Is Someone Manipulating the Price of Gold?
To hear some investors tell it, “manipulation in the gold market” is a scandal on the scale of Bernard Madoff’s Ponzi scheme, perhaps even greater.
Bankers and exchange officials insist, just as vigorously, that that is nonsense. The accusations “lack credible evidence or even a sensible theory,” the managing director of the CME Group, Thomas LaSala, recently told a hearing of the Commodity Futures Trading Commission, which regulates positions in precious metals.
A leading advocate of the manipulation charges, the chairman of the Gold Anti-Trust Action Committee, William J. Murphy III, was buoyed over the weekend by a New York Post dispatch reporting on a London-based trader who has reportedly claimed that London-based JPMorgan Chase traders bragged to him about how they make money by manipulating the metals markets. A JPMorgan spokesman told the Post that no one at the company was familiar with the trader, Andrew Maguire, who does not work for JPMorgan Chase.
“I’m having fun today,” Mr. Murphy told me the day the Post article appeared, calling the article “the first mainstream story that gives it a fair shot in 11 years,” and a welcome change from “people calling us tin-foil-hat nuts.”
The fact that people are starting to pay attention is a sign of the increased popularity that investing, or speculating, in gold has attracted amid the initial uncertainty of the economic crisis and the predictions of inflation that have accompanied increased federal spending and low interest rates.
The hedge fund manger famous for making billions by betting against sub-prime mortgages, John Paulson, has reportedly put $250 million of his own money into a fund dedicated to investing in gold. Another prominent hedge fund manager, George Soros, reportedly recently increased his fund’s holdings of an exchange-traded fund that owns gold, to $663 million worth, while, somewhat confusingly, Mr. Soros was also saying publicly that “the ultimate asset bubble is gold.”
Are we going to bail them out if the price of gold goes down?
If gold goes down it will only be a “shake out”; Bush/Obama have done all they could to destroy the dollar…
Naturally one expected _M. le baron Georges du Soros_ to turn up in this sort of dispatch from Foxcuckooland, and sure enough, . . . !
The honourable and gallant wingnut does seems to have forgotten his neocatechism, though.
Perhaps we may help him out a little, Dr. Bones?
Q. “What makes speculation “excessive”?”
A. Nothin’ at all. Nothin’ CAN make speculation ‘excessive’, for ‘speculation’ is but a synonym for T®ue F®eedom, a product of which, as the late Neocomrade Senator B. Goldwater of AZ memorably orated [1], there can never be too much. Q.E.D.
Healthy days.
___
[*] http://politicalparade.com/catalog/images/GOL111.jpg
Or, for those not from Rio Limbaugh or otherwise prose-challenged, http://tinyurl.com/ya4lz3m .
Looks like mommy left her computer on when she went to bed again.
The market is being manipulated by three people…Obama, Pelosi and Reed.
We see comments that the price of oil is rising and the Canadian dollar has “risen” to par with the US dollar. These are all reported backwards…the US dollar has fallen in the eyes of the world. After the GM and Chrysler bondholders fiasco is anyone seriously looking to invest in corporate bonds? US Treasury Bonds are not exactly attractive when even the Chinese won’t buy them. Obama and the Dems have promised new Wall Street rules and taxes. Currency trading is tough.
That leaves investing in metals and commodities….including oil. Gold is the entry level investment, but you can bet there are big investments in rare minerals needed for electronics and platinum needed for much of the Chinese manufacturing base as well.
Gold, Periodic Table symbol Au. It is a dense, mailable metal usually yellow in the spectrum of light reflected by its crystal structure. It is an excellent conductor of electricity especially at the molecular level which makes it excellent for microcircuit electrical contacts. It is non-reactive to body tissue so is useful for certain forms of metallic therapeutic implants either in whole or coating. It provides an attractive substance for decorative jewelry and other ornaments.
Gold is not particularly rare, but it is difficult to mine and refine due to its dispersion.
That is the sum of what gold is really worth. It is not much more than copper or silver on the “useful” to humanity scale, and in fact because copper is more abundant, and easier to mine, it is probably more useful.
What you are saying has been obvious to many economists and historians for decades. Gold is an irrational marker for wealth. Because of the difficulty in recovery and refining, it is too rare and useless a commodity for establishing wealth markers in a world far beyond its real value levels. There just isn’t enough of it to provide “coinage” for real monetary worth.
So, consequently, their is a “gold” bubble being inflated. Right now, the gold market is a prime counter example to what “gold bugs” claim gold is, a stable useful investment that maintains its value over time.
