Gold and the economy

[stinkycheese1]

My dad has been watching alot of news lately, especially about the market.

Apparently he's a bit curious over something that was brought up, that is, if our money devalues and becomes worth alot less or worthless, from bank failures, etc. Then one should buy gold, because gold holds it's value, unlike the US dollar.

 

He asked me this question. If you had 10 grand to spend, what would be the better investment/or worth more, buying gold bullion or buying 1 or 2 rare gold coins?

 

I can't tell..I know that rare coins are in demand, but you can also get alot of bullion and liquidiate it easily too for the same price.

 

 

[thebeav]

In a failed economy, bullion would fare much better than rare coins. So you would want to buy k-rands and eagles......

 

Paul

[MarkFeld]

"Rare" US gold coins often move in price by a greater % than gold bullion does. But, they aren't as liquid and usually have larger buy-sell spreads. So if you're worried about a decline in the US dollar and want to own gold for that reason, I'd go with American Eagles.

[BillJones]

Yes, I agree. If the economy really goes down the tube bullion would be better. Rare coins are a luxury good.

 

But if the economy gets better, rare coins could generate a better return in the long run. But coins are a long run "investment." Gold bullion, given its day to day fluctuations can yield a better show run return.

 

[jtryka]

I agree that bullion would be better, though you might look at something other than bullion coins because if things get that bad, the government may resort to another FDR-type confiscation (I don't think it's likely but possible). I would look at Mexican 50-peso coins or pre-1933 circ common date gold if you can get it near melt.

[zrlevin]

I would actually buy silver...but that's just me.

 

The silver to gold ratio is 70:1, where it is historically 50:1. I predict that silver will do better than gold in coming times. I know it is a short sample size, but in the last few days it has done better...improving from about 75:1

[physics-fan3.14]

Everyone always mentions the silver:gold ratio. Why? I don't get it. It seems to mean absolutely nothing to me. There does not seem to be any valid reason why the two are tied together, except for the fact that they are similar commodities. I'm sure you could make an oil:gold ratio, or a gold:platinum ratio and make equally valid (i.e., unfounded) predictions.

[jtryka]

Actually, the Gold to Oil ratio is very commonly used to determine the relative valuation of either commodity and it's been a very good predictor when the valuations get to extremes, like when oil was at $147, it was clear that either oil would fall or gold would rise, or some iteration in between (what we got was oil falling much farther than gold). The gold silver ratio is based on a long history and serves a similar function. Ultimately all these ratios are methods of pricing, and are not less valid than the pricing in US Dollars which are simply a fantasy. To me, that makes much less sense, more akin to pricing oil in terms of reams of paper or acorns. Although you seem to have bought into the propaganda that gold and silver are mere commodities like concentrated orange juice, they are not, they are money, and the only money that has withstood 5,000 years of human history uninterrupted. Using ratios, or what I like to term pricing items in terms of gold or silver is just a ways to show how much the paper swirling around the current world economic hurricane has been devalued by the same officials that have been (arguably successfully) working to convince you and millions like you that gold and silver are just commodities and mean nothing to the modern economy.

[RareSov]

Perfectly said.

[pendragon1998]

Rare gold coins are worth a premium in addition to their inherent precious metal worth. That premium makes them a luxury good (i.e., you pay it not because you need it, but because you want it; it's optional). In an economic collapse, the amount of 'fun money' people have will be less, so either you'll have a harder time selling the coin for what you put into it, or you won't be able to sell it period. Bullion should tend to be more liquid.

 

 

[Oldtrader3]

The long standing historical ratio of gold to silver was approximately 20:1, not 65:1 as it is now. This ratio is particularly troubling if you consider the total world industrial demand for silver versus the total ounces being mined per year and the low inventories of silver.

 

I stand corrected, my numbers for silver production and demand in 2007 came from an unreliable source.

[CHABSENTIA]

The long standing historical ratio of gold to silver was approximately 20:1, not 65:1 as it is now. This ratio is particularly troubling if you consider the total world industrial demand for silver versus the total ounces being mined per year and the low inventories of silver.

