Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

MYTH vs MATH Does GOLD Preserve Purchasing Power?

Commodities / Gold and Silver 2010 Dec 13, 2010 - 03:18 AM GMT

By: Brian_M_Thiesen

Commodities Best Financial Markets Analysis ArticleI am not sure how many people believe this to be true but since their is paper and gold I don't see it any other way unless I am a fool (which i have proved to myself many times is possible)


How does gold preserve purchasing power?

In general,on average unless there is a shortage or things of that nature, most commodities/items (car etc.) rise pretty close to each other. With of course spikes here and there up or down in a given item.

Lets say though in this case for sake of discussion it is only because X or Y currency is being devalued (since we are discussing "purchasing power") which by the way in so saying as well the person admits the currency is the final requirement for a purchase and NOT GOLD. Until people are using gold to buy money paper is money NOT GOLD. as it is that %99 of all transactions are in paper that is what is taken as money/believed to be money hence is money.

No one is saying gold or even peanuts are worth nothing but are worth X amount of paper (believed to be money…. Hence money as money is the belief in the unit at its root)

Now if the dollar (popular fiat example for discussion) goes 'down' %10 and gold goes up %10 what has been preserved? OK so you don't plan to buy more gold with the money you get from selling your gold (pointless due to charges over spot) fair enough.

You plan on preserving your 'purchasing power' fair enough

Unless things are drastically different where you are at you need only look around to see this is for all intents and purposes a lie. Which it seems it is (but even this will be a lie in itself if it goes against the persons "TRUTH" or "BELIEF")

Ask yourself how much these items have gone up over the last while or in many cases you get less for the same price ( 1L is now 941 ml or whatever) which means the per unit cost has gone up.

Items to look at might include GAS, Bread, Milk, Cheese, Beef, Oil Changes, House Prices, Car Parts, Sports tickets, Cars, Bus Fares, Cigarettes, Booze, Coffee Taxes etc.

Now if you look back in time in your head or at any graphs for most of these items you will see that they have ALL gone UP (in general and on average... as in despite house prices being less now than they were 2-4 years ago over a longer time they are much higher even over the 10 year explosion in gold price)

So if all these things have gone up and in general maybe many much faster than gold (eg. IF bread was 50c a loaf 10 years ago and is now $3.00 that is 6X where gold is around 4-5X depending on how great the purchasers timing is/was. If bought at $700 it is 2X etc.

So a person may win in total gains %10 on gold $1200 is gold $1320 ($120) vs %10 on milk $3.00 is $3.30 (30c)

Again not sure where you are but it takes quite a bit of money to live on this planet (more than $120 a year)

Encompassing all items that a man in general uses/needs to buy/survive, it is hard for me (the possible fool) to see the preservation of purchasing power.

I have never in my life walked into a store to buy Groceries or anything with gold or silver. If this is occurring in your area please let the world know. I must use paper or derivatives thereof debit/credit card. Bring your coins into a gas station or store next time and see what kind of look you get. Mostly you would get

“WTF is this, where are your DOLLARS”

On a side let us also note that we are talking about the world we are in not the nuclear holocaust-financial Armageddon world that people are already in or believe will be.

So if this is the case then you need DOLLARS to BUY GOLD as well, LIKE ALL OTHER ITEMS ON THE PLANET, and when you do you pay the dealer %3-10% each time you get in and out. Again let the world know if you don't pay this % as we would all love to know this source.

So Gold went up %10 for you perfect, now sell it to get DOLLARS, which you need to buy ANYTHING EXCEPT AT THE BULLION DEALER who sells only gold/silver etc. FOR DOLLARS

Now you can buy all those items that also went up %10 (or more) plus pay the dealer %5 (avg) and what does that get you?

By this MATH I Don't see preservation at all maybe break even if your timing is near perfect and you happen to only want to buy items that have gone up less than gold in the given time frame that you bought and now sell. Quite the long shot isn’t it?

It is easy to see when someone says get "smart" that is an instant tell that they believe themselves to be smart merely for doing something they believe or have been lead to believe is SMART, possibly without ever looking into it for maybe even a few minutes. Or simply going to the store or filling up their gas tank.

Thank You though I am smart enough to realize that it is almost certain no PURCHASING POWER IS PRESERVED OR GAINED FROM HAVING ONE ITEM OVER THE OTHER, unless you are a short term trader making nice gains that beat inflation over the long term whether that is gold/pairs/stocks/bonds… in futures/options or otherwise.

