"gold bug" undercurrents

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cedar's picture
cedar
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"gold bug" undercurrents

When I hear someone use the phrase "gold bug" I often sense some deep negative feelings. Like when you hear "treehugger" or "liberal" or "peak oil doomer".

I'm new to gold. Can anyone shed any light on the undercurrents I sense? Do they exist? Why?

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Re: "gold bug" undercurrents

That's because the deep negative feelings come from people who have swallowed the government line that gold is not money.

Which suits the government fine because it makes it easier for them to make you accept their paper in payment for your labour. Government paper used to be considered equivalent to gold because it was redeemable in gold, that was called the Gold Standard. 

Since government paper is no longer redeemable in money, it is losing its value in terms of money i.e. gold (and silver), which is the same as saying gold (and silver) prices are rising.

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Re: "gold bug" undercurrents

Thank you. I understand your comments. Am wondering why I sense a negative view of gold investors by non-gold investors? It feels different than, for example, whether you think Google or GM is a good investment.

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Re: "gold bug" undercurrents

1) For a gold bug to profit significantly, everyone else has to suffer. Currencies must collapse, and as such economies and perhaps societies and civilisation must do also. People don't like thinking about these outcomes, and like the idea of someone profiting from them even less. So some people percieve bugs as doomers.

2) Many people don't see gold as an investment useful to society. It's a hedge. Would it not be better to invest in a business which employs people and produces stuff people want rather than hoarding gold? So some people percieve bugs as misers.

3)Unless a gold bug is already very rich or very old, the chances are the damage done to his or her future earning potential by currency collapse is far higher than the money to be made at the moment of the collapse, by owning gold. If you own 50K of savings, and triple them during a currency collapse, you still only got $150K, yet have another say 20-30 working years ahead of you during which your salary is down to one third of its previous level. Therefore if you believe in collpase would it not be more useful long term to invest in self education, personal advancement or survival skills than gold? So some people perceive gold bugs as delusional.

4) Some people think that in an information economy, gold is not useful. Money can be anything that is scarce. A scarce information commodity can be created by cryptography, a digital coin created as a serial number encrypted with a private key belonging to the currency issuer. A currency user can decrypt the coin using the public key to check that the serial number is valid. Thus an inflation proof currency can be created with information techniques alone. Gold is not inflation proof, since it can be mined, and gives unfair advantage to nations with gold deposits. So some people see bugs as somehat anachronistic.

5) An obession with gold tends to go hand in hand with deep distrust of any collective activity. A gold bug is one who wishes to place his entire means of survival easily in his own pockets and thus hold his or her destiny completely their own hands. Accordingly some people see bugs as anti-social.

Clearly, I'm not a gold bug! However, I have to admit I do hold moderate amounts of gold, in relation to my overall savings, but mainly since it will tend to do well in the current uncertain times. - not because I think it has any real future in the world economy.

 

 

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Re: "gold bug" undercurrents

[edit] removed by Straight.  Posted in wrong thread.

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Re: "gold bug" undercurrents

Much appreciated scepticus! Now I get it.

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Re: "gold bug" undercurrents
Quote:

4)  Gold is not inflation
proof, since it can be mined, and gives unfair advantage to nations
with gold deposits. So some people see bugs as somehat anachronistic.

Scepticus,

The fact that gold can be mined does not make it susceptible to inflation, and in fact that is why it (or any other commodity) make it perfect as money.  The reasons for this are as follows:  In order for gold to be mined, labor and other raw materials (in the form of expensive machines) must be put to work.    This costs money.  If the money supply itself is gold, this means the value of gold is the same as the cost of getting it out of the ground, plus the risk involved in putting exisiting gold at stake in the hope of finding new gold.  In other words, gold (and any other scarce difficult to extract commodity) is self-regulating. 

I don't quite see how digital codes could accomplish this.  Who ever has the code-decryptor/encryptor is basically the same as whoever has the printing press in today's world, or no?

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Re: "gold bug" undercurrents

God, I love this website!  Great question, great response!  I was wondering the same, and am pleased to know that my gut sense was correct.

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inflation possilbe under gold standard

A gold standard is susceptible to inflation, if the conditions arise where there are fewer goods and services available than previously and the same amount of gold.  If production declines then there is less stuff, if money, in this case gold, remains the same then inflation will arise.  Imagine that the world is running out of oil/energy and running out of raw materials and farmland is less fertile and fertilizer is in short supply.  In a world like that there will be less production from factories and less production from farms, but the same amount of gold to buy things with.  Is there another option than prices rising?  Now maybe an Austrian Economist would say that is not inflation because inflation is always a monetary event.  But there will be price inflation.  A world declining in energy, resources and fertility is much like the one the crash course implies.

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Re: inflation possilbe under gold standard

The value of things would go up because there are less things relative to gold than before.  In fiat-money inflation, the value of everything except your money stays the same.   In other words, we've been imposing mini peak-oil-like events upon ourselves with every boom and bust because we continue to tolerate fiat money! 