 

The industrial demand for silver is 30 million ounces per year and the total mined production of silver was 10 million ounces in 2007. I believe that silver has a better upside potential than gold, based on these numbers.

 

That would be my thoughts based on those factors.

[Houston Investor]

Hold on to your numismatic coins but build up your bullion portfolio.

 

I am not going to abandon numismatic coins yet - I am always looking for better dates and quality 19th century type.

[just-john]

silver production by country for the year 2007

(millions of ounces)

1. Peru 112.3

2. Mexico 99.2

3. China 82.4

4. Chile 62.0

5. Australia 60.4

6. Poland 39.5

7. Russia 38.0

8. United States 37.3

9. Canada 25.8

10. Kazakhstan 22.7

11. Bolivia 16.9

12. Sweden 9.4

13. Argentina 8.5

14. Indonesia 8.2

15. Turkey 7.5

16. Morocco 7.1

17. Iran 3.1

18. India 2.9

19. Guatemala 2.8

20. Uzbekistan 2.8

 

 

 

[Oldtrader3]

Just-John, I used an unreliable source for my numbers of silver use and production in 2007. I should have checked the numbers against several sources.

 

1. The Silver Institute places silver production in 2007 at 671M ounces.

2. Industrial demand at 455M ounces, with total demand for all uses at: 843M ounces.

3. The difference between the (2) numbers is made up by government silver stock sales and scrap sales.

[Oldtrader3]

Interestingly enough the graphs for the past five years show an increase in gold price from $400/oz. to $875/oz.(+118%) and in PCGS Coin Index from $60,000 to $73,000 (+22%). I doubt that there is an actual strong correlation between the two, except for inflation.

[michael]

coins are not an investment

 

also with world usage/demand shrinking for oil and also new technology coming into play wind power and other clean forms of energy and also with cars going to clean burning fuel all this happening in ten years i see gold declining as oil will decline and be obsolete

[physics-fan3.14]

coins are not an investment

 

also with world usage/demand shrinking for oil and also new technology coming into play wind power and other clean forms of energy and also with cars going to clean burning fuel all this happening in ten years i see gold declining as oil will decline and be obsolete

 

Oil will never be entirely obsolete. Replacing oil with wind, water, solar, nuclear, pick your favorite energy source will greatly reduce the amount of oil we consume, but I think there will always be a need for oil. Just think of all the things we make from oil besides petrol.

[TDSD38-migration]

There seems to be a paradox in the silver market. The fact is that it's been hard at the retail level to obtain silver. As one Kitco commentator pointed out, that's a fact. However, most statistics that I've found show the silver market in balance, i.e. supply equals demand. One way to possibly explain the discrepancy is that China's figures aren't exactly transparent and are the wild card in the equation. Silver is very unpopular in China as an investment while Gold has always been the favored investment metal there. How do we know that China is disclosing all of their Gold production figures and not secretly accumulating Gold reserves? We know by our import figures how many dollars they are likely to have. But as I've stated before, they want out of the dollar. Pre 1971, they when the dollar was still convertible to Gold they would have just presented their export surplus of dollars to the Fed and had them store the bullion in the Vault under their name in New York. Now they can't do that. All they can do is secretly mine gold and stock pile it on the assumption that their dollar reserves are going to decline in value. If they dumped them all at once the dollar would crash. I guess their could be a slowww leak going on of swaps into another currency or metal like even copper, kind of under the radar, who knows.

[MikeInFL]

Apparently he's a bit curious over something that was brought up, that is, if our money devalues and becomes worth alot less or worthless, from bank failures, etc. Then one should buy gold, because gold holds it's value, unlike the US dollar.

 

He asked me this question. If you had 10 grand to spend, what would be the better investment/or worth more, buying gold bullion or buying 1 or 2 rare gold coins?

 

In my opinion, gold is a great hedge against the falling dollar -- your father is right.

 

That said, I also think that gold bullion purchased for as close to spot as possible is the better investment....Mike

[MikeInFL]

So if you're worried about a decline in the US dollar and want to own gold for that reason, I'd go with American Eagles.

