Joe Doakes from Como Park emails:
There are companies that buy, sell and trade gold (major banks and investment firms, generally). The actual gold bars are stored by Comex, which stands for Commodity Exchange, and is part of the New York Stock Exchange. Remember the Bruce Willis movie where the bad guys faked bombs in schools to divert cops while the bad guys stole the gold bricks from Wall Street? That’s what we’re talking about – huge supplies of actual gold bricks being stored in vaults for their owners.
Owner who are now pulling the gold out in record amounts. Giant withdrawals. Trillions of dollars worth.
Did they have unexpected expenses to pay? Losses to cover? Fine, that’s what it’s there for.
Or are they grabbing their gold before the economy collapses because they know something we don’t? Not fine, that’s what we’re all afraid of.
I’d stock up on bullets and whiskey but there are no bullets for sale. Which means more money for whiskey, I guess. So that’s not all bad!
Joe Doakes
Como Park
Look! Guns and abortion!
The gold *futures* market is “fractional reserve” just like banks. They don’t back it with 100% deliverable gold, just like banks never have all of the cash they could be run on. Of course, this is just backing incase the seller fails to deliver. (Some people store it there too I think.)
There is concern that the paper market could break down in this sense, some day. Smart people are getting very concerned about the control of their precious metals, that is a fact.
Sprott, GTU, and CEF might be O.K. in this sense, since they are 100% backed.
Some say gold would be higher without the paper trading. I don’t know.
They are buying gold like crazy in the East and rich people everywhere are hiding money in rare paintings, and other less accessible hard assets for the common man.
I’m not too impressed with the barbarous relic and couldn’t care less about the yellow metal, whatever the price. I see it primarily as a bet on fear.
If investors are more afraid in a year than they are today, then you make money. If they aren’t, then you lose money. If you took all the gold in the world, it would form a cube 67 feet on a side, worth $7 trillion. For that same amount of money, you could own other assets with far greater productive earning power, including:
*All the farmland in the US, about 1 billion acres, which is worth $2.5 trillion.
*Seven Apple’s (AAPL), the second largest capitalized company in the world.
*You would still have $2 trillion left over in walking around money.
Instead of producing any income or dividends, gold just sits there and shines, making you feel like King Midas.
But then again, if you’re stockpiling; food, ammunition and firearms into your bunker, I can see your point. ;^)
The only issue is what do people use for money in this environment. Money has three functions (look it up) and people are forced to use money. Gold is really good at two of the functions. I think Bitcoin is only good at one of them, for now. Other things can work better at times, but they have drawbacks (in the three functions) that gold doesn’t have ultimately.
There is no way in hell colored pieces of paper can function as money if they don’t get any interest for years and years. (Now ALL of the central banks have to participate or their countries will be killed economically. It’s hard to think of an exception.) Plus it’s becoming increasingly obvious to everyone that the morons at the Fed have no idea what they are doing and outside of Volker and Martin, they never did. It’s all about their foolish theories, goosing the economy artificially, (google “The Great Moderation” LOL) and cheapening government debt so they can promise us goodies and pay for them with the insidious inflation tax.
These two videos are ground zero for understanding what is happening.
http://www.tomwoods.com/blog/should-we-fear-deflation/
http://www.youtube.com/watch?v=zPkTItOXuN0
People keep voting Left because there is so much inflation, asset bubbles, and taxes that few can cope. The intelligent risk taker and the prudent are punished at the expense of the Political Class and the imprudent and the confused people that can’t deal with it all.
Conservatism can’t function in this environment, but ultimately Leftism just makes it worse. We are doomed because so few understand what is going on.
Clarification: I’m not pulling my gold out, the largest banks in America are pulling their gold out. I simply ask why?
I’m the passenger looking over the side saying “Hey, the rats are deserting the ship; I wonder what they know, that we don’t know?” Emery is the guy saying “Who cares? Rats are gross.”
Here’s why: Governments are running out of money and getting weaker so it looks like they will increasingly resort to all kinds capital controls to get their way. Those with foresight and assets are taking countermeasures in advance.
The reality is we *sort of* need wealth taxes but it’s *mostly* not anything that is the wealthy’s fault. It’s 40 or a hundred years of too much easy money, put on steroids by Greenspan and Bernanke
The problem I have with gold as a $hit hits the fan medium, is how do I get my value back? Say I have a 1 ounce gold coin, which is now worth what, $1,500. The bottom drops out of the paper dollar, and all anyone wants to trade their food or gasoline for is another “hard” asset. So I go to the guy who has the gas and want to trade for some. I can’t drive away with $1,500 of gas, my tank is not big enough. What do I take in “change”?
Loren, you could also look at “junk silver”. These are quarters minted prior to 1964 that are 90% silver and 10% copper. “Melt” value of a single silver quarter as of this morning is $4.73. There are resources out there where you can still buy these in bulk, and will be easier to use for exchange than gold or silver ingots.
Loren, trust me under that scenario you will get well taken care of, plus we are far away from needing to think about all of that. The future is going to be a combination of fiat, bitcoins, junk silver, physical gold, and paper gold. This is a certainty because we are a county of idiots ruled by idiots.
Loren, I agree, that’s my concern, too. Sure, we could cut the coins (which is how we got the chant two bits, four bits, six bits, a dollar) but you’re still talking about $200 per bit.
Gold is a store of value that historically has been easy to trade for commodities. So are whiskey, bullets, SPAM and toilet paper, which have the added advantage of being useful in their own right. Might have to lay in some cartons of Marlboros, too.
The problem is gold behaves most like money of all of the fiat alternatives. The exchangeability and the divisibility are a problem that has to be dealt with creatively and there is no one solution for everybody.
It would be better if the PhD.’s that are in charge of our colored pieces of paper were better at their jobs, but they aren’t. In fact Greenspan was criminally negligent. That is the reality.