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Republican Tea Party Gold Standard?
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22-08-2011 1:00am#1Moderators, Category Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 47,539 CMod ✭✭✭✭Join Date:Posts: 36608
The trading of gold at the fixed price of 35 USD was ended by former US President Richard Nixion 15 August 1971. Most major economies had followed the US and ended this practice. Now US Congressman Ron Paul, presidential or VP candidate, Texas Republican, and an outspoken leader of the Tea Party movement, wants America to return to the gold standard.
Is this wise? Like the dot.com and housing market bubbles, will gold be the next one to burst? Unsustainable growth speculation causes bubbles, and like ponzi schemes, the first buyers that ride the bubble to its peak and sell before it bursts, greatly increase their wealth not from producing value, but rather from grabbing the money from those investors that bought late or could not get out before it burst. The following chart is illustrative of this process:
Self-made billionaire investor Warren Buffett believes that the price of gold is currently being driven not by increasing productive value, rather by “fear” of an uncertain US monetary system. “And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”
The 17 August 2011 Forbes business magazine reported: “Wells Fargo (WFC) is warning investors that the gold bubble is about to burst and big hedge fund managers are taking their profits. When the gold bubble bursts, will the government bail out the losers?”
US fixed gold price 1971: $35
NY closing spot price today (ask): $1854.10
If in 1971 I purchased an item (ounce of gold) for $35, then in 2011 that same item would cost: $195.24 ( http://www.usinflationcalculator.com/ ).
Would this Republican Tea Party initiative led by Congressman Ron Paul be a wise move for America, or if adopted, be the next economic disaster in the making? What does this say about Ron Paul, or the Republican Tea Party?
Sources:
http://www.forbes.com/sites/petercohan/2011/08/17/will-rick-perry-bail-out-the-bursting-gold-bubble/
http://wallstcheatsheet.com/economy/heres-what-warren-buffett-says-about-gold-and-commodities.html/
http://abcnews.go.com/Politics/tea-party-momentum-utah-bill-brings-gold-standard/story?id=13377409
http://www.usatoday.com/news/politics/2011-06-12-Tea-Party-Iowa-caucus-Cain-Bachmann-gold-standard-GOP_n.htm1
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Moderators, Category Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 47,539 CMod ✭✭✭✭
Join Date:Posts: 36608
In the major economies of the world today gold is a commodity, not "money." Commodities are subject to various market forces, adding to their instability, consequently it is not a safe haven to secure lasting value.Gold is money, people want their money to be secure and not in other currencies which could by hyperinflated soon.
Until about the year 2002, the price of gold generally tended to track inflation (see below Bloomberg chart). For example, when inflation rapidly came down in the early 1980s, the price of gold fell dramatically with it; i.e., although volatile, gold was predictable in its general tie to inflation.
Beginning roughly in 2002, the cost of gold left its historic link to inflation, suggesting that something besides inflation was affecting its price (not productive value, because it produces little or no value by simply holding it). Leaving its historic link to inflation may suggest that it’s a bubble, just like the recent real estate bubble, where bankers and buyers drove pricing to unsustainable highs.
Like real estate, the price of gold will collapse (or pop or dramatically adjust downwards), just like bubbles of the past. And just like a ponzi scheme, those that bought early and sell at its peak, will acquire great wealth from those that lose their money when it dramatically falls; i.e., in terms of our OP and 2012 Republican Presidential (or VP) Candidate Ron Paul’s Tea Party initiative to return to the gold standard, a bubble is not a stable foundation in which to base an economy. Does this make you wonder about the soundness of other Republican Tea Party initiatives that he is promoting during his recent campaign?
In the chart below these above points have been illustrated by plotting the inflation-adjusted gold price versus the year-over-year change in Core CPI.
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Black Swan wrote: »In the major economies of the world today gold is a commodity, not "money." Commodities are subject to various market forces, adding to their instability, consequently it is not a safe haven to secure lasting value.
Until about the year 2002, the price of gold generally tended to track inflation (see below Bloomberg chart). For example, when inflation rapidly came down in the early 1980s, the price of gold fell dramatically with it; i.e., although volatile, gold was predictable in its general tie to inflation.
Beginning roughly in 2002, the cost of gold left its historic link to inflation, suggesting that something besides inflation was affecting its price (not productive value, because it produces little or no value by simply holding it). Leaving its historic link to inflation may suggest that it’s a bubble, just like the recent real estate bubble, where bankers and buyers drove pricing to unsustainable highs.
Like real estate, the price of gold will collapse (or pop or dramatically adjust downwards), just like bubbles of the past. And just like a ponzi scheme, those that bought early and sell at its peak, will acquire great wealth from those that lose their money when it dramatically falls; i.e., in terms of our OP and 2012 Republican Presidential (or VP) Candidate Ron Paul’s Tea Party initiative to return to the gold standard, a bubble is not a stable foundation in which to base an economy. Does this make you wonder about the soundness of other Republican Tea Party initiatives that he is promoting during his recent campaign?
In the chart below these above points have been illustrated by plotting the inflation-adjusted gold price versus the year-over-year change in Core CPI.