 

Hi Mark! Why AGEs? Can't you buy bullion for closer to spot via a number of foreign bullions coins? My impression was that the AGEs carried more of a premium to spot on the buy side, and therefore are (slightly) worse than some alternatives as an investment. Just wondering what your rationale was....Mike

[James_OldeTowne]

I would actually buy silver...but that's just me.

I happen to agree.

 

But really, the best investment you can make is neither coins nor gold nor silver nor cash. It's equity. Pay off your debts first. Get rid of the credit cards, get rid of the car loan, get rid of the student loans, then get rid of your mortgage. You may not actually accomplish all these goals, but will go a long way in trying.

 

I can't believe how many people own $10,000 in gold equities, but have $15,000 in credit card debt.

 

I'm not debt free myself, but am working very hard towards it. That's why I have a cheap car and a cheap home !

[Just Bob]

I'm not debt free myself, but am working very hard towards it. That's why I have a cheap car and a cheap home !

 

Same here.

 

Now, if I could just get my wife on board...........

[MarkFeld]

So if you're worried about a decline in the US dollar and want to own gold for that reason, I'd go with American Eagles.

 

Hi Mark! Why AGEs? Can't you buy bullion for closer to spot via a number of foreign bullions coins? My impression was that the AGEs carried more of a premium to spot on the buy side, and therefore are (slightly) worse than some alternatives as an investment. Just wondering what your rationale was....Mike

Mike, I'm under the impression that they're more popular and perhaps a tad more liquid. And if we have a real doomsday scenario (which, by the way, I'm not predicting), I think they'd be easier to sell or trade. While they might cost a bit more, I think you can also sell them for a bit more, too. And if there is a greater buy/sell spread for them than for other 1 oz. gold bullion coins, it's negligible - maybe $1 or $2/coin.

[just-john]

Today 1O/Z BUF were $1059.00 Eagles were $1119.00

 

While 1o/z seem popular 1/10 and 1/4 and 1/2 are sometimes the easy one to cash or trade things for not everyone will want to cash $1000/00 Plus coin while a 1/10 oz could use for gas/food

 

Still can't see why their bailing out these company's why not just let them sink and take over the bad home loans and lower the rates to say 2% and have the people pay the FED

That would make the Fed some money and lower late payers payments or make it so they could use their income tax returns to get even .

 

With money getting so cheap make me wounder if it's worth anything and when/if inflation starts to rise. You will be paying back inflated money against those low interest notes.

 

5yr from now those payments will seem cheap

[Oldtrader3]

The Fed does not have a choice, if AIG, Merrill Lynch and Lehman's are allowed to fail it would trigger a run on all the other investment banks and commercial banks in this country causing our economy to collapse. Our foreign creditors would lose $100's of billion dollars and much of their bond holdings in U.S. dollars.

 

These bond holder countries, including Great Britain, Germany, Japan, Russia and China, would abandon the dollar if we had a run on the banks and an economic collapse similar to 1929. You have to understand the position that the Central Bank is in? We can not allow a world-wide economic collapse. Do you really want to lose everything that you have saved, have your debt come due and payable including any property you have a mortgage on? The FDIC could not nearly meet the obligations of a $1 trillion dollar bank run.

 

It is this solution or falling into the financial abyss. Traders who are trading against this plan will be standing in soup lines if the plan fails. The people who caused this should pay in some financial loss. However, the Congress and the people of this country need to suck it up and support the Fed or we are in really big trouble.

[CHABSENTIA]

The Fed does not have a choice, if AIG, Merrill Lynch and Lehman's are allowed to fail it would trigger a run on all the other investment banks and commercial banks in this country causing our economy to collapse. Our foreign creditors would lose $100's of billion dollars and much of their bond holdings in U.S. dollars.

 

These bond holder countries, including Great Britain, Germany, Japan, Russia and China, would abandon the dollar if we had a run on the banks and an economic collapse similar to 1929. You have to understand the position that the Central Bank is in? We can not allow a world-wide economic collapse. Do you really want to lose everything that you have saved, have your debt come due and payable including any property you have a mortgage on? The FDIC could not nearly meet the obligations of a $1 trillion dollar bank run.

