in dollars - so some get locked into thinking the Sun orbits the Earth! IMO, only when prices are rising visibly, monthly, will people (some) begin to use an ounce of gold as the reference point.

 

Even more confusingly, when very high inflation starts, the purchasing power of gold will increase faster than the decline of the fiat currency due to gold's universal store of wealth attributes being more valued.

 

Some refreshing insights on your blog BTW.

 

First, thanks :)

 

This is a great point, I'd like to write and think about as I write. I'm going to write from my point of view as someone living in NZ, and hopefully make an interesting story from it.

 

I walk into Countdown, the NZ version of Tesco in England, only on an NZ scale, much smaller. I buy some cheese. It used to be about NZ$5 a kg (4 years ago), but now it's more like NZ$10 to NZ$12. I pay with cash, NZ Dollars, or I use a piece of plastic which takes NZ Dollars out of my account and puts it into the shop's account.

 

So yes, the main currency of New Zealand is the NZ Dollar, no surprise there.

And like everyone living here, I naturally use and think in terms of those NZ Dollars. Everything gets priced in NZ Dollars.

 

But, unusually I suspect, I don't have my cash in an NZ$ account!

I keep my cash in a JPY account, and transfer what I need for the next week or three into NZ$.

This is because I expect a downward trend in the NZ$ versus the JPY, and interest rates are low, and I think the JPY will offer a better short-term store of wealth and cash for day to day spending.

 

Now, I know that is probably very unusual, but there it is.

So, should I think in terms of NZ Dollars, or in Japanese Yen?

I should really think in terms of JPY, but I don't, I still think in terms of NZ Dollars. Being originally from England, I sometimes even convert back to Pounds!! But, if I want to buy something little more expensive than usual, I do take the exchange rate into consideration. I think "that camera will be cheaper if the exchange rate is lower".

 

This shows that we have a local currency, the NZ Dollar, which tends to influence everyone's thinking here in NZ.

Even me.

 

Sure, a local economy will have local prices in the local currency, which tend to vary as local products and services do. The main influences will be wages, petrol prices, supply and demand etc. The price of local apples will go up and down, but wages will change more slowly.

 

Now, suppose there is someone in England who wants to migrate here. And they want to buy a house here when they arrive. So they get on the internet and look at the property websites. They see prices in NZ Dollars. But, what do they think in? I bet they convert NZ$ back to GBP, and think in terms of that.

 

So they don't see NZ$ house prices, they see GBP priced houses. And that price varies with local NZ prices and the exchange rate. Now, the exchange rate between the currencies becomes significant, and can vary the price they see far more quickly and dramatically than the local variations.

 

The exchange rate variation moves the price around, and changes the demand from migrants.

 

With our current monetary system, inflation (the increase in the amount of currency), is the norm. In fact it's openly stated as desirable. Deflation is dreaded.

 

This means that long-term the amount of currency increases, and usually more quickly than the economy grows, leading to long-term price rises. So locally, here in NZ, we see prices rising from year to year. That's the normal thing.

The problem is, by only using that metric, we don't see what people in other countries can see, like the price of NZ houses priced in GBP, and nobody in the world, each with their own local currency, can see what is happening to their currencies. They just see prices rising.

 

Each possible method of pricing will have advantages and disadvantages, and will be influenced by a different set of factors.

 

Pricing everything in terms of gold will have the following advantages:

 

1. It will include the devaluation of the currencies.

2. Over the very long-term, prices of things in gold stay roughly the same if no other factors change.

 

Pricing everything in terms of gold will have the following disadvantages:

 

1. Short-term, fluctuations in the price of currencies will cause prices of local goods and services to vary, when in terms of the local currency they have not. Just like pricing NZ houses in GBP will vary.

 

As I hope to show in the coming days, when you make that paradigm switch, and price everything in terms of gold, things become clearer, and it's possible to chart price changes more easily. The results are more clear.

And most importantly, it's easy to compare prices which before were less obvious. For example the price of houses in NZ and England, because they are both priced in the same way, in oz of gold.

 

The price that matters to someone will differ from the price that matters to someone else, like the NZ$ price of a house will matter to someone living here, and wanting to sell and buy things in NZ$, but the price in GBP will matter to someone in England wanting to buy an NZ house. The value of something matters to you if you have it or want it, and the price depends on what you're swapping it with.

