Will gold and silver drop along with the market?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Not too many people will argue that the market will continue to rise through the y2k transition.
Gold and silver are commodities that are consumed as jewelry and in electronics by our economy. That consumption will slow down as the economy slows. Industrial demand for gold and silver will drop. So here is the question:
When the market falls, will gold and silver go down with the rest?
-- Tomcat (email@example.com), February 27, 1999
In the past, Gold has generally gone the opposite way from the market. But since Y2K is a "one time event", all bets are off as far as I'm concerned. <:)=
-- Sysman (firstname.lastname@example.org), February 27, 1999.
The thing to remember about prices of commodities and stocks is not the underlying value but the flow of money. Money gets *poofed* into existance when the FED has money printed up or when a loan is made.
If you deposit $100 in a bank you have a legal claim on that $100. If $95 of that $100 is loaned out the person making that loan has legal claim to 95 of those dollars. When he withdraws that $95 from the bank buys something and the seller deposits the $95 in another or the same bank and the bank loans out $90 to another debtor who buys something from seller #2 who deposits the $90 of which $85 is loaned out, et cetra.
So out of the $100 we have the following: First depositor has a $100 assest (his bank account), bank has a $100 liability, first debtor has a $95 liability, bank has a $95 asset(the loan), 2nd depositor has a $95 asset, bank has a $95 liability, 2nd debtor has a $90 liability, and bank has a $90 asset. At just this "two round" level there is a total of $380 of assets (1st and 2nd depositors, 1st and 2nd loans) and $380 of liabilities (1st and 2nd loans and1st and 2nd deposits).
It's when somebody defaults on their loan that things get interesting.
Now if depositor #2 pulls his $95 and buys gold both assets(his account) and liabilities (the banks liability) go down $95 each, until the gold seller deposits the money.
This money creation averages about 7 times the original deposits.
Therefore there is a lot of *poofed* money out there. The stock market is huge. The amount of deposits in financial institutions is huge. The amount of gold in sivler in the world is small, in fact over a short time period it is finite. The same can not be said of the money supply - think of foriegn banks that take deposits and make loans denominated in US $s.
It would take a very, very, very small percentage movement from conventional financial instruments into precious metals to bid up the prices, like in the early 1980's.
If people think that a tangible like gold and silver are more trustworthy than electronic or paper assets they will do what they perceive is in their best interests. Until that banks collapse, they can purchase precious metals with money that has been *poofed* into existance.
Now when a loan goes into default that reduces the money supply, *poofed* out of existance, eventually. When the bank writes down the asset value of the loan to zero, the liability of the generating deposit still remains, the write down comes from profit (hopefully).
-- Ken Seger (email@example.com), February 27, 1999.
Gold and silver tke capital and labor to produce, there are finite supplies of them and are valued by most people worldwide. You are right they are not good for much (fillings for your teeth), but they are a store of value. In a post y2k world though, food, ammo, toilet paper, medicine, etc... will have values greater than gold and silver. You have no food which would you rather have 10 silver coins or 10 canned hams? No toilet paper, 12 rolls of Charmin or a Kuggerand? Barter will be the base of the economy (see Russia today), cash and metals may still be a means of exchange for goods and services, but it would be better to have goods and a skill rather than all cash and coins.
-- Bill (firstname.lastname@example.org), February 27, 1999.
Gold and silver and platinum are commodities that are considered industrial metals to varying extents (Platinum more so than silver and gold). Therefore, as with any commodity, they are affected by the overall strength of the economy, supply/demand, etc. In addition to this though, Gold and Silver have for millennia been accepted worldwide monetary metals, which gives them, in my opinion, value as a storage of wealth. They are precious. They cannot be defaulted on as with a debt-based instrument, neither can they go down to zero as a stock can, they are nobody's liability, and cannot be created out of thin air by fiat.
Anyway, the key point I think In answering your question is that Gold and Silver have historically been the 'safe haven' or 'flight to quality' during periods of upheaval and uncertainty, and have a record of being 'negatively correlated' with paper-based financial assets which only means that they go in the opposite direction. Some also feel that during recent times, while they have still played their role to a lesser extent, that Gold and Silver have been being manipulated through futures markets, dumping by the central banks, the gold-leasing scams, etc.