You can't say anything in the market will or won't happen. I can take Ron Paul's word that gold could go up to $10,000 dollars or I can take your word that it will collapse. I'm more inclined to believe the person who predicted the housing bubble before it was blatant to a neutral investor.0 -
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In my amateurish opinion gold is definitely in a bubble. Just one look at the graph in the OP should confirm that. It bears a striking resemblance to similar graphs of housing prices before the bust. I do think there is another 12-18 months left in it though, coming to end a few months before the US Federal Reserve begins to tighten the money supply in mid 2013. In Europe on the other hand it really depends on whether the Euro can get through the current mess.
On how a the bubble could affect the currency on a Gold Standard, it would have some dire consequences alright. I was thinking though, could the Government run large surpluses and just burn the money and then appreciate the Dollar against gold? Another option could be a silver standard instead.
Seen as we are talking about Ron Paul's worth, just today on The Schiff Show, Ron's investment portfolio was been discussed. Most of his stock is in silver and gold mining, since 2001 the worst performing stock is up 300%, his best stock is up 2000%. Over that same period the Dow is stagnant. He obviously deserves a bit of credit as an investor.
From my own experiences (playing the Virtual Stock Exchange nonetheless
), two weeks ago I bought stocks in two mining companies, they are now worth 47% more. In another game I am up 15% just today(Dow is up .34%). These numbers (along with Ron Paul's) would seem to shout out bubble, the only question's to be asked are when will it burst? and who has the courage to hang in the longest? 0 -
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Black Swan wrote: »In the major economies of the world today gold is a commodity, not "money." Commodities are subject to various market forces, adding to their instability, consequently it is not a safe haven to secure lasting value.
Until about the year 2002, the price of gold generally tended to track inflation (see below Bloomberg chart). For example, when inflation rapidly came down in the early 1980s, the price of gold fell dramatically with it; i.e., although volatile, gold was predictable in its general tie to inflation.
Beginning roughly in 2002, the cost of gold left its historic link to inflation, suggesting that something besides inflation was affecting its price (not productive value, because it produces little or no value by simply holding it). Leaving its historic link to inflation may suggest that it’s a bubble, just like the recent real estate bubble, where bankers and buyers drove pricing to unsustainable highs.
Like real estate, the price of gold will collapse (or pop or dramatically adjust downwards), just like bubbles of the past. And just like a ponzi scheme, those that bought early and sell at its peak, will acquire great wealth from those that lose their money when it dramatically falls; i.e., in terms of our OP and 2012 Republican Presidential (or VP) Candidate Ron Paul’s Tea Party initiative to return to the gold standard, a bubble is not a stable foundation in which to base an economy. Does this make you wonder about the soundness of other Republican Tea Party initiatives that he is promoting during his recent campaign?
In the chart below these above points have been illustrated by plotting the inflation-adjusted gold price versus the year-over-year change in Core CPI.
Good thread. But could the above graph be attributed to this;
Inflation increases when people have more money to spend, one of the things they do when they have more money is invest, investing in gold?
I realise de linking happened in the 70's but is there any use looking at the same graph pre 70's?0 -
Moderators, Category Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 47,539 CMod ✭✭✭✭ Join Date:Posts: 36608
Very interesting question.I realise de linking happened in the 70's but is there any use looking at the same graph pre 70's?
Exercising caution when interpreting (given the "de-linking" of the dollar to the gold standard in August 1971), the following chart begins with the annual average price of gold at $20.64 in 1913. The gold price data were annual averages that smoothed out intra-year spikes, and were from the London fix published by Kitco, and the CPI (Consumer Price Index as a measure of inflation) data were annualized by the Federal Reserve Bank of Minneapolis.
If the price of gold tracked CPI beginning in 1913 ($20.63), the inflation adjusted price today would be approximately $460. Today the (nominal) price of gold surpassed $1900 per ounce.
No matter if you look at the earlier posted chart, or this one (which exhibited some differences due to different time frames, annualized smoothing, London fix vs NY spot, etc.), there still exists a major departure from the inflation adjusted price of gold, and the huge increase in what buyers are currently paying for it.
This huge escalation in the price of gold reminds me of an earlier unsustainable escalation in American real estate prices adjusted for inflation:
How quickly we forget. Unfortunately, Republican Presidential hopeful Ron Paul, and his Tea Party supporters, do not see the similarities between the current gold and past real estate patterns (i.e., bubbles), and would attempt to balance a precarious US economy on the gold bubble.0 -
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Moderators, Category Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 47,539 CMod ✭✭✭✭ Join Date:Posts: 36608
Back to the OP topic of the gold standard...Are all the rare metals seeing huge historic price increases?
The below charts the monthly inflation-adjusted price levels of gold and silver since 1915. Each series is smoothed with a 12-month moving average. Gold pricing is on the left side, and silver pricing on the right. It is a 2010 chart, and obviously does not reflect the steep 2011 increase in the price of gold to over $1900 an ounce.
