The Paul File

[adoucette]

No kidding...
But the big players and banks have stepped in big time in recent years...
Dont be so dense !

Oh bull, the big players have always invested in gold as a hedge against inflation.

I was in the gold vaults at the Fed in NY about 20 years ago which has more gold than Ft Knox (on Maiden Lane, the one that was supposedly robbed in one of the Die Hard Movies) and they have small cages (made out of fence wire and 2x4s) with the name of the various countries on them (and a few shieks as well) and based on trades they move the gold from one cage to the next with a small Bobcat.

And yes, it's just one floor down in a small elevator to get to it.

 

[eyeswideshut]

Oh bull, the big players have always invested in gold as a hedge against inflation.

well, no kidding, thats why I wrote words like big time and recent years...

I was in the gold vaults at the Fed in NY about 20 years ago which has more gold than Ft Knox (on Maiden Lane, the one that was supposedly robbed in one of the Die Hard Movies) and they have small cages (made out of fence wire and 2x4s) with the name of the various countries on them (and a few shieks as well) and based on trades they move the gold from one cage to the next with a small Bobcat.

And yes, it's just one floor down in a small elevator to get to it.

Damn, thats a sightseeing I would like to experience !

 

[Michael]

Except the Money Supply of just the US exceeds the value of all the gold ever mined.

Which would mean that gold would need to be revalued at around $70,000 per troy ounce and silver at somewhere around $3500 per ounce.

Amazing how much money we've printed up since decoupling from the gold standard 40 years ago. Oh, I'm sure it doesn't really matter, I mean, politicians, prestitutes and Banksters have their Cattle's best interest in heart..... they know what they're doing, they're honest people who level with the American public.... yeah... riiiiiight.




As a rule of thumb, most financial soothsayers will suggest hedging your portfolio with around 10% gold and/or silver - do you think this is a good idea? Or do you have complete faith in fiat currency?

I think silver's around $25 an ounce? Oddly enough, due to its use in manufacturing processes (gold's rarely used in anything other than jewelry) there's actually LESS above ground silver when compared with gold. Though it's minded 20 times faster I believe.

Anyhow....

 

[quadraphonics]

As a rule of thumb, most financial soothsayers will suggest hedging your portfolio with around 10% gold and/or silver - do you think this is a good idea? Or do you have complete faith in fiat currency?

Why do you have faith in the value of gold? As you say, it isn't actually useful for much of anything. You can't eat it, and it won't keep you and your family warm and dry or cure what ails you. Is it valuable for any reason other than that other believe it to be valuable? And if so, how does it fundamentally differ from fiat currency? Simply because it's more expensive and slow to introduce more of it into the economy? What's to stop the value of gold from collapsing?

(gold's rarely used in anything other than jewelry)

It's used in electronics and dentistry as well.

 

[Michael]

No.

There is no regulation that prevents this.

But there are reasons he might not offer it.

The primary one being that if you buy/sell gold then you have to deal with the IRS and depending on the form of gold you will either pay capital gains (which will depend on the length of time you owned the gold) or more likely the IRS will consider your gold a "collectible" and will tax at a 28% rate.

My guess is he just doesn't want the to deal with the cost of tracking all that and filing the necessary forms with the IRS.

You MAY be correct, however he made a point of saying Americans CAN NOT own the card UNLESS they have dual citizenship and then they could buy it with their other citizenship.

I've heard him on many interviews and at least 3 times he mentioned Americans will not be able to have the card.

That could be for the reasons you just stated, or, others. The amount of regulations in the USA is sadly, nearly, insurmountable.

 

[quadraphonics]

It takes 10 men working with big machines all day to dig out an ounce of gold. Lots of things have intrinsic value. A car, a building, a computer.

Gold is limited and eternal, which means it also has an extremely stable intrinsic value.

Gold may well have an extremely stable intrinsic value, but the price of gold is certainly not anything even remotely "stable." Which immediately indicates that the price of gold does not reflect its intrinsic value. It is, rather, a question of speculation and faith - much like fiat currencies. Anyone looking to trade on the stable intrinsic value of gold would do well to run screaming to the hills, given the wild departure of the price of gold recently.

 

[Michael]

Why do you have faith in the value of gold? As you say, it isn't actually useful for much of anything. You can't eat it, and it won't keep you and your family warm and dry or cure what ails you. Is it valuable for any reason other than that other believe it to be valuable? And if so, how does it fundamentally differ from fiat currency? Simply because it's more expensive and slow to introduce more of it into the economy? What's to stop the value of gold from collapsing?.

