Is having GOLD a good thing in a Deflationary economy? : LUSENET : TimeBomb 2000 (Y2000) : One Thread

I am currently at the end of my preps. Now the next item on my list is this: I am seriously thinking about buying gold/silver to preserve my wealth (what little I have :) ). Can anyone explain to me how gold/silver would benefit if the economy suffers a deflationary hit due to Y2K? I think I understand how gold will preserve my wealth in the long term, but am unsure about the short term. Thanks to all...

-- (Just, May 12, 1999


You can put the gold coins in a sock and make an effective cosh.

-- Andy (, May 12, 1999.

>>You can put the gold coins in a sock and make an effective cosh

What's a "cosh"?

I don't think you are Andy... The REAL Andy would not answer in this way...

-- (, May 12, 1999.

There is a scroll bar on the right side of your screen. Use it. There are also -- if you can manage to work your mouse or down arrow without your arm getting too tired, to get all the way to the bottom of the screen, a bunch of threads. They aren't saved just to take up disk space (at least I don't think so.) Gold and silver, money, currency, etc., have been beat to death.

-- A (, May 12, 1999.

In a classic deflation: no, gold will go down in value (but probably less fast than everything you can buy with it). Cash won't go down in value at all, short of the government that issued it ceasing to exist. (We're talking deflation here - inflation is another story).

I very much doubt that if Y2K causes a panic, it'll be a classical anything. We could see deflation, inflation, or wild swings from the one to the other within weeks. And that's just the moderate scenarios!

Gold is also problematic because it's not just a commodity. It's the currency of last resort, if everything else goes to hell. So the more frightened people are (of a complete worldwide financial catastrophe), the more it'll be worth. Apart from that, there's no good reason for it to be as valuable as it is. Unlike Platinum, it has no bulk industrial uses (gold-plating makes a little go a very long way). All it really is is a fairly rare metal which makes pretty things that don't tarnish.

Place your bets. I don't know the answer.

-- Nigel Arnot (, May 12, 1999.

Just Asking,

During the last 50 years we have not seen any great interest on the part of US citizens, in general, to want to own gold coins. However, that is a short sighted view of gold, and throughout all of recorded history gold has been the most common medium of value, world wide. You can convert gold into any other currency, and I expect always will be able to, unless some "laws" are enacted to prohibit this. Still, the black market will always value gold. In short, it is the safest, most predictable, way to hold wealth, which is why the central banks everywhere do so. Our own government mints and sells gold coins, called American Eagles, in sizes of 1/10, 1/4, 1/2, and 1 oz, and these can be purchased through coin dealers. If you want to find a large coin dealer, go to any large magazine store and pick up a current copy of a coin collectors magazine. You will find whole page ads from the largest dealers, with toll free numbers. The coins you are interested in are the "bullion" coins, which have little or no numismatic value as collector coins. American Eagle is the one the US issues, but there are similar ones from Canada, Mexico, South Africa, etc, etc.

-- Gordon (, May 12, 1999.

"And the gold of the land is good". Genises "And gold will lose its luster". Revelation

God created, but only God will destroy it. Its value will remain as long as this age remains.

-- aoky2k (, May 12, 1999.

In a deflationary environment, what you do NOT want is debt. It is painful paying a $200,000 mortgage on a home that has dropped in value to $100,000. Ouch.


-- Mr. Decker (, May 12, 1999.

Keep in mind regarding gold that coins are "collectibles" under the tax code and taxed at a higher rate (federally) than other long term capital assets (i.e., collectibles are taxed at 28% long term, where as other capital assets like stocks or bonds are taxed 20% long term). Thus it can be a costly mistake if your hedging strategy includes coins and Y2k DOESN'T result in the utter collapse of the government's ability to collect taxes.

In terms of being a hedge against deflation, it's a particularly poor investment. Gold (and commodities generally) are often sought in an inflationary world, because they are priced in dollars (i.e., you get the benefit of rising prices generally). In a deflationary world, the reverse is generally true.

This post is not intended as investment advice under the Investment Advisor Act and is intended for discussion and educational purposes only.

-- Jeff Donohue (, May 12, 1999.

If you're concerned about the viability of currency or banking and have no strong conviction as to whether currency or precious metals will maintain their values, the prudent thing to do is to hedge. Have some of both.

One of the choices may have been wrong, but it's better than risking it all on a guess.

-- Doug (, May 12, 1999.

Agree with Decker on the debt issue. If you predict deflation, get out of debt ASAP.

-- BigDog (, May 12, 1999.