When this bubble bursts and sanity has returned to the financial markets, the current price of gold will drop back to the $200-$300 range, and those who purchased it at triple the price will find out how empty their pockets are.
The “Gold Bug” assertion that economies are magically more stable based on the metal as a measure of value is false. Many depressions in the modern era, including the Great Depression, and several western bouts of hyper-inflation occurred during times when gold was everything. That was because, in reality gold was essentially nothing real, or particularly indicative of wealth.
The lure of gold is ancient reflect primitive mercantilism in all of its short sighted, limited, zero-sum game falsehood.
We do need a stable rational formula for calculating the wealth of nations, but gold is of little value for anything other than men who can think no further than a miser in a Dickens tale.
This is a bubble that will burst, like Dutch tulips wilting on a hot day.
R/The Mighty Fahvaag
Very good post.
The dollar is “paper” and has value for the same reasons as gold.
Perception is 90% of reality; gold can be used as a “world currency” because it allows there to be a basis for valuing other commodities; oil could not serve that purpose because it is a commodity with a life cycle and it is priced as though it is in the late stages of its “product life cycle” and its price is far to volatile.
If the dollar stops being the “world currency” it must have a replacement, like gold, or we are back to barter: your shipment of TV sets for my shipment of scrap metal;
The world will (has chosen) choose gold over barter and is hedging that bet…
(in 1917 the world was on the barter system for trade between nations: which included that shipment of “widgets” for this much gold)
Gold has all the properties one would want for a money. It’s rare, stores well, is easy to transport, is easy to assay, is uniform, and easily divisible. The only reason it is not used as such is because governments shirk their duty in holding up the law, and actively legislate against the use of gold or any other commodity as money. This so that they and the banks they control can steal the wealth of those on fixed incomes like widows and orphans, and also from the poor. A fiat currency forces the poor to have to save via the stock market or other financial instruments that are manipulated by insiders.
It also has one property you don’t like for money: as productivity increases, there’s no easy way to increase the supply of gold. That means in a growing economy with lots of innovation, you have automatic deflation.
Unfortunately, deflation tells people to stop investing, which means the innovation stops. This means productivity stops increasing and that means the deflation stops. You have stable money, but you have a stagnant economy. This led to the famous “Cross of Gold” speech.
Of course, if someone happens to strike gold big time, then the supply of gold increases, and you have sudden inflation. This is what happened to Spain after Columbus.
The desirable state in one in which exactly enough new money is added to counterbalance the gains in productivity. That’s very hard to do with gold.
There is no need to increase the supply of gold as the economy increases. That’s what productivity driven price deflation is all about, and was covered in my first comment. Also with a free money system people can use whatever they please as money, so they can also use silver, copper, sea shells, wampum, or rocks as money if they please. The market will naturally settle on whatever commodity money makes sense.
Productivity driven price deflation does NOT tell people to stop investing. If that were true then everyone would have stopped investing in the computer industry long ago. Computer hardware prices have been dropping for decades and no one is so incredibly stupid as to think this means to stop investing. That price drop is because the productivity driven deflation in that sector far outstrips even the Feds desire to print money.
What matters is not nominal prices of the end products. What matters is profit. In a general price deflationary scenario the profits one gets are in addition to the general increase in the value of money. Even if you show profits of zero at the end of the year you are still better off because you have maintained your investment value in terms of the commodity money and that means you can buy more stuff. Even a small profit on top of this is just icing on the cake.
You seem to be parroting ridiculous arguments made by Keynes. The guy was a fool and his theories are why we are in the mess we are in today.
If the supply of gold increases suddenly then yes you do get inflation. So what. That sends a signal to the market to readjust prices or switch to a more stable currency, or to compensate in some other way. Clearly the increase in supply for the Spanish was because they were running a kleptocracy stealing from the New World. Nothing wrong with price inflation in terms of gold in such a situation. Gold should be worth less in that case, as it was in gold mining camps also. That signal will tend to move the gold out to other locales.
John,
What you write may have been true in the 19th century, but there are several modern applications for gold that appear to have escaped your notice:
1. Gold is a more efficient electrical conductor than copper, and is used in any number of applications (like computers, medical devices, etc.) where nothing else will do as well.
2. Various materials, such as the helmets worn by astronauts, are coated with a microscopic layer of gold as a radiation blocker. Again, not something that substitutes well.
There are others, but that might get you started.
All true, but has no relationship to why gold may or may not be a world currency.
Gold is the canary in the mine shaft………Gold is a hedge against the stupidity of govts…..