 

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Re: inflation possilbe under gold standard

HI Patrick,

I don't think the value of things change in either scenerio (paper inflation or gold inflation), just the price.  [There is a lot written about price and value and I haven't read almost any of it, so I may be off the mark on this, but it is what I recall from what little I've read.]

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Re: inflation possilbe under gold standard

If production decreases because we're out of oil and out of food, the value of anything derived from those things (which means everything in existence) is going to go up.   It's not just a price issue, in this case the price increase is due to the supply of the product going down, not the supply of money going up.

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Re: "gold bug" undercurrents

Arr, me hearty!

Some generalizations about 'gold bugs' may include:

Faith in the value of gold could be seen as simplistic and unsophisticated.

There is a cultural belief that some people become fiends for gold and glitter and lose a sense of rationality. 

They are narrowly fixated on the one asset that's got to make them rich. If not, there must be a conspiracy because what has more intrinsic value than gold?

The dollar has ruled for many decades and many folks are in denial that our great empire could falter. They are terrified that we might have to resort to barbaric means of exchange via precious metals.

Finally, I resisted gold for a long time because it represented greed. The mining practices are also insensitive to human rights, water quality, etc. It also doesn't seem to do anything productive. I can't eat it. It doesn't keep me warm. It just sits there and were stuck hoping that other people will continue to have faith in its value.

 

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Re: "gold bug" undercurrents
deadman wrote:

Finally, I resisted gold for a long time because it represented greed. The mining practices are also insensitive to human rights, water quality, etc. It also doesn't seem to do anything productive. I can't eat it. It doesn't keep me warm. It just sits there and were stuck hoping that other people will continue to have faith in its value.

These are excellent points. I think about these issues much more than in my pre-peak days.

Mmm.. a dilema. On the one hand, if I work to help a farmer grow food and I convert my wages to gold, that gold represents "good wealth" that I helped to create and am entitled to protect from inflation. On the other hand, the resulting demand for gold does harm to our planet.

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Re: "gold bug" undercurrents

Patrick wrote

"The fact that gold can be mined does not make it susceptible to
inflation, and in fact that is why it (or any other commodity) make it
perfect as money. The reasons for this are as follows:"

When the spanish empire discovered huge quantities of gold and silver in central and south america, it caused significant price inflation throughout europe in the 16th and 17th centuries. If there is more money, things will get more expensive. Your argument is speculative at best, and is notsupported by the evidence to date.

"I don't quite see how digital codes could accomplish this. Who ever
has the code-decryptor/encryptor is basically the same as whoever has
the printing press in today's world, or no?"

Google for 'digital cash'. But yes, the private key holder is the issuer. However, anyone who has the public key (i.e. everyone can recover the serial number of a given digital dollar, and can thus determine whether new digital dollars above the original agreed amount have been issued. This is better than a gold standard, since presumably under a gold standard you must trust that the vault holds all the gold against which it has written notes. Crytptography will keep currency issuers (private or public) more honest than gold.

Once this honesty is easily enforced and assessed by all, gold will return to being merely decorative. No gold bug should be without an understanding of how encrypted digital cash operates.

 

 

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Re: "gold bug" undercurrents
cedar wrote:

Thank you. I understand your comments. Am wondering why I sense a negative view of gold investors by non-gold investors? It feels different than, for example, whether you think Google or GM is a good investment.

 

I am fairly new to the scene as well, but one of the points I feel i've grasped fairly well is this:

The term "gold investor" is an oxymoron. The reason is that gold is a hard asset. It does not and cannot increase in true value by itself (i.e. it does not self replicate). It only increases in nominal value when measured by something else. Nowadays it is paper money that is used to measure the value of gold, when in reality it is the other way around, it is the price of an ounce of gold (and all other tangible assets) that shows how far paper money has depreciated. Gold is a store of value, nothing more, nothing less

 In the 30's a car cost roughly $600, or 30 ounces of gold. A decent car nowadays costs $25000, or roughly 30 ounces of gold. See my point?

 

 

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Re: "gold bug" undercurrents

I care not for the preconceptions of others with regards to fiat or gold.

I do know for a fact that if most Americans had the chance to go back to September 08 and convert their 401k's from stocks and fiat into gold that almost all of them would take it (some wouldn’t LOL) and of course most would then change it right back into fiat after the October collapse.

In short, you should use gold and fiat when it serves you to do so, ignore the naysayers because both groups are wrong at one time or another.

 

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Re: "gold bug" undercurrents
scepticus wrote:

Patrick wrote

"The fact that gold can be mined does not make it susceptible to
inflation, and in fact that is why it (or any other commodity) make it
perfect as money. The reasons for this are as follows:"

When the spanish empire discovered huge quantities of gold and silver
in central and south america, it caused significant price inflation
throughout europe in the 16th and 17th centuries. If there is more
money, things will get more expensive. Your argument is speculative at
best, and is notsupported by the evidence to date.