 

But, for a clear picture of worldwide prices, and in order to escape the blinkers of the fiat currencies, price everything in oz of gold.

 

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I simply contend that it's a man-made system, and limits thought to those concepts that fit within that system.

 

I do find it fun watching people tie themselves in knots over a self-invented/created system though.

 

It's almost like "what a tangled web we weave"...

Hi Steve. But then all knowledge/ systemic thought is man-made [artificial]. I mean, it's not like we can get "outside our skins".

 

As for the tendency to become bound up in knots in some system, I agree. Francis Bacon referred to this as the "idols of the tribe", where it becomes very difficult to think outside contemporary norms. The shape those norms take differ with the times.

 

edit. on reading your above post, this idea of a conventional norm [which determines / influences thought] is applicable to your point that people tend to think/ value in terms of their local/ native currency.

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As I hope to show in the coming days, when you make that paradigm switch, and price everything in terms of gold, things become clearer, and it's possible to chart price changes more easily. The results are more clear.

And most importantly, it's easy to compare prices which before were less obvious. For example the price of houses in NZ and England, because they are both priced in the same way, in oz of gold.

 

The price that matters to someone will differ from the price that matters to someone else, like the NZ$ price of a house will matter to someone living here, and wanting to sell and buy things in NZ$, but the price in GBP will matter to someone in England wanting to buy an NZ house. The value of something matters to you if you have it or want it, and the price depends on what you're swapping it with.

 

But, for a clear picture of worldwide prices, and in order to escape the blinkers of the fiat currencies, price everything in oz of gold.

Yes, the essential point is to price national currencies themselves in terms of the international currency of gold; as gold is monetized, existing currencies in turn weaken with the fx factor becoming crucial.

 

But consider also that the "hyper-inflation hypothesis" is in danger of redundancy here; it is unnecessary as the ratios such as Dow/gold 1:1 and property/ gold 100:1 we all know so well can be reached by extrapolating the current observed trend of the past few years into the near future. This could see nominal Dow/ gold meeting at around 3000 or so [where the Dow follows the Nikkei]. The dollar doesn't need to be destroyed for gold to perform well against assets [all that's required is continued instability in the international currency system]. Indeed, the dollar could end up outperforming all currencies bar gold.... and perhaps Yen.

 

In this scenario, nominal asset prices [stock markets and property] in all countries look likely to carry on declining. Those sitting in local savings will do quite well against local assets, but if those savings had gone into gold they would have done a lot better. Most will not swap their currency for gold because of money illusion which equates the local form of money with money per se. In a continued deflationary environment, they will just keep conventionally thinking that gold is in a bubble.

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Hi Steve. But then all knowledge/ systemic thought is man-made [artificial]. I mean, it's not like we can get "outside our skins".

 

 

Knowledge is not man made. The interpretation of knowledge is man made. Knowledge is universal. When the people in the past saw the value of gold/silver, they passed this knowledge to their next generations. It is one of the reasons why we value gold/silver. Now with advances in science we can see that gold is scarce and it outlasts many other things. This knowledge (or its interpretation) has withstood the test of time.

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Knowledge is not man made. The interpretation of knowledge is man made. Knowledge is universal. When the people in the past saw the value of gold/silver, they passed this knowledge to their next generations. It is one of the reasons why we value gold/silver. Now with advances in science we can see that gold is scarce and it outlasts many other things. This knowledge (or its interpretation) has withstood the test of time.

Not sure if we are really disagreeing here. In the western tradition, knowledge [a body of systemic thought] is considered justified true belief. It is the attempt to rationally demonstrate [justify] why we think our beliefs are true. What you term knowledge, I'd equate with [traditional] belief. I think the difference here is only semantic.

 

You could equate knowledge with interpretation, but "interpretation" has the connotation that absolute knowledge is not possible. I don't think many would argue with this today.

 

Back to gold, I don't think the monetary basis of gold can be rationalized, but rather lies in such things as belief, culture, tradition, history etc which you've alluded to. Gold is simply the strongest symbol of money.... and is money for practical reasons not ideological/ theoretical ones. This shouldn't be a surprise when you consider money performs a practical function.

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I think the new GEI header is relevant to this thread:

 

GEI_EW_Header.gif

 

I have little time for EW.