Gov’t putting a cap on the price of gold? Why not say everything costs 1 dollar – mandated from heaven, i mean DC. Gold (and silver to a part) shows the true value of a nations currency. Once upon a time in America you could go to a bank with a dollar and ask for the precious metal equivalence (a certain weighted measure). That is not the case anymore – its worth whatever the market and gov’t dictates.
The Fed Reserve prints tons of money – decreasing its value – reflected in the increase costs of everything – especially gold.
Will there be some to ‘manipulate’ the market? Yes, thats always the case when there is something for money to be made on. There are plenty of investors switching to gold. Would you trust US bonds right now? Or any country’s at that? How about major corportions stock – those same companies who said don’t expect profits (health care bill / recession in general). Its not pleasant when investor bet against US currency, but it should send wake up calls to fiscal policy in the country.
Way to not address the underlying issue.
The issue is that certain parties are naked short selling gold on the exchange, selling gold they do not possess. When these failed trades execute, the sellers pay with cash instead of gold. As a result, the price of gold remains low, even though supply is tight. Same for silver.
In fact, the silver markets are worse than gold. Silver has traditionally traded at about 15-1 relative to gold, because of the two metals relative scarcity. Currently, gold trades at 50x silver. Again, there is no explanation for such an event other than market manipulation.
Try again.
Yes there is
I have yet to see a TV commercial urging people to buy silver.
Traditionally, when times get dicey, gold goes up in value compared to everything else. Even silver.
I have- they’re hitting on the fact that silver is an industrial metal, and is thus consumed by industry. Silver is seriously undervalued.
What would you say the ratio of “buy gold” to “buy silver” commercials?
I’m not arguing as to whether silver is or is not undervalued compared to gold, I’m just arguing against the claim that the changing ratio is ipso facto evidence of manipulation.
Manipulating the gold market at best would be very difficult considering the current state of communications and the electronic trail of trades and sales of gold. I wouldn’t say it is impossible, I remember the Hunt brothers in the 1970′s and the silver market. I would think if this has been going on a long time some evidence would emerge. Governments can to some extent slow or stop an up or down trend in price due to the fact that government can afford to buy or sell tons of gold, and the market can complain but can’t really control governments actions.
The Hunt brothers also lost their shirts trying to corner the silver market.
There are really only two ways to manipulate a market such as gold.
You can start buying gold, in hopes of creating a buying frenzy, then when the rest of the world is buying as fast as it can, you sell what you bought, before the rest of the world catches on.
You can also sell in hopes of creating a panic, then buy back, while everyone else is trying to get out.
The problem with these scenarios is that you have keep your buying/selling secret. As soon as someone catches on and the word of what you are doing gets out, the bubble/panic that you are trying to create disapates, and you spent lots of money for nothing.
With modern markets, it’s very difficult for a single actor to engineer the kind of buying or selling needed to move the market without everybody figuring it out.
We don’t disagree. The Hunt brothers did come very close.
I don’t think anyone can control the world gold markets, but a lot of money can be made by selling or buying as you noted.
Lasala is absolutely (and probably intentionally) wrong that purchases of ETF having “no influence on the underlying commodity” given their basis as an index. SPDR Gold Trust (GLD), the primary ETF for Gold trading, specifies that actual gold is allocated to represent the holdings for the basket of underlying securities requirement, and in the event of the fund’s liquidation, actual gold would be redeemed. ETFs have to function through two workflows: one where the normal investor buys/sells shares in a share price that coincides with the underlying value of the equities, and a second clearinghouse function where institutional participants buy/sell baskets of index holdings in an arbitrage process that keeps the fund closely aligned to its index price.
Because the arbitrage consumes actual underlying asset shares, e.g. to allocate to the ETF $10 million in S&P 500 stocks for SPY or $10 million in gold for GLD, it does both consume/purchase underlying assets and constitutes a change in demand. This fundamentally affects price. Arbitrage also breaks down under stress, as I analyzed several years ago in our research, identifying that under extreme downward market stress and velocity, arbitrage parties appeared to be disinclined to carry out activities with the same velocity as the market decline. Whether accidental or intentional (e.g. the market was considered too risky and arbitrage activities were reduced), we were not able to examine that. However, it did indicate that tracking error is not a constant in ETF arbitrage and under outlier stress, breaks down significantly.
In his testimony he distinguished between ETFs and index funds. If you are interested read the whole testimony, it’s available for download via link at the bottom of the “archived Webcast” from the CFTC page.
