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From: What Was So Bad About the Gold Standard?

Posted by Helbrecht , 02 January 2014 · 419 views

I disagree. Gold is a paper weight to the average person.



Source: What Was So Bad About the Gold Standard?

Like everything else under the sun, the response to this is "It Depends".

Out here Gold has value because the women folk cannot do without it. If our women one fine day simply threw away their golden ornaments, i believe the world price would crash so drastically, it would beggar anyone still on the gold standard. I have read statements from bankers and traders which put the estimated quantity of privately held Gold in India (majority of which is in form of jewellery) in excess of 18K Tonnes.

That figure seems too conservative if we take the 2011 total of total imports of the precious metal into this country, 997 tonnes. Due to measures introduced by the government (some would say re-introduced) the expected figure for this year is expected to peak at 500-550 tonnes. The reason the government wants to rein in this import, is that this is adding to the current account deficit. Till a couple years back as part of the mid 90s liberalization wave, the import duty on Gold for individuals carrying it with them was relaxed to the extent that one could bring back into India upto 5 Kilograms of Gold and pay nominal duty on it. Prior to that, Gold import duty used to be much higher (which lead to the rise of various Mafia types which made their money and name smuggling gold into India). Now today the duty is stiffer and the quantities permitted per person are down.

The thing is, all of this is like a band-aid on a decapitation. Culturally we are geared to see this metal as the only safe-bet. When a child is born, the parents start salting gold away. Every festival or major occasion in your life, you had better be buying your woman some bangles/pendant/whatever or something. It forms the most common SIP (even if the person is not thinking in terms of SIP). A small time farmer, with an acre or two his name, when he sells his crop, he buys a bangle for his wife/daughter with whatever is left over.  If it is a wedding, you are either on the receiving or giving end of gold jewellery as a gift. Maybe on both ends. Certain communities have a bare minimum socially acceptable gold gift to the bride by the grooms's family and the bride's family standard in palce. Gold is all pervasive. Women spend hours on the phone talking about it, it keeps the telecom majors in play :P The publishers of jewellery catalogues do a brisk trade merely selling subscriptions to the catalogues with new designs.
 
It is an asset that people can mortgage in order to finance other assets or to start a business. One of the reasons finance against gold is so readily available is that once you mortgage the ornaments of the lady of the house, you are guaranteed to bust your behind and work to get them back ( and the financiers know this). Conversely it is the funding method of last resort. You would also encounter the phenomenon where a person would not raise finance at all (even for sure bets) because it would involve mortgaging his familial ornaments. Many parts of India it is seen as a pretty low down thing to have to do. Generally looked down upon and a sign of really having had made a mess of things and being totally down and out. Which is again why you would do your level best to pay off the loans and get your gold back. The finance company knows that the price of gold will move upwards so they are sitting pretty if you default on your payments.

So yeah, regardless of gold import reductions desired by the government and the economists etc, there is no way in hell that the appetite for this metal will go down in this part of the world, and it certainly is more than a paper weight. India produces like 1% of all the gold in the world and holds like 10% of the world's stock of Gold.

Oh and the government holding in Gold is at about 330 tonnes.




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Loki Laufeyson
Jan 02 2014 11:54 AM
Lol @ people saying gold isn't valuable.
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Mr Director
Jan 02 2014 02:47 PM

Lol @ people saying gold isn't valuable.

 

Gold is valuable only because we attach a value to it.

Gold is valuable in terms of the fact that it is used in electronics. It is also valuable in that people will pay for things that look pretty, and it is shiny. Its value as a currency though is just that, a medium of exchange. Its price actually fluctuates as much as most other currencies do against each other, so it is not even an especially good currency. Particularly as most currencies have at least nominal interest rates rather than charging you to hold them.

Of course Gold has some inherent value, in the sense that it is a good conductor. However it's value is largely inflated, and the perceived value is way above the intrinsic value of Gold. As far as I know copper is actually a better conductor. 

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Loki Laufeyson
Jan 02 2014 05:24 PM
"Gold is only valuable because we attach value to it."

It's also used to make Jewelry, and is used as a conductor in computers and other electronics. In pretty much all of Human history, Gold has never lost its value.
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Mr Director
Jan 02 2014 05:54 PM

"Gold is only valuable because we attach value to it."

It's also used to make Jewelry, and is used as a conductor in computers and other electronics. In pretty much all of Human history, Gold has never lost its value.

 

In much of human history, gold has been valuable because we thought it was. You yourself said it: People use it to make jewelry. There are many other materiels that can be used to make jewelry, Gold just happens to be a tradition more than anything. Yes, gold does have practical value, but much of its value comes from people thinking it is valuable.

Gold is valuable only because we attach a value to it.