Seeing that header "you can't prepare for both", I now have even less time for it.

 

Oh, in case I'm not being clear. Yes you can. Gold.

 

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Indeed, the dollar could end up outperforming all currencies bar gold.... and perhaps Yen.

 

I suggest that conclusion is wrong.

As such, I suggest you re-evaluation your position, and find one which allows for the US$ to become significantly cheaper when buying with gold.

I think you are greatly under-estimating the change that is coming.

 

I'm going to avoid getting into the philosophy discussion, as for me it's like looking up your own anus. Not very fruitful.

And can also lead to equally stupid conclusions.

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I suggest that conclusion is wrong.

As such, I suggest you re-evaluation your position, and find one which allows for the US$ to become significantly cheaper when buying with gold.

I think you are greatly under-estimating the change that is coming.

 

I'm going to avoid getting into the philosophy discussion, as for me it's like looking up your own anus. Not very fruitful.

And can also lead to equally stupid conclusions.

:blink:

How is it wrong? Where is the disagreement?

 

My position is that the dollar can become significantly cheaper when buying with gold while at the same time the dollar can become more expensive against other currencies. It's all relative; the other currencies will become cheaper against the dollar, and very cheap against gold.

 

I suggest you re-evaluate the hyper-inflation theory. Our positions are after all theoretical.... fallible. I'm fully prepared to jump ship if my working hypothesis ceases to work, but it's worked for me just fine so far [a theory is a good one if it is fruitful].

 

[also, is it too much to ask to keep the conversation civil.... navel-gazing would have sufficed. Don't you think the term "judgement day" was a bit dogmatic/ moralistic? I'd add that an awareness of philosophy encourages a healthy scepticism and tolerance towards other's views while discouraging dogmatic conclusions]

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http://www.bloomberg.com/news/2010-08-23/g...ces-appeal.html

Gold may attempt to build a base above $1,220 before continuing on its upward trend,” said Ong Yi Ling, Singapore- based investment analyst with Phillip Futures Pte Ltd. “Concerns over the economic recovery will continue to support gold prices.”

 

Nineteen of 24 traders, investors and analysts surveyed by Bloomberg, or 79 percent, said the metal will gain this week. Four forecast lower prices and one was neutral. Hedge-fund managers and other large speculators increased their net-long position in New York gold futures in the week ended Aug. 17, according to U.S. Commodity Futures Trading Commission data.

 

Speculative long positions, or bets prices will rise, outnumbered short positions by 204,228 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions rose by 13,541 contracts, or 7 percent, from a week earlier.

 

Gold strengthened 12 percent this year, reaching an all- time high in June, as investors sought to protect their wealth against financial turmoil in Europe and the prospect of currency debasement. European Central Bank council member Axil Weber said on Aug. 19 that the ECB should help banks through liquidity tensions before determining in the first quarter when to withdraw emergency lending measures.

 

‘Well Supported’

 

The euro traded near a five-week low against the dollar ahead of European data that may show growth in the 16-nation region’s services and manufacturing industries slowed in August. Reports this week forecast to show U.S. existing home sales fell and Japan’s export growth slowed in July.

 

Gold prices should “be well supported at the current level on account of the greater investor interest again,” Eugen Weinberg, Frankfurt-based head of commodity research with Commerzbank AG, wrote in a report. “In addition, the start of the festival season in India next week should also play a role as a lot of gold is traditionally given as gifts at this time.”

 

Silver for immediate delivery increased 0.2 percent to $18.0425 an ounce, platinum was little changed at $1,511.80 an ounce and palladium climbed 0.8 percent to $480.50 an ounce.

 

Silver is an attractive investment with “catch-up potential to gold” and prices may rise to $20 an ounce in the fourth quarter, Weinberg said in the report.

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... allows for the US$ to become significantly cheaper when buying with gold. ...

People rushed to gold in the Weimar hyperinflation and during the Great Depression. It was just for the USD being backed by gold that people would mostly want to hold gold receipts in USD form. So, people who expect the Dollar to do great things this time around might be very disappointed in the end.

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People rushed to gold in the Weimar hyperinflation and during the Great Depression. It was just for the USD being backed by gold that people would mostly want to hold gold receipts in USD form. So, people who expect the Dollar to do great things this time around might be very disappointed in the end.

