Liquidity of Gold and Precious Metals

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  • Sat, Oct 04, 2008 - 03:05am

    #1
    Tesseractal

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    Liquidity of Gold and Precious Metals

 

Much is made of Gold and other Precious Metals as a store of wealth in troubled times.  This is fine if you want to hold until an educated market returns but in the interim (during a crisis) I am hard pressed to see any superiority over other potentially rare but more practically useful items.

Put simply if you have an ounce of gold and want to buy what I have – how do I know what you have is gold and not gold plated lead.  Simply – I don’t and therefore I won’t be inclined to trade with you unless the risk is somehow reduced – probably through an inordinately low price. Put differently, I have gold and want to buy something, who is going to give me a value that represents better value than if I had put the same money into some more practically useful objects.

Most people don’t know how to assess the value of gold. silver etc. and given the absence of any rule of law that dictates an exchange standard for purity and penalties for not adhering to it I am hard pressed to see the value in gold as a store of wealth for use during a crisis – by all means if you can hold it ’til after the crisis to recapitalise yes – but not during.

Am I missing something?

  • Sat, Oct 04, 2008 - 05:00am

    #2
    magicelf

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    gold liquidity

Good question

I have what I think is a good answer

I would purchase only relatively big ticket items such as tractors (say 15k) or solar panels (say 1k/200w) which round nicely to 1oz gold coins. It would be difficult to mint size, finish and weight fakes. If still in doubt they could cut one open. The gold is intact and can be melted and recast as say a bar or jewelry. Only the coin would be damaged. The preceeding agreement I would have is "if it is shiny all the way through, you have to accept it as an undamaged coin". Also I would have a reciept from the bank I bought the coins from.

In the worst of situations the seller would pull out his shotgun and relieve you of your wealth and maybe your health.

  • Sat, Oct 04, 2008 - 05:10am

    #3

    joe bender

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    gold

i assume if you use a one ounce coin and weighed it no other coin such as gold plated lead

would weigh the same. there are inexpensive digital scales which are very accurate. in many cultures bargaining is not only acceptable but expected and relished. we have become accustomed to walking into wal mart and just paying the going rate.

so in a bargaining society the value of gold will fluctuate as much as any paper currency.

therefore if farmer jones wants to sell his tractor to me i may offer him 2 ounces of gold and he may say he wants three we agree on 2.5 so 2.5 of gold at that moment is worth one tractor.

  • Sat, Oct 04, 2008 - 05:27am

    #4

    gyrogearloose

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    Tesseractal wrote: Put

[quote=Tesseractal]

Put simply if you have an ounce of gold and want to buy what I have – how do I know what you have is gold and not gold plated lead.

Am I missing something?

[/quote]

24 kt 99.9% gold      hardness 40 vickers

22 kt 92%  gold        hardness 70 vickers

Even alloying a small amount of  another metal with gold makes it significantly harder.

I remember seeing old western movies and  recall coboys biting coins to check them, a simple hardness test.

As to substituting with lead, if it is in coin from and the same size as a gold coin you already have, the difference in weight would be very noticible.

gold 19.3 g/cc

lead  11.2 g/cc

Together these unique properties give a relatively easy and accurate test as to the purity of the gold.

 

Hamish

  • Sat, Oct 04, 2008 - 07:55am

    #5
    Tesseractal

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    … but how many others will know

 

Thanks Gyro (now there’s an inventive character from the past)

I will put those facts in my little grab bag of goodies but it still remains that others are unlikely to know.  i.e. I am now in a position to buy – if I get some accurate scales – but if I want to sell I have to find someone who also knows.

Having said that I might still get myself a little set of digitial scales Wink and something to measure volume very very accurately ….

  • Sat, Oct 04, 2008 - 10:27am

    #6

    gyrogearloose

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    They will learn ….





No Probs

Got the nickname got being inventive…..

Your scales can measure volume accurately.

1 Place container part filled with water on scales and zero scales

2 Suspend the gold? or lead? coin on  a piece of cotton ( as small as
possible ) 

3 Lower the coin into the water until it is completely submerged but not
touching the container and shake off any bubbles.

4 The weight on the scales is the volume in cc

If you want to get really accurate, density of water is 1 g/cc at 4deg c but
.9982 at 20 deg C so you could compensate…..

So if you want to "measure volume very very accurately …." you will
need very very accurate scales…..

 

  • Sat, Oct 04, 2008 - 09:58pm

    #7

    Ray Hewitt

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    Assessing gold and silver

Yes it is true the typical man on the street wouldn’t know a silver dime from a nickel dime, much less its market value. That’s what dealers are for. They were disappearing, but lately I’ve seen jewelry shops advertising for gold. I don’t see liquidity as a problem.

  • Sun, Oct 05, 2008 - 02:18am

    #8
    Golden Age

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    Certified coins.

Some of the coins I own are certified and encapsulated.  Referred to as slabbed.  Some of my coins are not slabbed and that would raise into question, how does the other person know the coins are not counterfeit.  Selling to a dealer is one way to cash a coin or I can just sell it back to the vendor I bought the coins from.  I have the original invoices. 

IMO, if the SHTF scenario arises, coin dealers would have a very lucrative business.  

  • Sun, Oct 05, 2008 - 07:10am

    #9
    Tesseractal

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    …. and I have :)

 

I am impressed Gyro – a lovely piece of lateral thinking – elegantly simple and delivers the answer – I tip my hat to you.

  • Mon, Oct 06, 2008 - 05:20am

    #10
    Tesseractal

    Tesseractal

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      Hi Magicelf Just

 

Hi Magicelf

Just realised my earlier draft to you didn’t go.

My dilema has always been the validation of the product in particular things like people shaving bits of gold off coins, if you cut a coin in half it will diminish its use to you as a medium of exchange etc. as it would be hard to "stick it back together".  Similarly I don’t trust the notion of a receipt from a bank – anyone with five minutes and a lazer printer can create a credible invoice.

Hence I do like Gyro’s solution (above).

On the other side I don’t particulalry want gold unless it can facilitate the exchange of goods.  I anticiapte that there will be a demand for consumables like food, and utensils/tools – certainly I will want to eat.  In that regard it’s a question of what can I provide that will be of use to others either in terms of service or item and is someone wants it but doesn’t have what I need how do I validate the value of what they can provide – e.g. gold.

 

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