So if you consider (not necessarily accept) the premise that financial markets have been being manipulated, as well as the precious metals markets also being artificially manipulated, then the real question becomes will Gold and Silver be allowed to play their traditional role, or will we have more of the same. As far as Y2K goes, do your survival preps first, then get some gold and silver for a core physical possession and keep it, and last consider getting extra metal with money you can afford to lose in Speculation if you are so inclined.
Sorry for the long-winded answer I can really get going on this subject.
-- Rob Michaels (email@example.com), February 27, 1999.
I think gold and silver will do well for the following reasons:
First, a run on cash seems inevitable. When people find they can't get cash, still have money in the bank, but are frantic to get liquid, precious metals are an obvious way to do it.
Second, gold and silver bullion coins are now in short supply and rising in price. I don't see how the market can sustain a large disparity in the price of bullion versus bullion coins for very long.
-- Ned (firstname.lastname@example.org), February 27, 1999.
Boy, there are a lot of good answers to this question here already. But I'm gonna wade in anyway.
I've never had a bent towards finances, but I've understood that gold, silver, platinem, etc., are intrinsec forms of wealth. That is, they don't get more or less valuable. They stay of the same value, and cash either goes up or down in relation to them. I've heard it said that it takes the same amount of gold to buy a loaf of bread today, that it did in 1870; it just takes more cash.
What little gold and silver I have, I bought for insurance, so to speak. A hedge against the uncertainty of cash and it's backing agents (govmt). I've priortized it somewhat down the scale from food and water sources, but I know that in refugee situations of the past, portable, recognizeable, wealth was important. Heaven help us, should we need it.
Sorry, for the simpleton input, just my $.02 worth (as Old Git would say.)
-- Lon Frank (email@example.com), February 27, 1999.
All of the above is well and good, but Lon F. won the cookie. He is correct in what really concerns us when stockpiling in gold. What some of us are looking for is the intrinsic value; the medium of exchange. No matter what other financial conditions of price etc., gold has the intrinsic value, that stabilizes itself "by magic". i.e. -you can buy a good horse with the $20 gold piece today, as you could, a 100 years ago. BTW, with small denominations (1/10th oz) you can buy 10 hens.(And then I exchange a hen for 5 rolls of toilet p.) So for me , that's the insurance.
-- Eli (firstname.lastname@example.org), February 27, 1999.
I prefer crawfish crispies. And thanks for spelling "intrinsic", what some people would call the "right" way.
Now if I can only learn to spell platinem, er, ..nam?, ..ah ...nim? ...numb? Hell, that shiney white stuff!
-- Lon Frank (email@example.com), February 27, 1999.
Has numerous essays on precious metals performance in deflation, inflation, hyperinflation, y2k, etc.
-- Mitchell Barnes (firstname.lastname@example.org), February 27, 1999.
What if y2k is somehow managed? (Hypothetical) Wouldn't we see all the hedgers selling their coins to get cash thereby lowering the price of gold and silver coins?
I agree with the above theorum that it is better to have goods than gold and silver. Given a choice I would rather have ten canned hams than ten silver dollars. But the man who has hams will have other needs. He will want a medium of exchange besides his hams. It all depends on the severity of the crisis. If we are in a famine, coins will still work but it will take a lot more of them to buy food.
-- b (email@example.com), February 27, 1999.
Bill: I went to two coin dealers last week ready to give them some money, both times I got cold feet and decided not to. Mitchell Barnes gave a website regarding the purchase of gold coins. I read all I could on the subject and for me, I have decided to purchase goods. I would much rather have 50 canned hams than 1 Golden Eagle coin. Thousands of rich people will starve to death, history will repeat itself, no doubt about it.
-- bardou (firstname.lastname@example.org), February 27, 1999.
I think that some precious metals would be good long term (buy now for use 2+ years past Y2K). In the short term, think barter. It has been so long since precious metals have been used as money, that it will take some time (possibly a long time) for people to appreciate that use. I doubt many people nowadays appreciate the difference between dimes and quarters minted 1964 and before and those minted since, for example. You show the average person an old dime and say it's really worth ten (whatever) newer dimes, and you will get a typical glazed eyeball response.
BTW, the "price" of the metals is not important -- it's what you can get for them. Whether the price level is such that a roll of toilet paper is 25c or whether its $25, the amount (ounces) of silver to buy a roll would probably be similiar in either case.
-- A (A@AisA.com), March 01, 1999.