The dollar was significantly devalued by Roosevelt against gold in the depression, so it isn't really as simple as "the dollar was backed by gold in the depression". Even in the depression, it was best to swap dollars for gold... as long as you could.

 

There is a similiar dynamic at work today, yet the fx market will do for gold by market forces what Roosevelt was able to do by decree... given the currency was pegged at a certain level to gold [mind you it was much easier for Roosevelt to devalue the dollar than it may be for the market to do so relative to other currencies etc].

 

The dollar didn't do great things when you consider the devaluation.... but it still managed to hold its own in prices thanks to continued deflationary pressures... against assets etc, and it most probably will do so again.... to the chagrin of the authorities. Too much is made of the different currency systems, where in the depression it was supposed to be "backed" and ours today isn't. Facts are the depression dollar wasn't so rigidly backed when you consider the price of the dollar was devalued against gold, and today's dollar isn't so unbacked when it is "backed" by debt creation. Money is money, and human behavior can completely trump the "fundamentals" of a currency once a debt deflation sets in. This is the common over-riding factor.

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I think this week we may see some weakness in gold. Watch the action @ 2:30 between now and Friday. The london market is closed next Monday, the markets will be thin. I can see the longs being squeezed for one last time during the late summer doldrums.

The price needs to be weakend before option expiry date at the end of the month.

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I think this week we may see some weakness in gold. Watch the action @ 2:30 between now and Friday. The london market is closed next Monday, the markets will be thin. I can see the longs being squeezed for one last time during the late summer doldrums.

The price needs to be weakend before option expiry date at the end of the month.

Option expiry for gold/silver is this week on Wednesday 26th. I think silver will be kept to below $18 till then, but think they are having big problems with getting gold down so who knows.

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I'm going to avoid getting into the philosophy discussion, as for me it's like looking up your own anus. Not very fruitful.

And can also lead to equally stupid conclusions.

:lol:

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The dollar was significantly devalued by Roosevelt against gold in the depression, so it isn't really as simple as "the dollar was backed by gold in the depression". Even in the depression, it was best to swap dollars for gold... as long as you could.

 

There is a similiar dynamic at work today, yet the fx market will do for gold by market forces what Roosevelt was able to do by decree... given the currency was pegged at a certain level to gold [mind you it was much easier for Roosevelt to devalue the dollar than it may be for the market to do so relative to other currencies etc].

 

The dollar didn't do great things when you consider the devaluation.... but it still managed to hold its own in prices thanks to continued deflationary pressures... against assets etc, and it most probably will do so again.... to the chagrin of the authorities. Too much is made of the different currency systems, where in the depression it was supposed to be "backed" and ours today isn't. Facts are the depression dollar wasn't so rigidly backed when you consider the price of the dollar was devalued against gold, and today's dollar isn't so unbacked when it is "backed" by debt creation. Money is money, and human behavior can completely trump the "fundamentals" of a currency once a debt deflation sets in. This is the common over-riding factor.

May I add something to this debate.

 

If I reading you correctly RH are you saying that it was the perception (or 'confidence' if you will) of the dollar which led many to associated it with real value, not just the backing of the dollar to gold? I thought that in the case of the US Great Depression, the pegging of gold to the dollar was one of the primary reasons for the onset of the depression. Reason being that, as gold cannot be printed out of thin air, the amount of dollars in existence reduced in the face of banking failures and money hoarding - a classic deflationary spiral. And so, in order to stop the spiral of falling wages and prices in the economy, the US government confiscated the people's gold to boost the money supply and create inflation. This was their way of 'printing money' on a gold-standard.

 

Thus (and some others have also argued) in those days it was the perception of dollar as being backed by gold which gave them the confidence to have faith in the dollar as money. In the present era, people still hold on to this belief even though all currencies are now fiat since 1971 - they believe dollars, pounds, yuan, yen, euros are backed by something (if not gold then something precious or valuable). This is why as you say the dollar's purchasing power could still increase measured against many assets yet at the same time decrease when measured against gold. The true awakening in the gold market will only occur when people realised that they have been had for generations.

 

Recently I have begun to accept this notion of currencies bobbing up and down against each other, with gold (and perhaps silver) as the lord of them all. Well it's the only one that can explain all the paradoxes out there in the global economy. I think.

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