Central banks are increasing the money supply through bond buying (QEs) to avoid recession. Some of this money will ultimately go into buying Gold. Amount of Gold is limited in this world (size of an Olympic sized swimming pool iirc and Gold mining is very expensive) which is why Gold is 5000 yrs old currency. This is going to drive the price of Gold higher (perhaps multiple times higher) and perhaps governments would ban owning Gold in future or would further increase the tax on buying Gold.
Gold hit $2,066/oz. in 1980 and has never gotten that high again, so if I believed bad stuff were going to happen, I’d figure it would start around that point.
The only way this would happen is a general collapse of all world fiat currencies, and in response a return to a de facto gold standard.
If most advanced economies tried to return to a gold standard, THEN you’d see the end of a free market in gold.
But nowadays gold is no more important than copper or titanium or molybdenum. If you wanna hoard molybdenum because you’re worried about a coming economic collapse, feel free. The governments of the world aren’t going to stop you, and they’re not going to stop you from buying gold. Why would they?
Governments would try to steal your gold if they were obligated to pay their debts in gold. But the US government doesn’t have to pay its debts in gold, it can pay its debts in dollars. And guess what? They can also print as many dollars as they like. So there’s no point in defaulting on any debts, we can pay back our creditors in full no matter how bad the economy gets. That billion dollars you loaned to the government will be paid back at face value with full interest. Of course those dollars will only be worth a fraction of the value of the dollar in 2016. But so what? In any case there’s no need to steal your gold or tax gold.
It appears that futures contracts for delivery of gold in December 2021 is currently going for $1,401 per ounce, which is about $80 more than the spot price today.
Go ahead. Buy gold futures. I’m not sure how many people have gotten rich off of them, but I say you give it a shot.
Firstly, I am don’t particularly like gold. Infact, I don’t want to be owning it. But have still bought some because I felt strong reasoning.
Do you think banks have been manipulating the price of Gold by short selling it at important technical levels? I think price of Gold has been manipulated. And if people actually owned Gold (physically) rather than futures’ contracts, the price of Gold would be much higher.
I think it does matter for governments to suppress the price of Gold(secretly) to instill confidence in fiat currencies.
In my country btw (india), 100-150gms of gold is bought for every wedding I think. Nobody sells Gold unless for very dire need. Younger generation are less interested in gold than older generation. But people are much much more invested in gold than in stocks and it seems it has paid them handsomely (although it’s just a coincidence, not that these people are smart)
What’s in it for them? How do they benefit from this manipulation?
Are you saying that the banks are keeping gold prices artificially low? Why? And how? When gold gets too high the banks sell gold at low prices to keep the price down? But selling gold below market value means you lose money. Therefore there would have to be some benefit to them by losing money this way.
The fact is that all the value of all the gold in human hands is very small compared to the size of the world economy. Gold is one tiny commodity among thousands of others.
If you really believe that the economy is going to collapse then you can buy gold. But you’re not making money from this unless you sell the gold at a higher price. And it’s only making money if the higher price for gold allows you to buy you more goods and services than the price today. Just because you bought a gram for $40 in 2016 and sell it for $400 in 2026 that doesn’t mean you made a profit if the dollar has lost 90% of its value in those ten years, instead all you’ve done is preserved the value compared to sticking those $40 under the mattress.
I don’t think your average bank cares that much about gold, except to the degree that investment banks may see the opportunity to profit in trading gold in the same way that they profit from the trading of real estate, steel, frozen concentrate orange juice, and basically everything else. I think you’re implying that banks see gold as a threat to them, which doesn’t make sense. It’s almost like saying that car makers see sunshine as a threat to their business.
No, that doesn’t make sense at all. When a futures contract pays off, you can get the commodity or the sum of money that is precisely equal to the commodity in question. The fact that no gold is necessarily involved in the transaction doesn’t make the gold less scarce.
I think are several reasons for people to buy futures’ contracts over physical gold -
Laziness in going to the Gold shop and buying.
Tax - I don’t know about other places, but there is ~10% tax here in India on buying Gold. So if Gold spot price is say 32,000 INR per gram, one will have to pay ~35,500/- to buy physical gold.