Then you could buy as much gold or anything as you want. This of course will involve risk and is unfortunate that this would have to be done to get an 'edge' But such is the policy of government and humanity as a whole.

I am not saying gold is 'bad' or a bad investment, or that it will not go up much more than it is now, but just that if it does history shows the high probability and correlation that most other items will as well. Hence unless all I have said is false, GOLD DOES NOT PRESERVE PURCHASING POWER.

When we get to an environment where only gold and silver or PM’s go up and all else goes down we may begin it seems to consider that it does preserve and that would be only to if the currency was going up as well which to me seems quite a set of circumstances to hope for as I doubt it has happened very often in history…. If ever. But nonetheless possible. BUT NOT HAPPENING RIGHT NOW.

Of course as always this means little as the reader will believe what he wants or has been told to. As is of course exactly what I am also doing. And the fact that we do is why markets exist, to trade future beliefs as after that prices follow.

Brian M. Thiesen

brianthiesen7@gmail.com

Authour “Time Filter,” “Egolution”

Guy who believes the system is the exact mirror of the real machine that claims it is in control up until the point it goes “wrong” then blames the other furthering its ability to be a victim in a system that is “truly” without. A true system that overrides the market although most would believe this impossible and it is they who care only for their ends and they who are so much like those they despise.

© 2010 Copyright  Brian M. Thiesen - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Kevin
13 Dec 10, 08:12
Gold verses Dollars

The DOW is up about 10% over the last decade. Dollars are dollars and not up at all and actually purchase 20% less. Bonds might have returned 1.5 X the investment in the last decade and gold went up over 400% (or 4X).

As the man said in Apollo 13, "I can add".


dincer
13 Dec 10, 09:46
dollar's convertibility into gold

One of the strongest backings behind fiat US dollar is its convertibility into gold, at least in terms of free market volatile prices. Although we cannot convert dollars into gold at a fixed rate, nevertheless we can in a way. Probably skyrocketing lease rates for gold will be the death sentence of fiat currencies. Everybody in the end will see the degree interest rates for the real money can go up.

(I live in Turkey. in my country bid-ask difference for 24 karat gold is 0.20-0.25% not 3-5% (6-7% for the USD vs. Turkish lira) the fact that Turkey is one of the biggest importers of gold or one the largest jewelery manufacturers might provide convenience for transactions. so I feel myself lucky.)


Brian Thiesen
13 Dec 10, 14:21
Gold death sentence

Gold as currency is a death sentence for economics as a whole not for currencies

It is as said a bankers wet dream. Not a dream for peasants and commoners, and it such happened as is always the case the commoners are not going to "catch the bankers off guard" there has never really been a situation that they did/do not profit handsomely from and when america was beginning they were dreaming of this as currency and got it in some ways.

WHY? because they were and still do in many ways in control of the expansion and contraction of its issuance. Only in this case it is very much a small fraction of the currency out there.

Therefor maybe the %5 of people that have gold would win out for a year or two (if no one knew they had it and didnt rob them) But what of the other %95 of the population?

That is like 6 billion people. That would have a cent (or ounce) to buy or pay for anything. Note as well that with gold just like all other things on this planet, a very small group of people own about %80 of it, so that is even less in ciirculation.

So what does that mean, everything becomes near worthless, but the bankers will still call in their debts. What would be the payment then? Gold or silver

THen after that is out of your pocket (and likely at the exact time people would need it most 'mysteriously' the price would shoot down.

So then they buy all things on the cheap, and consolidate their owning of everything even further.

Whats inflation like in turkey? probably running a nice %3-5 a month like the rest of the world.

If also as buddy says dollar is not up or down but buys %20 less in a general sense you are saying inflation has ran %20 in the last decade.... which i think is probably off..... by alot like in canada where house prices have tripled in many areas (we use our own dollars and still this has happened) and here to buy maple leafs there is a % to pay to the dealer in that area. Maybe we will fly to turkey to buy our gold then fly back?

Gold did go up %400 in last decade... good... when did you buy is the question? Usually (as any trader knows) this time (bottom) is reserved for a very small few (as said depending on timing in the article)

But i will give you (if you bought) the benefit of the doubt and say you bough at $700 good on you.

Now take your gold to Home Depot and buy some stuff, have fun with that.

Or convert it to $'s and find that over the last decade many things have gone up (anyone remember when oil changes were $29 and are now like $70)

Be sure your timing is dialed and you caught gold at That perfect time of %400, you would have to sell at sometime to book profit. Remember in a trade you have to buy and sell and not just talk about how much something went up


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules