Will Gold 'Bubble' Burst?

Quote: Wizard

Thanks Paco, good answer. So, if anyone is interested I'll sell for $50 above the spot price per coin. Compared to a store you'll save $84 plus sales tax.

Another advantage to buying from an individual is that for purchases above $600 (less than 1/2 ounce of gold) dealers must now fill out a 1099. See Gold Coin Sellers Angered by New Tax Law.

Quote: pacomartin

Another advantage to buying from an individual is that for purchases above $600 (less than 1/2 ounce of gold) dealers must now fill out a 1099. See Gold Coin Sellers Angered by New Tax Law.

That provision of PPACA was repealed in April of 2011.

its funny I ran across this thread. I swear some of my coworkers and me have this debate at least 3 times a week. Put 5 economist around a lunch table and bring up gold and you will see some fireworks, it gets heated LOL....To me, a defender of fiat currency, gold is just a shinny metal with little to no utility. Gold is a great example of a value paradox(AKA diamond-water paradox) that Adam Smith wrote about in The Wealth of Nations. Its comes down to how you determine value. There is "value in use" which measures the utility of something. The value in use of gold is probably about $50 oz, it really has no use other than being unused in some electronics. And there is "value of exchange"(an economic theory brought about by Karl Marx) this is where gold gets its $1500oz value.

This is why a gold standard is just silly if you break it down to its most basic elements. You might as well have a "famous painting standard" and back currency with the Mona Lisa, there is really no difference between doing that and backing it with gold. Gold served its purpose as a medium of exchange, but now that time has pasted. What I find funny is people who are stocking up on gold and silver in case of an economic collapse. This just seems silly to me. Why stock up on something that has no utility? You cant eat it or drink it, or tell it to plow your fields or water your crops or use it as a form of transportation. If government and law and order breaks down and you have only 25 cans of food and 10 gallons of water left for you and your family. And there is little hope of getting more anytime soon. Would you trade your food and water for a gold coin? Of course you wouldn't becasue the value of gold is purely based on confidence. Some might say it has only intrinsic value economically speaking.

But to the OP's question......Yes I think gold is heading for a rocky future. Remember in 1983 gold was $2400oz inflation adjusted. Then Paul Volcker made some changes at the Fed and it fell like a rock. The problem is now is there is a threat of deflation which will make it hard for the Fed to raise interest rates. Saying all that I still think gold is the next bubble to burst.

Quote: vert1276

This is why a gold standard is just silly if you break it down to its most basic elements. You might as well have a "famous painting standard" and back currency with the Mona Lisa, there is really no difference between doing that and backing it with gold.

I am not sure why people feel that this argument is compelling. Everyone knows that something is valuable only if lots of people think it is valuable. It's like Hamlet's famous line: for there is nothing either good or bad, but thinking makes it so.

The ultimate test of this concept is Bit Coin, the the digital currency of the future. Bitcoin is not backed by any commodity at all, nor is it backed by a government. Yet it is a currency, and you can buy and sell with it, and you can grow wealthy with it.

But I don't care about the philosophical underpinnings. What I care about is the hearts and minds of billions of people. As fiat currencies grow larger and larger and touch more and more cultures, I expect the old standard to remain strong.

Not because it is rational, but because it is traditional.

Quote: pacomartin

I am not sure why people feel that this argument is compelling. Everyone knows that something is valuable only if lots of people think it is valuable..

no......... some things are value becasue they have a "use value" Like food or water or medicine or transportation or a computer ect ect. Gold have little to no value of use.

Quote: vert1276

no......... some things are value becasue they have a "use value" Like food or water or medicine or transportation or a computer ect ect. Gold have little to no value of use.

I didn't think you would take me so literally. Of course, you need food, water and air to live.

But, food, water, and medicine have only limited value as "money". They are the things you buy with money.

Money is something that is valuable, fungible, divisible, transportable and widely accepted. Food, water, and medicine can be bartered, but an economy cannot grow beyond primitive stages on barter. You can't support modern day populations on a barter economy.

Primitive money concepts like cattle, or salt are also limited.

Arguing that the world will one day wake up and think that gold is just a metal of limited use, makes just as much sense as arguing that suddenly people won't take banknotes because they are just pieces of paper that cost less than a dime to produce. Banknotes are backed by the good faith of the country issuing them, and gold is backed by 10,000 years of human civilization that valued it. Neither of these concepts will vanish overnight.

There is some advantage to going away from banknotes and coins entirely. You don't have to worry about making change. You don't have to worry about someone breaking into your store or bar and stealing your cash. Nobody can mug you for money. You have some record of every transaction, so if you are kidnapped and people are trying to empty your account, there is a record. Drug transactions, prostitution, and other illegal activities are much harder. Most people assume mobile phones can be adapted to monetary exchange.

The two first world countries with the smallest dependence on notes and coins are New Zealand and Iceland. Because they are relatively small they make some of the greatest use of electronic purchasing. Should either of these countries decide to eliminate notes and coins entirely, I expect you will see an increased popularity in purchasing gold coins.

Quote: Scotty71

Did you really pay sales tax for what is essentially a bullion purchase?

No. I bought them in Delaware, a sales tax free state.

Quote: Scotty71

If you want to express your gold opinion and make some serious $$ buy some long dated puts on GLD they will be relatively cheap and if you are right you would probably see a 50:1 payoff minimum.

Thanks for the suggestion. I'd like to do that. Can the average Joe do that with an Ameritrade account?

Quote: Wizard

No. I bought them in Delaware, a sales tax free state.


Thanks for the suggestion. I'd like to do that. Can the average Joe do that with an Ameritrade account?

Yes, just get approval for options. In fact for fun If you put on the trade, I will take the other side by selling the puts. I love options as they are a pure Zero Sum game.

Ya it will

Quote: Triplell

Look familiar? I bet it's down to 1000-1200 by June

That graph doesn't really tell the full story, as USD has lost value over this time as well. Compare to

which shows the nominal price of gold, as well as the price in 1971 dollars and 2011 dollars (price is per-gram, not per-ounce).

It has still gone up, obviously, but it's not as dramatic when you take into account inflation.