Mainly because it's been used as a store of wealth by humans for 5000+ years. That suggests gold is useful for storing wealth. But, yes, like everything, its just in our minds. I do have to say, seeing the Chinese and other central banks making large purchases of gold, suggests even the monetary system is moving away from the once almighty USD.

If/when the USD stops being the world reserve currency, Americans are going to feel much more pain than they feel now - I can promise you that. Go to ANY other country in the world and you'll pay nearly double what you do in the USA in their own currency. We've lived WAY beyond our means.

I heard a nobel prize winning "Economist" (Ooooo Ahhhhh) who, when pushed during a debate basically said this: The Asians have always purchased USD and always will purchase USD and so we can print as much as we like. This guy's a Prof. of Economics in a prestigious University. Is he correct? Will they?

I don't know. Forever is a long time.

Of course, fiat currency is useful too. Outside or stocks (which is where most of my wealth is stored) I have a reasonable amount of cash. I'm still not sure if we're going to see, deflation, stagflation or inflation. We'll see. I'm happy to have 10% of my wealth stored as physical gold and silver. If it amounts to a big worry over nothing, that's fine. I think of it as insurance.


Funny enough, in the lab, we use gold covered plates (3x5 inch) ... it's so thin you can see through it. I sometimes joke and say if gold keeps going up I"m going to start scraping it off instead of pitching them in the biohazard waste bin!

 

[eyeswideshut]

Golds increasing value is merely reflection of value of fiat currencies reversed , so indeed value of gold could be stable while its value in paper increases, its just that the value of the paper is decreasing.

Everything is relative...

The thing is that you cant print gold, thats why its easier to have faith in it rather than in piece of paper.

The Legend of Jacque Dupre'

At the end of World War I, in the year 1918, Frenchman Jacque Dupre' inherited the equivalent of $325,000.00 American dollars. Dupre' used his inheritance wisely by converting it all into French, 20 franc gold coins. Each day for the rest of his life Monsieur Dupre' spent the total sum of one gold coin to meet his needs - food, clothing, shelter, entertainment and medical.

Some years after his acquisition, French tax authorities performed the first of what would be many audits on Dupre'. The authorities could discover no means of income - no bank accounts nor visible assets - and yet - their victim - the innocent Monsieur Dupre' obviously lived quite comfortably in his modest Paris apartment.

Over the course of the following fifty-plus years the authorities would repeat their tyrannous efforts toward Dupre' every few years - each time to no avail - and whether through inflation, deflation, recession, depression, peace-time or war, Dupre' spent no more than one gold coin each day until he died.

Time passes
Although nearly sixty years had passed since Jacque Dupre' had invested his fortune in those gold coins, he had spent but half of them by the time he died - but the final surprise was about to be discovered by his nephew.

Several weeks after Dupre''s passing, his sole heir, Andre' was clearing out his Uncle's old apartment and discovered the trunk which had held the secret for over six decades - the remaining cache of gold. Just under half of the original fortune remained - and yet it's value now exceeded two-million dollars, American.

Lessons Learned - and Fortunes Remain
The fortune, which began valued at $325,000 was depleted by just over half the original number of 20 franc gold coins. Those that remained were now worth in excess of two-million dollars.

Take a lesson from the legacy Jacque Dupre' left his only heir - the power of intergenerational wealth provision. It remains available - even today!

Some of the French 20 franc pieces being offered in our catalog may have been a part of his treasure.
http://www.flyingeaglegold.com/dupre.php


I´m self made trillionare, yeah, I own two these kind of notes !

Those are in very nice condition also, going to frame those and put it on the wall.

 

[quadraphonics]

Mainly because it's been used as a store of wealth by humans for 5000+ years. That suggests gold is useful for storing wealth.

Most of that human history featured economic conditions very different from what we live in today. To the point where I doubt that the comparison is meaningful.

Which is not to deny that there is a large number of people with faith in gold's long-term value, and that this contributes to the value of gold as a store of wealth. But I would not be buying much gold at current prices, personally.

But, yes, like everything, its just in our minds.

Well, no - there are measures of value that are objective and clear-cut. These would be things that have clear intrinsic value - food, land, etc. It's just that they don't tend to have various nice properties that we expect from currency (easy to transport, store, exchange, etc.).

I do have to say, seeing the Chinese and other central banks making large purchases of gold, suggests even the monetary system is moving away from the once almighty USD.

It will take a lot more gold buying by them before their gold holdings even start to approach their dollar holdings. They're doing this as a hedge on their massive bet on the dollar, not as a replacement for it.

If/when the USD stops being the world reserve currency, Americans are going to feel much more pain than they feel now - I can promise you that.

Loss of reserve status will entail heavy inflation, naturally.

Go to ANY other country in the world and you'll pay nearly double what you do in the USA in their own currency.

That's preposterous. I don't know where you got such a silly idea. The reserve currency status allows cheap borrowing - it doesn't drive down consumer prices.

 

[quadraphonics]

Golds increasing value is merely reflection of value of fiat currencies reversed .

So it's your contention that the value of gold is fixed, and any fluctuation in its price is a sign of inflation in that currency?

Because gold has increased in price much faster than actual inflation. Ignore the currencies entirely - you can get a lot more chicken dinners for one ounce of gold today, than you could several years ago.

, so indeed value of gold could be stable while its value in paper increases, its just that the value of the paper is decreasing.

Except if the paper money had actually decreased by such a margin, we would have noticed the massive spurt of inflation. Instead, inflation has been very low (and even slightly negative) during that whole period.

Everything is relative...

Maybe if "everything" is limited to just "gold and paper money" that's true. But if you anchor your comparison with the cost of actual goods and services - you know, the stuff that money is useful for purchasing? - then it's easy enough to get a clear answer.

The thing is that you cant print gold, thats why its easier to have faith in it rather than in piece of paper.

That's true, but you can dig gold out of the ground. A relatively small number of wealthy speculators can drive up the price of gold.

 

[Ivan Seeking]

In the debate tonight, Ron Paul said that after WWII we lowered tax rates by 30% and the economy boomed. That would seem to be a complete fabrication. What tax rate is he talking about? Beyond that, the top marginal income tax rate was 94% when the war ended.


http://www.ritholtz.com/blog/2011/04/us-tax-rates-1916-2010/

Is Ron Paul simply lying here?

 

[Ivan Seeking]

Now compare the debt to GDP ratio, to the tax rates as a function of the year [and President]

 

[adoucette]

You MAY be correct, however he made a point of saying Americans CAN NOT own the card UNLESS they have dual citizenship and then they could buy it with their other citizenship.

I've heard him on many interviews and at least 3 times he mentioned Americans will not be able to have the card.

That could be for the reasons you just stated, or, others. The amount of regulations in the USA is sadly, nearly, insurmountable.

Except today there is no regulation that prevents us from buying/selling gold.

At one time Americans weren't allowed to own gold bullion, but that ended a long time ago.

Today we can, and so there is no regulation that says we couldn't have a card that works like that, but like I said, the company would have to keep up with the IRS tax regulations, and in essence, every purchase of the card would equal a sale of gold and thus the accounting/filing aspect of it to meet IRS requirements would be difficult at best.

 

[eyeswideshut]

So it's your contention that the value of gold is fixed, and any fluctuation in its price is a sign of inflation in that currency?

No. We would be in gold standard if thats the case, eh ?
Gold being stable, one ounce of gold today is one ounce of gold tomorrow.

There is more than inflation in that, but inflation is one reason why banks are loading their vaults, and the crumbling faith in the monetary system as a whole is the another.

Because gold has increased in price much faster than actual inflation. Ignore the currencies entirely - you can get a lot more chicken dinners for one ounce of gold today, than you could several years ago.

LOL, Maybe mass production of chicken dinners has something to do with that.

Except if the paper money had actually decreased by such a margin, we would have noticed the massive spurt of inflation. Instead, inflation has been very low (and even slightly negative) during that whole period.

Maybe you got your numbers from biased sources ? In real life almost everything costs more month by month. Also, investors are looking to the future (speculating) and making the bets before it happens, otherwise it would be too easy to invest...
You just wait, the inflation is already here and will accelerate.
I´m willing to bet on it big time, oh wait, I have done it already by buying lots of silver and some gold too...

Maybe if "everything" is limited to just "gold and paper money" that's true. But if you anchor your comparison with the cost of actual goods and services - you know, the stuff that money is useful for purchasing? - then it's easy enough to get a clear answer.

Maybe you want to read the story of Mr Dupre´again.

That's true, but you can dig gold out of the ground. A relatively small number of wealthy speculators can drive up the price of gold.