Source: London Bullion Market Association
It would appear that silver tracks gold, although gold appears to have taken off at a higher rate recently than silver. In any case, both precious metals appear highly volatile since about 1971, and it makes one wonder how such volatility would threaten the foundation for promoting a stable, gradually improving US economy; i.e., why return to the gold standard as advocated by Ron Paul and his Tea Party supporters, when gold has become so volatile? Or why bother considering a silver standard as an alternative, given its recent high volatility too? Neither seem promising.0 -
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Moderators, Category Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 47,539 CMod ✭✭✭✭ Join Date:Posts: 36608
The OP is not about taxation. It's about the gold standard that has been advocated by 2012 Republican presidential hopeful Ron Paul, and his Tea Party supporters; and a return to the gold standard, no matter whom endorses it, may lead to serious economic trouble, as suggested by the data, charts, and discussion presented on this thread.I'm confused, is the OP about the Gold Standard or is it just another attempt to portray the Tea Party as the Bogeyman?
If you can find other 2012 US presidential hopefuls endorsing or opposing a return to the gold standard, be they Republicans, Democrats, Independents, or the sitting President Obama, that would be a useful and interesting comparison. Do you have any, or is Ron Paul the only one really pushing for this?0 -
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I like the idea of putting actual gold dust in the paper but if the gold standard was law then the idea of printing more money than you have taken in gold would be very risky to a politician. The Perth Mint sells physical and you can get your physical and hide it in the mattress, but the plebs think their paper is worth something.Cant find the post on this thread but someone has mentioned that there is more gold "owned" than actually exists. A a lot of the financial advice columns in the irish papers over the last months were recommending the perth mint if you wanted to buy gold. If you buy from them all you get is a certificate saying you own gold.
If the attraction of gold is that its rare, doesnt the above mean that gold is being devalued?
And if you just have a certificate saying you own gold then what difference is it to paper money? I mean mints can just sell more gold by printing more certificates, in the way that countries have printed more paper money thereby reducing its actual worth?
The thing is with gold a big sell-off isn't expected. Everyone with gold supposedly has it in a safe in Zurich or London or somewhere but really they don't have that much. Chavez caused a big fuss when he demanded all his gold reserves be delivered because it's not that they don't exist but if he gets his then everyone else will ask for theirs and there won't be enough to go around. It's like the banks with depositors money. The money wasn't safe so the depositors wanted it back and the government had to intervene to kick the can down the road prevent the whole banking system from collapsing.Black Swan wrote: »Back to the OP topic of the gold standard...
The below charts the monthly inflation-adjusted price levels of gold and silver since 1915. Each series is smoothed with a 12-month moving average. Gold pricing is on the left side, and silver pricing on the right. It is a 2010 chart, and obviously does not reflect the steep 2011 increase in the price of gold to over $1900 an ounce.
Source: London Bullion Market Association
It would appear that silver tracks gold, although gold appears to have taken off at a higher rate recently than silver. In any case, both precious metals appear highly volatile since about 1971, and it makes one wonder how such volatility would threaten the foundation for promoting a stable, gradually improving US economy; i.e., why return to the gold standard as advocated by Ron Paul and his Tea Party supporters, when gold has become so volatile? Or why bother considering a silver standard as an alternative, given its recent high volatility too? Neither seem promising.
I would go for a gold AND silver standard. I think silver is undervalued, it should be worth 1/17 of what gold is worth but it's worth less than 1/40 of what gold is worth. Moral of the story: Buy silver.
I think gold and silver are commodities but they are also money (volatile money) and economic indicators.
You may argue gold isn't money, but I don't take the Bernank's answer that banks store it because of tradition as the truth.0 -
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Your goal seems to be to attack Ron Paul, by implying that an adoption of a gold standard would bring about economic instability. We have been under several different gold standards, 1870-1913 being the one Ron Paul and most gold standard advocates favor. You would have to demonstrate that period is more economically unstable than 1971-present, good luck with that.Black Swan wrote: »Back to the OP topic of the gold standard...
The below charts the monthly inflation-adjusted price levels of gold and silver since 1915. Each series is smoothed with a 12-month moving average. Gold pricing is on the left side, and silver pricing on the right. It is a 2010 chart, and obviously does not reflect the steep 2011 increase in the price of gold to over $1900 an ounce.
Source: London Bullion Market Association
It would appear that silver tracks gold, although gold appears to have taken off at a higher rate recently than silver. In any case, both precious metals appear highly volatile since about 1971, and it makes one wonder how such volatility would threaten the foundation for promoting a stable, gradually improving US economy; i.e., why return to the gold standard as advocated by Ron Paul and his Tea Party supporters, when gold has become so volatile? Or why bother considering a silver standard as an alternative, given its recent high volatility too? Neither seem promising.
Is it the precious metals that are volatile or the Fiat currencies? Golds last massive rise was when a fiat currency was suffering from high inflation and losing its value rapidly. Today the US dollar as a fiat currency is suffering from inflation and devaluation just like then.
At 04:46 see a chart with the price of crude oil measured in Euro, Sterling, Dollar and grams of gold. The value of gold is pretty stable in comparison: http://www.youtube.com/watch?v=qeQtpRGSI_80 -
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