Not a serious article. No mention of the connection between the Fed and the big banks that own our central bank. No discussion of how much gold and silver has been sold that does not even exist except on paper. Silver stands out as a commodity that has a growing industrial demand with a rapidly decreasing supply, yet its price is keep down by naked short selling. When governments default on their debts and currencies collapse, a lot of people will want delivery of gold they paid for that does not exist. At that point suppression of gold and silver prices will have created a powerful coiled spring. “Moonshot” is the best description for that eventuality. The gold bugs at GATA do a lot of whining, considering they are in position to profit handsomely from the impending currency corrections, but GATA has done it’s homework. The author has not.
Gold as a basis for money (used to allocate scarce goods) makes sense, as it is moderately scarce itself, and difficult to produce to relieve that scarcity. Compared to alternatives like politician’s promises or paper “claim checks” produced by governments, which are not scarce at all, and thus provide no useful way to allocate scarce goods, it looks really good.
Compared to no money at all, or mediating disputes with brass and lead, gold is the paramount investment.
And in case my previous post about Lasala’s misrepresentations isn’t clear enough, I’ll give a simple analogy to help answer the ETF “just an index” myth which I occasionally hear.
Consider I market a simple ETF called “Fred’s Berkshire Hathaway Equity Index” which consists of tracking the price of Berkshire Hathaway Common Shares (BRK-A). Pretty fancy eh? (I think I’ll charge a modest 4% total expense ratio). To confuse things a bit, I’ll make the index share price 1/10000th of the underlying asset I “track” which is the BRK-A stock. That means each share of ETF would track right now around $12.14 – quite affordable. Now in order to make my ETF work, I also have to establish a basket arbitrage capability so that purchases/redemptions in the fund function properly with the assets acquired.
So if you actually purchased $121,429 of my ETF, you would end up owning 10K shares (at $12.1429 each) and I’d go out and buy a single share of BRK-A to provide the underlying asset.
Now consider what Lasala said and how nonsensical it is. If you’re just buying an index, how does the ETF change in value? His myth would be alarmingly bad: you buy GLD at $72 (as I did) but the ETF doesn’t /do/ anything other than hold the money? So how does the ETF go up to $113? And how in the world do they redeem my shares at $113 if they aren’t doing something to make its intrinsic asset value also go up? If not, it’s a ponzi scheme!
Also, many ETFs pay dividends. Where does this money come from in Lasala’s myth model? The goodness of the ETF index management fund’s heart? Hell no. It comes through the redistribution of the underlying asset dividends.
Lasala’s lying. That’s obvious. The interesting question would be why – in particular, what is he seeking to avoid attention to? My guess is that there’s something either occurring in the arbitrage function or in the ETF derivatives area (or both). Is GLD creating demand in gold assets? Absolutely. It’s huge and as Soros remarks, a tremendous bubble. Note: I no longer have any holdings of gold or gold ETFs and have no conflict in this post.
After September 15, 2008, the US stock markets ceased to exist as somewhat regulated, in fact mostly self-regulated, and largely ‘free;’ they became government-run, like the Shanghai stock exchange. The Chinese economic experiment, whereby a communist government runs a pseudo-free economy, is the guiding star of the Obama administration on the way to the birthplace of a neo-marxist/islamist global economic and political structure.
Since then, and given the possible collapse of the US dollar in the world currency markets, the finance ministers of the G-7 entered into an agreement whereby all commodity and currency markets were to be tightly controlled by concensus. Their prices were allowed to fluctuate between narrowly defined ranges, subject to periodic reviews.
How does one know all this? By just recording what has happened since then. Who’s benefiting from this new world? Mainly the US neo-commies that are running the largest fixed poker game in the history of the world, who also happen to participate in this game of global poker with a stash of about $13 trillion dollars; when and if they lose some of their chips, they bring in (print) some more, or get it from another player (China), since they’re too big to fail and besides if they do the poker game is over and the fun is gone. Who’s paying for all this global set up? The Republicans.
So far Rob Sama seems to be the only one who understands the issue. Nothing has any intrinsic value ; not gold, not water and not a picasso painting . Everything is worth what someone will pay for it. The commodity exchanges exist to determine (set) the price of the traded commodities. If one can write a contract to deliver something one doesnt own and then be allowed to settle in paper (debt) rather than the promised commodity then the exchange is not fulfilling it’s price discovery function . One is determining the value of exchange contracts to pay gold (which will not be enforced in a tiely manner) , one is not determining the price of GOLD itself . Thus allowing large institution to sell large numbers of naked short positions (sell contracts to deliver gold they dont have and will not deliver) does drive down the price , and is manipulation .