And with fiat money it cant be done ? What I have been reading silver is currently been pressed down by the speculators by naked short selling (investigations are on, but dont expect any results soon...)
Something to think about, silver/gold ratio has been historically 1/16 or close, and that was in the times when there was a lot more silver around than today and now the ratio is around 1/55 !
About digging gold, its much much more expensive than printing paper, the gold comes to existence only through hard work.

 

[adoucette]

There is more than inflation in that, but inflation is one reason why banks are loading their vaults, and the crumbling faith in the monetary system as a whole is the another.

Inflation is zip.
Why would banks load their vaults with Gold?

What is this "crumbling faith in the monetary system" that you are talking about?

Maybe your faith is crumbling but stop with the projections.

 

[Michael]

Except today there is no regulation that prevents us from buying/selling gold.

At one time Americans weren't allowed to own gold bullion, but that ended a long time ago.

Today we can, and so there is no regulation that says we couldn't have a card that works like that, but like I said, the company would have to keep up with the IRS tax regulations, and in essence, every purchase of the card would equal a sale of gold and thus the accounting/filing aspect of it to meet IRS requirements would be difficult at best.

It wouldn't surprise me if it didn't have something to do with tax. Which is, quite frankly, IMO, bullshit.

If you buy gold bullion at $200 an ounce and sell it later at $5000 an ounce, why on earth should the US government get ANY of the profit made therein? I mean, it'd by like paying tax at a garage sale - or when selling your used car.

 

[Michael]

Most of that human history featured economic conditions very different from what we live in today. To the point where I doubt that the comparison is meaningful.

Why would you think that? I find History to repeat itself and it seems IMO people are driven by the same instincts now as 2000 years ago.

Which is not to deny that there is a large number of people with faith in gold's long-term value, and that this contributes to the value of gold as a store of wealth. But I would not be buying much gold at current prices, personally.

I wouldn't either. More because I'm still wondering if there won't be deflation in the coming years.

Well, no - there are measures of value that are objective and clear-cut. These would be things that have clear intrinsic value - food, land, etc. It's just that they don't tend to have various nice properties that we expect from currency (easy to transport, store, exchange, etc.).

I'm not sure if it's all that clear cut. I mean, 5 years ago a property was worth $300,000 that's only worth $90,000 today. We don't normally see those sorts of swings in the price of gold do we?

(Unless the paper gold market goes crazy and people start demanding physical).

It will take a lot more gold buying by them before their gold holdings even start to approach their dollar holdings. They're doing this as a hedge on their massive bet on the dollar, not as a replacement for it.

Yes, not a replacement of it. If QE3, QE4, QE5 comes along, well, the price of gold and silver will go up. If there's no more QE then it will go down.

See, this is why it's idiotic to give a money monopoly to a Central Bank. Because they can do just about anything, no one knows what to do with their wealth. That's just stupid in my opinion. Why on Earth are people do happy to be lead around by the nose?

Loss of reserve status will entail heavy inflation, naturally.

It will probably happen in our life times.

People think American workers "are just as good if not better than Chinese workers....". I don't. Not on the whole. It's not even possible to get Americans to pick our own fruit. It's too hard. We NEED Mexicans. And the study habits of most Americans pale in comparison to Asians. So, we have a lazier slightly fatter dumber society who, for now, has the reserve currency. Let's see how that works out for us.

Whatever drove this Nation to reach for greatness was lost long ago in a fat-fold somewhere ......

That's preposterous. I don't know where you got such a silly idea. The reserve currency status allows cheap borrowing - it doesn't drive down consumer prices.

That's been my experience :shrug:

 

[eyeswideshut]

Inflation is zip.
Why would banks load their vaults with Gold?

What is this "crumbling faith in the monetary system" that you are talking about?

Maybe your faith is crumbling but stop with the projections.

Do you have a point here ? Projections, LOL, I´m not entitled to have an opinion ?

Please tell me then why are they buying gold, you seem to know ?
Dont hold the facts just for yourself you know...

Central bank gold buying at 40-year high

Central banks made their largest purchases of gold in decades in the third quarter as a sharp drop in prices in September spurred buying to diversify reserves.