"I don't quite see how digital codes could accomplish this. Who ever
has the code-decryptor/encryptor is basically the same as whoever has
the printing press in today's world, or no?"

Google for 'digital cash'. But yes, the private key holder is the
issuer. However, anyone who has the public key (i.e. everyone can
recover the serial number of a given digital dollar, and can thus
determine whether new digital dollars above the original agreed amount
have been issued. This is better than a gold standard, since presumably
under a gold standard you must trust that the vault holds all the gold
against which it has written notes. Crytptography will keep currency
issuers (private or public) more honest than gold.

Once this honesty is easily enforced and assessed by all, gold will
return to being merely decorative. No gold bug should be without an
understanding of how encrypted digital cash operates.

Good grief.  The example of the Spanish proves my point exactly.  This gold was not mined, it was confiscated via force and violence.  It was not produced, it was stolen.  Of course prices would go up in whatever economy the stolen gold was injected into.  Note that the production of fiat money creates the same effects in the dilution of purchasing power as did the injection of stolen gold in the Spanish and Portuguese economies.  The only difference is the Spanish stole from the Indians and fiat governments steal from their citizens and their citizens' children.  Care to point to any examples of inflation in a gold economy that was caused by produced gold and not stolen gold?

My argument is not "speculative", it is the central argument behind a commodity based money system.  It was used by the Byzantine empire for 800 years.

Talking about speculative -  "digital cash", "encrypted key"????  Capital needs to represent production.  You cannot "digitize" it into existence anymore than you can print it into exisitence.  This digital idea is just the digital equivalent of a paper currency.  It is backed by nothing and it places all the power to corrupt the system in too few individuals.  

Commodity-based currencies do not place power with anybody.  They are a self-regulated quantity.  That is why they are so powerful and why every government and central banker in the world fears and loathes them.  That by itself should tell you plenty.

 

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Re: "gold bug" undercurrents
Fivemileshigh wrote:

Gold is a store of value, nothing more, nothing less

In the 30's a car cost roughly $600, or 30 ounces of gold. A decent car nowadays costs $25000, or roughly 30 ounces of gold. See my point?

 

That may be true as an average over a long period of time, but I think that in the short term (i.e. a few years), gold's value can vary and can be used as an investing tool, by taking advantage of herd mentality.  For example, my opinion is that right now, gold is undervalued.  I think that once the masses dive back into gold, it will become overvalued in a short period of time.  And at that point, the smart investor will sell at least some and use the proceeds to buy something else that is undervalued, while the masses will hold on until gold drops back down to a more reasonable level.

 

SteveR

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Re: "gold bug" undercurrents

Patrick said:

"The only difference is the Spanish stole from the Indians and fiat
governments steal from their citizens and their citizens' children. 
Care to point to any examples of inflation in a gold economy that was
caused by produced gold and not stolen gold?"

I'm not sure I understand the difference between stealing and producing gold. Either way, new gold enters the economy.  In a modern gold economy, are you suggesting that advanced nations will not steal gold from the africans and other holders of gold deposits? We have been stealing pretty much everything from the africans non stop including their diamonds and gold for several centuries so why do you think we would suddenly stop just because we have gold backed money? 

The real question is the difference in cost between legitimate production and illegitimate stealing. I'm not sure how the scosts of these two enterprises differ. Are you?

"Talking about speculative -  "digital cash", "encrypted key"???? 
Capital needs to represent production.  You cannot "digitize" it into
existence anymore than you can print it into exisitence.  This digital
idea is just the digital equivalent of a paper currency.  It is backed
by nothing and it places all the power to corrupt the system in too few
individuals.  "

You can digitize it into existence. It does not need to be backed if tampering with the volume of money can be detected by its users without recourse to fuzzy methods like price indexes. It differs from fiat paper money in the sense that transactions can automatically reject any digital dollars created in excess of the originally agreed volume.

"Commodity-based currencies do not place power with anybody.  They
are a self-regulated quantity.  That is why they are so powerful and
why every government and central banker in the world fears and loathes
them.  That by itself should tell you plenty."

The power in such a system will be with the gold warehouse who prints the gold backed warehouse notes, unless you are proposing that every transaction involves transferral of physical gold without use of warehouse notes. How does one verify that the gold warehouse has enough reserves to redeem all notes against it? If the gold warehouse is run by the government then you have the same problem you have with fiat, if you don't trust the government.

 If you have competing private-run gold backed notes circulating, then the success of these currencies is based on reputation, reputation, reputation. Reputation can be established by cryptographic processes better than it can be holding gold reserves, since the cryptography establishes exactly the amount of digital money in circulation, whereas there is no such constraint on the issue of warehouse notes. 

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