 

It is this solution or falling into the financial abyss. Traders who are trading against this plan will be standing in soup lines if the plan fails. The people who caused this should pay in some financial loss. However, the Congress and the people of this country need to suck it up and support the Fed or we are in really big trouble.

 

I have to disagree to some extent. Merrill Lynch was absorbed by Bank of America so it is out of the way for now.Lehman Brothers isn't really a Player. AIG is a different situation as it is involved in just about any deal affecting any kind of Insurance including the Global Economy. Paulson does not want a limit on CEO Compensation.Just wants 700 Billion with no strings attached.The FDIC insures an Individual Savings account up to 100K. If the FDIC can't meet those with 100K then the U,S, Treasury will step in as a last resort. There might be a situation where some Depositors might only be allowed to withdraw a certain amount of money such as $3000.00 at a time.Lehman Brothers is Bankrupt but has set aside 2 Billion dollars for Executive compensations.This is Garbage. People that have paid their Mortgages off will have no problem. People who already have Mortgages and meet their payments will have no problems.Only people that want to borrow Money to buy a House or a Car might have problems.There is no guarantee that 700 Billion will solve it. Obama said today that he "favors extending the Bailout to people with bad Student Loans, People with bad Credit card Loans and the Automobile Companies with bad Loans".This has no end.There needs to be Pain at any but certain levels.

 

This is probably a moot point. I did not get the whole situation as I got in on the tail end of an Interview, It was said that there would be a deal by Thursday night with few or no strings because Congress was scheduled to go on Recess Friday. If this happens then there will be little discussion and a sign that Congress could care less about the Taxpayers and 700 Billion dollars might not be enough. There is also something called a Credit Default Market with no regulation and it is a 58 Trillion dollar market.

[Oldtrader3]

Chabsentia, you always do a wonderful job of twisting my words into meaning something that I did not say. I do not believe that anyone ever had any intention of covering the entire credit default market. Congress is probably going to require curtailment the golden parachutes for many executives who steered their companies into or close to bankruptcy. This is as it should be. I do not believe that most people, and certainly not Congress, feel that these senior executives should be rewarded for their poor stewardship or abrogation of their duties to meet financial goals and keep the enterprises that they ran healthy and solvent.

 

I would also imagine that much of the $1 billion in severance that is being held by Lehman is allocated to Lehman's employees as part of the Chapter 11 reorganization. Severance pay for other than senior management level employees who stay in their jobs through reorganization is normal and should be provided for. My daughter's husband is losing his middle management job at Lehman's and has been promised severance if he stays until the end of the year. He is not a senior executive and will need the severance pay until he can find another job. Given the conditions on Wall Street, it may be awhile until he can find another job.

 

There will be plenty of "pain" to go around in this recession. I certainly am not advocating any debt bailout for most creditors. Congress has talked about debt relief for a certain class of mortgage debtors, who are in default.

 

Had the Fed not stepped in some of these defaults including AIG, Fannie and Freddie, there may have been widespread default on bonds, derivatives and other forms of debt which are held by foreign countries as part of our trade deficits and National Debt. This is the debt that I was referring to.

 

I am retired, disabled, and can not sell my house in this market to buy a smaller home for my wife and I. We will have a sufficient financial pain this winter until the mortgage market eases credit a little, plus interest rates and home sales pick up so we can sell our home. I am not asking for nor do I expect any charity.

 

Don't twist my words and misconstrue what I am saying. I am talking about economic default of the country, not of individuals. I also am not advocating any socialistic solutions for this country to solve their problems as you and World Colonial keep trying to put words in my mouth about. I just want the economy of this country to be normalized again so that we all my go on with our lives without threat of collapse of our financial system and outrageous inflation on fuel and food prices.

[CHABSENTIA]

Chabsentia, you always do a wonderful job of twisting my words into meaning something that I did not say. I do not believe that anyone ever had any intention of covering the entire credit default market. Congress is probably going to require curtailment the golden parachutes for many executives who steered their companies into or close to bankruptcy. This is as it should be. I do not believe that most people, and certainly not Congress, feel that these senior executives should be rewarded for their poor stewardship or abrogation of their duties to meet financial goals and keep the enterprises that they ran healthy and solvent.