The scale of the purchases at 148.4 tonnes on a net basis was far bigger than previously disclosed and puts central banks on track to buy more gold than at any time since the collapse of the Bretton Woods system 40 years ago, the last time the value of the dollar was linked to gold.
http://www.ft.com/cms/s/0/c0025500-10ef-11e1-a95c-00144feabdc0.html#axzz1jzE3MYcF

 

[Billy T]

... The scale of the purchases at 148.4 tonnes on a net basis was far bigger than previously disclosed and puts central banks on track to buy more gold than at any time since the collapse of the Bretton Woods system 40 years ago, the last time the value of the dollar was linked to gold.
http://www.ft.com/cms/s/0/c0025500-10ef-11e1-a95c-00144feabdc0.html#axzz1jzE3MYcF

I could not get to your linked article (It briefly appeared & could see it was 17 Nov 11, but it is not easy to search FT even after registering) However, I found this (with the last 28 days filter active):

"... China’s gold imports via Hong Kong in November were leapt 20 per cent from the previous month to 103 tonnes. Wednesday’s data, released by Hong Kong, brought China’s total gold imports from the territory to 389 tonnes during the first 11 months of 2011. The Hong Kong data are considered a proxy for China’s overall gold imports, which Beijing does not disclose. ..."

From: http://www.ft.com/cms/s/0/6e0a0726-3c36-11e1-8d38-00144feabdc0.html#ixzz1k0UkdcUg OR http://www.ft.com/intl/cms/s/0/6e0a0726-3c36-11e1-8d38-00144feabdc0.html#axzz1k0SC68CF

China is obviously accelerating gold imports (>25% of 2011 first 11 month total in November alone) so probably will import about 500 tons in 2011. Thus it seems China ALONE is importing at least three times more than your total for "central banks." In fact each of the last five months has seen China import more gold than the prior month. I also note that for last three years, China has been the world's largest producer of gold.

I (Billy T) cannot answer your question in general as to why central banks are buying more gold now, but here is why I think China is:

Some years ago, in posts I suggested China would issue gold backed RMB bonds (but backed only for central banks) when China has further reduced the total of Dollars held in its reserves. I.e. take a ONE TIME loss on them for EVERY YEAR savings on the growing cost of its import, as with RMB as the preferred reserve currency, (for buying oil etc.) US & EU will be in depression. China needs to achieve other changes before it is to China's economic advantage to kill the dollar as recently discussed here: http://www.sciforums.com/showpost.php?p=2890330&postcount=31
And earlier, back in 2009 I said:

"Russia may add a new reserve currency- RMB to its foreign exchange reserves, Russian vice-premier concurrently Minister Alexei Kudrin said. ... " From: http://english.peopledaily.com.cn/90001/90778/90859/6792509.html ...
I have mentioned it before, but it seems possible China could make the Yuan convertable into gold as a way to immediately make it an international currency suitable for holding in other countries reserves. (as Russia may now do - see first part above.) - Perhaps China does not yet want to further weaken the dollar while they hold so much of them in their reserves, but China like almost everyone else is reducting the percentage of dollars in their reserves. (Note in first part Russia has got it down to only 49% and averaging over all central banks, the percentage has dropped for 67% to 63%in last year.)

If China were to back the Yuan with gold, it would not be like gold once backed the dollar. I.e. only other central banks could redeme Yuan for gold, not ordinary people, especially not Chinese or Indians who love to hold gold even though it gives no interest and may be stolen. Article is focused on one Chinese gold producer who is expanding production by 30 tons annually.

I have reason to believe that China has huge belt of gold rich ore near the border with Mongolia. If true, in a few years China could be producing 500 tons annually. ...
As central banks want to hold interest bearing bonds, more than gold, even the current annual production, I think, would allow China to back the yuan with Gold. Since they have not, and since they continue to buy US treasury paper, is is obvious they (as I predicted) need to both* (1) reduce more the dollar percentage of their reserves and (2) to convert to mainly a domestic market economy before either dumping dollars or backing the Yuan with gold. IMHO, either move could destroy the dollar, and China does not want that, YET.
----------------
* China is doing both about as fast as it can and still tie the Yuan to the sinking dollar to help its exporters. I.e. accelerating the use of dollars to buy real assets in long term contracts, especially oil, and developing the interior (agrigan reform, new clincis, etc.). ...

From post of 10/23/09 at: http://www.sciforums.com/showpost.php?p=2394434&postcount=192

 

[adoucette]

It wouldn't surprise me if it didn't have something to do with tax. Which is, quite frankly, IMO, bullshit.

If you buy gold bullion at $200 an ounce and sell it later at $5000 an ounce, why on earth should the US government get ANY of the profit made therein? I mean, it'd by like paying tax at a garage sale - or when selling your used car.

Well let me ask you, Do you think if you buy 10 shares of stock for $200 and later sell them for $5,000 that the US Government should get ANY of the profit made therein?