Re Gold Coins,

I may be wrong about this, but it's my understanding that American Eagle gold coins are *not* considered collectibles by the US Govt. They are actually considered legal tender and will have a value printed on them. I think the 1oz gold coin shows $20 on it, so you obviously don't want to buy it for $310 +/- right now and use it for a cash purchase. However, it does not fall under the numismatic rules. If someone knows the details better, please join the posting.

-- Gordon (, May 12, 1999.

First, though we've had disinflation the last decade or so (at least if you believe government statistics), the odds of deflation are nearly zero.

Outright deflation would imply that "they" have either lost control of the system or "they" have retracted liquidity in order to purposely collapse the system. True deflation is normally accompanied by debt default, bank collapse, illiquidity, and the inability to borrow (due to collapsing collateral prices, unemployment, or both). In this situation, since all paper currencies are actually debt, currencies would fare little better than any other debt instrument, which is to say, not very well. A currency's "value" is a function of a government's ability to tax and the size of its debt load. What is the value of a currency when banks collapse, unemployment is high, the nation's debt load is great, and tax receipts are rapidly falling?

Gold is no one's liability. Gold does not require "servicing" to "stay current". Gold cannot "default", causing principal to vanish. Gold cannot "collapse", leaving it's owner without access to liquidity. And gold cannot lose liquidity as long as people recognize gold as the thousands-of-years-old store of value that it has been and still is.

You could do worse than holding gold through deflation, if it came to that. Yes, hedging with gold or silver is not without it cost. However, it is also prudent, for it allows one to keep one's options open and adjust to whatever tomorrow brings.

-- Nathan (, May 12, 1999.

Gordon --

You may be correct -- certain gold (and silver) coins minted by the U.S. government (and certain state government coins) are exempt from the definition of "collectibles" (and thus taxed at 20% long-term federally). I am not sure (didn't check) whether the American Eagle coin so qualifies, as I was speaking of coins generally.

-- Jeff Donohue (, May 12, 1999.

It would be worthwhile for you to spend a bit more time researching gold, it's current role in international trading and the meaning/ ramifications of this unbelievable amount of trading. It is very eye opening. The following was posted on a previous thread -

"At the current daily trading rate, more than 100 TIMES THE ANNUAL WORLD'S GOLD PRODUCTION RATE IS TRADED ANNUALLY in the LBMA!!! Other than currencies, can anyone mention any commodity experiencing yearly trading volume of 100 times its annual production?! ANYONE?! Does this not pique your curiosity and question the reason or purpose of all this gold trading?!"

I see Mr. Decker smartly refrained from discussing his opinion of gold on this thread, as his response to my question was simply that gold was not the only hedge to inflation, in effect, backing away from actually addressing the issue. I respect that, as gold is probably not his forte, therefore he is not able to render an in- depth opinion.

The thread was:

-- OR (, May 12, 1999.

Dear Orwell,

My full comment was:

"Gold is not the only hedge against inflation. And, no, I am not particularly interested in gold as an investment... nor do I collect antiques, art, stamps, etc. In my experience, the most successful folks are the dealers in the metals, coins, rareties, etc. They make money buying and selling. That, I can understand. And I try to limit my investing to areas I understand."

I am quite willing to admit I do not follow the metals markets. My abililty to discuss gold is mostly within the perspective of economic history. But do you really want to hear about the Mercantilists? In my opinion, the wise investor stays within his or her areas of expertise. Just a thought.


-- Mr. Decker (, May 12, 1999.

Mr. Decker, if you can expound on why gold is being traded internationally in such an astonishing amount, daily, yet it is touted as dead by some experts, only a possible hedge against inflation by other experts suggesting your net worth should consist of 10% gold, etc. ad nauseum, then I certainly would like to hear your educated opinion on the dichotomy of this situation. (I believe we have heard enough about how gold sitting in a safe deposit box cannot earn a return). You will be addressing a public who feels this whole gold business is a mystery.

-- OR (, May 12, 1999.

gold is a preserver of wealth..only. It and of itself does not make money..unless you sell during times of speculation. So in cataclysmic preserves wealth only. It would be smart to have a percentage in gold.

But wisdom is worth far more than gold. The debt load people are carrying will crush them when the deflationary pressures are "understood" by the public. Once JQ Public understands we are in deflation...and he waits for the bottom (prices of things) it begins to feed on itself. then the nightmare begins...

-- rick shade (, May 13, 1999.

I'd go for gold if i had the money, as the medium of the last resort, ie for very troubled times, just stash it away and forget about it, be prepared to lose on the transaction

-- dick o' the dale (, May 13, 1999.

if you're going to buy gold,you're not talking about living in a touchy feely liberal banking world,and I hope you bought guns first so as to keep your gold......

-- zoobie (, May 13, 1999.

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