 

I would also imagine that much of the $1 billion in severance that is being held by Lehman is allocated to Lehman's employees as part of the Chapter 11 reorganization. Severance pay for other than senior management level employees who stay in their jobs through reorganization is normal and should be provided for. My daughter's husband is losing his middle management job at Lehman's and has been promised severance if he stays until the end of the year. He is not a senior executive and will need the severance pay until he can find another job. Given the conditions on Wall Street, it may be awhile until he can find another job.

 

There will be plenty of "pain" to go around in this recession. I certainly am not advocating any debt bailout for most creditors. Congress has talked about debt relief for a certain class of mortgage debtors, who are in default.

 

Had the Fed not stepped in some of these defaults including AIG, Fannie and Freddie, there may have been widespread default on bonds, derivatives and other forms of debt which are held by foreign countries as part of our trade deficits and National Debt. This is the debt that I was referring to.

 

I am retired, disabled, and can not sell my house in this market to buy a smaller home for my wife and I. We will have a sufficient financial pain this winter until the mortgage market eases credit a little, plus interest rates and home sales pick up so we can sell our home. I am not asking for nor do I expect any charity.

 

Don't twist my words and misconstrue what I am saying. I am talking about economic default of the country, not of individuals. I also am not advocating any socialistic solutions for this country to solve their problems as you and World Colonial keep trying to put words in my mouth about. I just want the economy of this country to be normalized again so that we all my go on with our lives without threat of collapse of our financial system and outrageous inflation on fuel and food prices.

 

You misunderstood. I said the Credit Default Market is something that could be a later problem and this Market is 58 Trillion. I remarked a year ago on these Forums that I thought that there was a deliberate move by the Fed in the person of Bernake. Raising Interest rates as he did 15 consecutive times was a problem. Historically any time that Federal Funds rate has been raised times there has been some level of recession.Bernake raised it almost three times that muchI think that Bernake was not aware of the Mortgage Marke to this extent,however, a person with a PHD in Economics and a supposed expert on the Great Depression should have been aware of this Historical Fact.If you remember the News accounts then you will also remember that Paulson was in daily contact with Bernake.This in irself is questionable. There is no guarantee that 700 Billion will be enough and there is another 700 Billion every year going out of the Country to buy Oil and those Foreign Governments are using that Money to then buy our Commercial properties.If other Countries decide to forego the dollar for the Euro then our cost of Oil will be $175.00 overnight and probably more as there will be another decline of the dollar.If this happens then look for a minimum of $5.00 a gallon for Gasoline.

 

Doesn't anybody else see what is going on here? Paulson wants a guarantee by Congress that no Court of Law or any other Government Agency will be able to overturn any of his decisions.Congress will be turning over the Purse Strings and will be placing Astronomical Powers in the hands of one individual with no remedy against it.I am sorry for your situation but selling your home will be the least of your problems.Nobody knows if 750 billion will be enough and the Bad Student Loans as well as the Automakers and bad Credit card Loans are next in line at the trough.There is no guarantee that the Housing Market will get any better.It just means that Mortgages that nobody knows how much they are worht for sure will be taken off the books and will make them relatively more Healthy Financially.Lehman Brothers set aside 2 Billion and not 1 Billion for Executive compensations and Paulson is adamant that he does not want any restrictions or Limits on Executive Compensation. You would out this much Power in the hands of two individuals who are primarily responsible for this situation. I havent even got to Cox who is Chairman of the SEC and allowed the practice of "Naked Shorting" among other things.

[Conder101]

Paulson wants a guarantee by Congress that no Court of Law or any other Government Agency will be able to overturn any of his decisions.

But he can't get that with anything short of a constitutional amendment. Any law, resolution, or executive order giving him that power can be overturned on constitutional grounds by the courts. And once the law giving him those powers is overturned then his decisions can be overturned as well.