It has been buying gold. Till 1976, dollar was backed by gold. After that it became a fiat currency -
There is no point in arguing with a gold believer.
Septimus, my first link was to the wrong article on Seeking Alpha :smack:. Here’s a better article which I hope makes up for the error.
I’m pretty certain we aren’t about to enter into a 2008-style crash because it was a Black Swan, and is unlikely to be repeated. Also the simple truth is when everyone’s talking about a financial event in the markets, it rarely happens. The Federal Reserve ended its zero interest rate policy with a unanimous vote. Core prices jumped 0.3 percent in January even in the face of low oil prices; not a harbinger of doom. The only core reading showing any contraction was home furnishings and only at minus 0.1 percent.
Almost one-third of investors feel that another financial crisis is likely within the next three years (33 percent of retail investors/29 percent of institutional investors). It is simply part of investor psychology called the “Recency Effect” and can be costly when making financial decisions. As it is, a third of potential investors are cautious (rightly or wrongly, only time will tell) and so demand for stocks and commodities is lower. Stocks are on sale and might get cheaper.
The question was not are we in a recession or a bear market, it was are we about to repeat 2008. I am confident we are not but, again, only time will tell.
One thing in favour of the markets is the low interest rates. People compare dividend yield and earning yield (inverse of P/E ratio) to fixed income returns. Of course, stocks are risky so the return should be higher in stocks if one is to hold them. This is called the risk premium. Nonetheless, low interest rates help stock valuations.
Who is “it” that has been buying gold, and how is that relevant?
China obviously. So should most other countries. The relevance is tht it is likely to ask for gold (or something backed by gold) for their exports to USA in future rather than USD.
Thanks, JustinC. My brain misfired and converted “2008-style crash” into “bear market.” :smack: … I’ll try to read that FRB paper and see if I can understand it.
Unrelated to the present direction of the stock market, I think we can expect to see more financial crises, though perhaps nothing like 2008 until that is a distant memory. Wall St. figures learned all the wrong lessons from 2008: No matter how egregious their behavior they won’t have to go to jail, and they get to keep their Lamborghinis. The taxpayer will be happy to help out if their big bonuses are ever in jeopardy.
First of all, I’d like to see a cite that China has been increasing its gold reserves. Also, did you notice Samclem’s reply to you, that the Chinese government’s sale of dollar assets is aimed at propping up its currency and not because the Chinese government is fleeing the dollar? Meanwhile Chinese citizens are trying to convert their savings to dollars. This has been hampered by the government limiting the people to converting at most $50,000 annually.
And why should other countries buy gold?
If there’s any major gold purchasing going on, the price of gold ought to be soaring. However, the one-year and five-year price charts on gold are depressing. It’s down by a third since its highs in 2011-2012, and no higher now than it was last spring.
Over the last two decades, gold has fluctuated between ~$260/oz to $1800/oz. That’s extreme volatility. Why would Chinese manufacturers want to insist on something with that level of volatility and uncertainty? What would be their economic incentive to do so?
Google does show that China and Russia have both been buying gold. The amount of money involved, however, is only a small fraction of the foreign reserves China has been selling.
I don’t have a clear understanding of OP’s case. Stock market fluctuations and gold standard are somehow related? And I don’t know how those woirried about hyper-inflation cope with price indexes which refuse to rise.
Gold has been in a bull run. since 2009, there has been a correction which is an opportunity to accumulate. The cause for this correction is the false assumption that US economy has been reviving. While the fact is that that illusion is due to printing money for free(QEs, zero interest) and as soon as that stops , the illusion of ‘growth’ shatters.
I won’t say for sure that something backed by gold will be the currency for future. But one can say that this unlimited printing of money (debt that is never supposed to be repaid ) can not go on forever.
The U.S. holds 8,133.5 tons of gold. One U.S. ton is 29,166.7 troy ounces. So 237,227,354.5 ounces. Today’s gold price is $1,229.85 per ounce. That comes to $291,754,061,932. The current value of the U.S. GDP is $17,419,000,000,000, which is more. There just isn’t enough gold to cover the value of the economy.
Also, the price of gold has fallen 40% from its high in 2011, with a 10.42% drop in the last year.
Few things:
-
If currency is to be backed by gold, They can peg gold at higher rate. Or they can use silver. BTW check gold to silver price ratio - at all time highs, 80:1. So silver may be more profitable to buy at this point.
-
USA is 4.5% of world population. And 25% of world GDP. Do you think that is sustainable when it is running massive trade deficit for years? Immigration helps US GDP but 25% share of world gdp just for 4.5% of world’s people who are net-net massive importers of goods?
Basing the total size of a huge, dynamic economy on the amount of metal one can dig out of the ground is dumb and pointless. No major economist would support this idea.
I would agree because of tech advancements - think abt biometrics.
The thing is, you can’t stop current attraction for gold due to what’s been happening (unlimited money printing, unpayable debt, massive trade deficit).
February 2016 US Markit services PMI flash 49.8 vs 53.5 exp -
Thank you for providing that information. Please explain what it means and what it has to do with the possibility of a 2008-like stock market crash.
The free float of gold is quite minimal. As long as rubes can be stampeded into buying it at the top of the market for economically & politically illiterate reasons, the great fleecing of the rubes will continue.
Participate in that or not as you will.
Biometrics? Was that a random autospellcheck glitch?
If not, what are you talking about? How is biometrics connected to the supply of or demand for gold and the size of the economy?
Sorry about not mentioning the tech advancements properly. It would include computers, internet, data encryption, biometrics. When the world has all this technology, it is hard to imagine that they will go back something physical (gold, silver etc).
If they want to put an end to arbitrary printing of money and to ever-increasing unpayable debt, they need not go back to gold in this era of technology.
But till the change of order actually happens, gold will continue to rise because people will see through the illusion of growth when growth is infact non-existent. I am not saying if it(rise in gold price) is justified or not but it will happen nonetheless.