Posted on 05/12/2011 7:09:24 AM PDT by SeekAndFind
What is gold really worth? In one sense, the answer is obvious. Gold is worth $1,515.10/oz, because that is what it is trading for in the market as of this writing. However, all this number means is that an ounce of gold has 1,515.1 times the market value of our current, undefined, “fiat” dollar.
A deeper and more interesting question is, “What should gold be worth?” In other words, in terms of what quantity of gold would we define the dollar if we wanted to have a stable currency, a stable economy, and stable financial markets?
This is not just an academic question. The dollar is experiencing a crisis of confidence. Our undefined, unstable dollar caused the crash of late 2008, and it is the principal problem behind what is unfolding as the slowest economic recovery on record.
Right now, the dollar problem is chronic and debilitating, but it could become acute and economically life threatening at any moment. In an acute dollar crisis, Congress would be forced to act, and the action that would best address the problem would be to define the dollar in terms of gold.
The idea of defining the value of the dollar in terms of the value of a fixed weight of gold is not a radical notion. The radical—and ultimately unworkable—notion is for the dollar, which is our basic unit of market value, to have no legal definition. Our undefined, floating dollar is producing the same kind of economic chaos that we would expect if we had a “floating” second, pound (mass), or foot.
The cost of coping with this economic chaos is enormous and growing. It shows up in many different ways, including anemic real GDP growth, wild swings in gasoline prices, 9.0% unemployment, stagnating real median incomes, and rising inequality.
(Excerpt) Read more at blogs.forbes.com ...
Good post Phlyer.
That would be true for a speculator. Gold and silver will recover after any summer drop for a simple reason: the Feds and the Fed have no other way to get out of this mess. If they let deflation kick in then the "recovery" will be over. OTOH, they can tank the dollar with little political or economic cost other than screwing dollar-based savers and the Chinese. They will choose to tank the dollar although it will always fluctuate and they will pretend otherwise.
An appropriate place for the reminder that gold and silver coin are the only lawful money (that is, money citizens can be forced to accept by government) under the Constitution, and all of our economic problems (like so many others) would have been avoided by fealty to the Constitution.
I think gold is over-valued right now.
In 1968 I took my first job out of college at an in-house retail ad agency at the entry-level wage of $105/week. That was equal to three ounces of gold per week at the prevailing rate back then ($35/oz).
Today, three ounces of gold a week would be $4,500/week, or $234,000 a year. Hardly an entry-level wage.
How I know this “buy gold” scheme is a scam is:
1. If you had gold, and it was so great, you would not sell it.
2. If gold is great because money is not, how can you buy gold with money?
3. In the commercials to buy gold: Money is worthless! Buy gold! (unsaid is you can buy gold with money)
TOTAL SCAM.
Yes, you can still buy gold with fiat currency. The problem for the buyer is that while $20.67 used to buy an ounce of gold, it now takes over 70 times that to do so. Now, just which is the truer store of value?
William Flax
I think you’re missing the point. Of course the price of gold doesn’t perfectly track any other item day to day (like a men’s suit) but over the long term, the value does.
In 1850 you could buy a fine tailored men’s suit for about one ounce of gold. In 1900, that ounce still bought a similar suit. Same in 1950, 1980, and 2011.
The value of gold, like any commodity, does not change over time. It is not an investment. It is a store of value.
Compare that to taking that same ounce of gold in 1900 and using it to buy stock in IBM.
The price to which you refer lasted but a few days and was an outlier that is not a valid consideration
-——What was the cost of a loaf of bread———
Bread is sold by weight and is an American scandal. The moisture content has been pushed upward until the current product is dough. The price has been maintained by increasing the water content
It may be a store of value, but it's not a very stable store of value. It's still a myth that it always buys "a man's suit", or "a fine man's suit" or "a man's suit and shirt and tie and belt", or "a ridiculously expensive man's suit."
The value of gold fluctuates wildly based on market psychology and speculation. It's not as safe as some people think.
If you do a standard diviation on the "year to year" fluctuations in the CPI while we were on the gold standard versus since the Federal Reserve, you'll find that the Federal Reserve has outperformed the gold standard by having only about half the year to year variations.
Of course the gold standard alternated between inflation and deflation, while the Federal Reserve always targets a small amount of inflation. The end result is that gold is a better store of value over 100 years while the dollar is a better store of value in the short term due to the lack of speculative swings. And the dollar since it doesn't result in deflationary depressions is a far better choice for use as currency.
“Now, just which is the truer store of value? “
I guess the one who has the Truer Value GOLD, and for some strange reason, he wants to exchange it for the worthless fiat money, must think the fiat money is a better deal.
Does that make sense to you? If it was so great and secure, you couldn’t even touch it with “fiat money”
It’s a SCAM.
I think we basically agree. Yes, gold is volatile in the short term as is any commodity price. But over the long term it maintains a constant value in buying power. The men’s suit example does in fact work over the long term. The buying power of an ounce of gold stays constant, allowing for certain short-term volatility.
What it *doesn’t* do is grow in value, as we expect of investments. That ounce of gold in 1900, if invested in blue chip stocks would have grown to be far, far more valuable than an ounce of gold today.
I thought you said a "man's" suit. Obviously you meant fashion obsessed ninny's suit. And even then I bet that same suit wasn't $250 in 2001. So once again your gold = a man's suit or a ridiculously priced fashion obssessed ninny's suit or a suit with a shirt a tie and a belt and a etc, just doesn't hold up.
It's a myth propugated by those that want to sell you gold.
Just to put how ridiculous the comparison can get. Suits range from $100, to over $10,000. I guess you're right. Gold does usually equal the price of a man's suit, because you can always find a ridiculous range of prices for suits to make your case.
Meanwhile Gold's intrinsic value is really the price of the Emperor's New Clothes.
You basically can't. It takes over 70 times as much fiat money to buy it, as formerly. It takes over 40 times as much as it did in the 1960s. Fiat money is the scam. It has only subjective value. As that value fades--and fade it continues to do--the savings, accounts receivable and every other claim denominated in fiat money, vanish without a trace.
There is no more vicious tax on the wealth of a people.
Bingo!
“Contrary to popular belief, gold has very little intrinsic value.”
For thousands of years, it has had intrinsic value. Do you ever wonder why?
“Fiat money is the scam.”
Well, I’ll take some “fiat money” and you take some gold and we’ll go to a dealership. I will leave with a car, you won’t. Wanna bet?
Buying gold as a bet against the fall of currency is a SCAM! As an investment, it is mediocre at best. But an alternative to “fiat money” it’s a SCAM.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.