Flexibility - futures’ contracts provide margin money and give flexibility to buy/sell at any point at just a click of a mouse.
Also, didn’t Deutsche bank admit that it rigged Gold price.
You are saying that Gold is a Hedge against inflation. That sounds correct. But say if stocks and bonds offer negligible yield, won’t some of the money (so much has been printed for QEs and so much more will be printed) end up in Gold. Gold is limited in this world.
If you are buying gold in the form of jewelry, it is subject to tax because it’s a consumer good. Included in the price is manufacturer labor costs and retail related costs.
This kind of “investment” in gold cannot be compared to investments in gold as pure commodity play.
As to limited availability of gold in the world, there are plenty of other commodities that are limited: oil, diamonds, truffles, saffron. Some naturally some artificially limited. There may be a historic affinity to gold, but as you said yourself, every new generation appears to value it less and less.
Stocks and bonds might offer a negligible yield, that doesn’t mean gold is better.
Gold is a commodity. If stocks and bonds aren’t giving you a good yield does that mean you should invest in a commodity like frozen concentrated orange juice?
Every time you buy gold, someone is selling. If gold is such a can’t-miss investment, why would anyone sell gold? They sell gold because they value the dollars they get from the gold more than the gold.
If you’re wondering what gold prices will look like in the future, the price of gold will increase sometimes and decrease sometimes. Gold isn’t any particular protection against the loss of value of fiat currencies, any more than any other commodity or asset. As I said above, a nominal increase in the dollar price of gold doesn’t make it a great asset.
However, for the last decade or so there hasn’t been significant inflation of the dollar or the euro, so panicking over inflation is kind of silly. If you’ve got tens of thousands of dollars sitting in a bank account at 0% interest then maybe you should do something else. Is buying gold the best way to preserve that value? If you bought gold 3 or 4 years ago it absolutely was not. Will the value of gold be up or down 3 or 4 years from now? In my opinion anyone who says that the value of gold is sure to be higher 4 years from now is delusional. It might be higher, or it might not be. But if it was sure to be higher in the future then everyone who thought it would be higher would be buying now, and so the value today would already reflect that price.
The quote for today’s price for gold is the result of millions of people buying and selling gold, and reflects the aggregate discounted price for gold given the information that all those millions of people have. If you think you’re smarter than any of them, go ahead and invest your money. But the odds are that you’re not smarter than everyone else.
Thats right. But even on simple gold coins there’s the tax. Its for discouraging people from buying gold. Making charges (on jewellery) are usually higher (12-15% over the spot price).
Why do countries keep Gold holding as part of their reserves? Only historical reasons?
The US currently has the largest gold reserves in the world, 3-4 times greater than Germany, which has the second biggest. India is tenth. The value of US gold reserves is a little over $11B. Given the US economy and the stock market, is that really significant?
To put that in perspective, US Federal spending in 2015 was $3.8 Trillion. So that little $11 billion in gold is about 2% of the annual budget. I know that a gold stockpile of 8000 metric tons seems like a lot, and it is. But compared to the size of the world economy it’s a rounding error.
I think you are taking it wrongly. I Don’t think I am smarter. Just imagining the situation that population and GDP is peaking,economy needs continued money supply to avoid recession , stocks and bonds yield around the world offer near zero return (due to efficiency, technology, competition etc etc) plus a lot of risk and volatility. A part of the money going into gold is a possibility? Specially when even countries’ reserves also have gold?
In Argentina, during one of their “oh crap” periods, people bought large consumer goods they didn’t need on payday. E.g., Sony TVs. Kept them in the box. Then traded them later for goods they really needed.
In some urban areas among the drug buyer/sellers, Tide laundry detergent is an underground currency. Stores have to keep it behind the counter to prevent thefts.
Preppers invest in ammo.
Lots of examples of this sort of thing.
Note that none of them involved gold.
The amount of gold is just too tiny to base a national, let alone global, economy. Bankers know this. To them, it’s just one of thousands of things you can [del]bet on[/del] invest in.
I have no idea why some people get so fascinated about gold above all else.