So the fact that it is actually useful has nothing to do?
The fact that the properties of gold has allowed it to be a solid medium of exchange for thousands of years among tons of cultures proves it's value is not just based in vanity.
It has practical uses and is also safe if you know what you are doing.
I personally think a gold standard is better than the status quo by far but my ideal system would be competing mediums of exchange.
If gold was based on vanity it's price would change wildly and not be so.strongly considered an alternative to the dollar.

The US originally moved away from a precious metal standard and into Fiat to pay for the Vietnam war and those that followed. It was ment to be temporary but we still have it as a permanent system today. Ironically the system was used to pay war debt created more conflict.
What gives the Fiat dollar it's value originally was the deal we struck with other nations. Our military would guard oil rich areas..... the middle east and they would purchase oil on a global market by using US dollars, thus creating demand and false value. We could print a lot for a long time and create a ridiculously large debt bubble and not worry..... but in all human history one fact about economics is clear...... all bubbles must burst..... economic fact/law. The Fiat was ment to be temporary for a good reason. Sadly those indoctrinated into modern economics are not taught this or taught that it can not apply to us or that we can dodge the consequences. This is simply not true. Those same people created a housing bubble while denying they were. Simply put..... debt based Fiat systems are made to fail in the long run. A gold standard might have some flaws but they pale in comparison to the flaws of the Fiat debt system.
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Lord Hershey
Jan 02 2014 09:14 PM

I agree with Der Major wholly. In addition, gold is also valuable because it is scarce and does not corrode.

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Loki Laufeyson
Jan 02 2014 10:12 PM

 

In much of human history, gold has been valuable because we thought it was. You yourself said it: People use it to make jewelry. There are many other materiels that can be used to make jewelry, Gold just happens to be a tradition more than anything. Yes, gold does have practical value, but much of its value comes from people thinking it is valuable.

Whether we have attached value to it or not, I still don't see why this is relevant to the fact that it is still valuable after millions of years. The imaginary dollar has lost value, and is currently losing its value. I'm not arguing for or against the Gold standard, because quite frankly there are believable arguments for and against it. People calling Gold a worthless metal that we have attached value to is nonsense, considering the fact that it has never lost the value we have attached to it ever.

I agree with Der Major wholly. In addition, gold is also valuable because it is scarce and does not corrode.

 

Who cares about the ancient gold standard (what are we cave men?), the future is the platinum standard

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JohnGulager
Jan 03 2014 10:48 AM

Good read, food for thought

 

Also FTFY

 

it would bugger anyone still on the gold standard

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Biff Webster
Jan 04 2014 12:00 PM

If it was really valuable, I wouldn't have endless commercials begging me to buy the !@#$.

If it was really valuable, I wouldn't have endless commercials begging me to buy the !@#$.

They are tricking you into buying less valuable gold or gold certificates more than likely. They use that money to buy real gold.

Giving gold or anything a value is very tricky and you are quite right when you say it all depends.

From electrical point of view it is quite valuable although silver i almost as good and it useful is  narrow because of it´s high price. For jewelry it is pretty metal, very easy to use, has nice color  and has symbolic meaning for people so that makes it valuable to them. From rarity on earth point of view it is somewhere in the middle of the scale so not really a big deal. The fact cold does not corrode very easily and is resistant to many acids has some usefulness and uses, but it is also quite soft and heavy metal with a low  melting point.

The value of gold is rooted in its medium rarity, easily handling, easy smelting, non-corrosiveness, distinct colour and non-reactiveness to other elements; qualities most other metals lack.  The main point that gives gold some value in my eyes is that it has a unique combination of properties which can be found in other metals also but those metals are usually even harder to find, plus people have already given gold it´s nowadays quite high monetary value. 

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Biff Webster
Jan 06 2014 08:11 PM

They are tricking you into buying less valuable gold or gold certificates more than likely. They use that money to buy real gold.

 The old gold okey doke. Dastardly.

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commander thrawn
Jan 06 2014 11:52 PM
nah they are gold dealers they buy at one price sell it for higher and make money on the spread. they also usually charge commissions and sell storage services for buyers.
Everything has a value because we attach values to everything. Gold isn't abundant and that is why it is a standard and in high demand.

Not reading the WoT, but the gold standard was removed for the same reason most people want to reinstate it.

 

There's only a fixed amount of gold on the earth. You can't flood or starve the market of gold to avoid a financial crisis, and that adds a tremendous amount of flexibility for the economy.

 

But because the government continually prints money to prop up the economy and pay debts, people want to go back to it. Personally I think we should stay away from the gold standard, and just regulate our expenditures more closely.

 

EDIT: I'm an engineer. The weird thing about gold is that it's like a god material. If Gold was a more widely available metal, you would probably see it used on many more things. It's non-corrosive (it doesn't rust!) It's not very strong, but it is malleable and very thermally and electrically conductive. Not to mention it looks nice.

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