There are obvious ways for very large shorts to profit. Drive the price down and cover . Moreover if the large shorts have government backing then the goal is to control the gold price (so as to prop up the dollar) not to profit from the trades.
This would be a better article if the contentions and evidence of those warning of manipulation, such as Mr. Murphy, were more fully and fairly presented .
Lastly bear in mind that if we were to return to a currency as described in the constitution then we would have a currency coined by act of congress (such coinage used to be done by the U.S. treasury ). Then we wouldn’t need to pay the federal reserve bank interest on the money they create/”coin” for us.
If gold is so good and greenbacks are so bad, why are those holding gold selling it for greenbacks?
For the most part, they aren’t. Which is why the price of gold, vis-a-vis greenbacks, is going up.
Not so long ago, with the price of gold at less than 300.00, I could afford to buy, sell and collect U.S. gold coins. It was fun and I know that I will be able to pursue this hobby yet again because the price of gold will collapse just as it did 40 years ago and 20 years ago.
Meanwhile the DOW JONES just went over 11,000. It won’t be long, I bet.
The dollar has been falling against all currencies in the last year or so. Is it any surprise that it is also falling when compared to gold?
Speculation can and often does get overheated. Remember the Dutch Tulip craze? http://www.investopedia.com/features/crashes/crashes2.asp
It coudl be that some of those big investors are pumping up gold as the article stated. Given that Soros himself has made money short selling various currencies, he could be doing the same with gold. Sure a lot of money is going in to push up the value, but it would stand to reason this in only money that can afford to be lost, especially if the expected short sell will net much more.
I don’t see how a majority gold holder could be prevented from manipulating the market?
Gold never goes up or down, it always stays the same, it is the dollar the is going down in relation to gold.
Indeed.
At the beginning of the 20th century an ounce of gold would get you the best suit money can buy.
At the beginning if the 21st century an ounce of gold will get you the best suit money can buy.
It is the dollar that has changed. That is why we have the concept of “then year dollars”.
Why gold is valuable? beast me. The point is that is is.
No, that’s not the point. Why? Because in the event of the global currency collapse the goldbugs fear, gold won’t save them! Even gold will be nigh worthless in that scenario. Food, fuel, building materials and weapons/ammo will retain their value, but gold will not (silver will lose a lot of its value, but it doesn’t have as far to fall). The intrinsic value of gold, based on its industrial uses, is about $5/lb, not the $10000+/lb it trades for today.
Gold has traditionally been the investment of last resort when investors begin losing confidence in the other markets.
Gold doesn’t pay interest, it pays no dividends. What it does do is hold it’s value when other investments are falling apart.
When there is fear in the market, the value of gold rises. I don’t believe I’ve ever seen as much fear as I see these days. There is open talk of a complete collapse of the western monetary system. There are predictions by many that the US will lose it’s AAA investment rating. The fear is out there.
Back in the 80′s people were rushing to buy gold as an investment. Lots of people saw how much gold had risen, and they rushed to invest out of greed. I don’t see the same dynamic working today. Those who are deciding to invest in gold aren’t doing so to get rich, but to protect what they have.
“the price of a decent men’s suit”
This idea that “a $5000 suit better be woven of golden fleece” is off the rail, Mr. Stoll, I’m sad to say.
The real problem will be if a man’s suit DOES cost $5000 in the future and it is still an ordinary suit. Inflation. Currency diminished in value. Too many $ printed, too many obligations unmet. THIS is why gold is going up, after all… because the dollar is losing value and can be seen in the future to lose A LOT MORE VALUE.
If anything does keep its value when everything else loses, it’s gold. I just hope it CAN keep its value in a world where nothing really has that anymore.
At the height of the “Beanie Baby” craze, a bag of beans with the right shape and color was good for $1400.
With time and sanity, it is worth a few cents.
Gold is a lousy marker for the modern economy because it’s lure is irrational. People want it because they want it. Tautology is lousy monetary policy.
Besides, all the major governments need to do is fix the price of gold at some arbitrary amount that is conducive to their particular needs, and suddenly it is functionally just pretty metal.
The worship of gold is the oldest of man’s sins. Empires were founded on it. Empires were destroyed because of it.
Frankly, copper and zinc are more valuable. Brass is a much more useful alloy than the purest gold ever will be.
You can’t eat gold (well you can, but you won’t live long doing it. You can’t farm with it. You can’t chop wood with it. You might be able to use it for utensils but it makes a poor choice for tools. It doesn’t keep an edge and you can’t cast a cannon from it.
All it is, is something that somebody covets. And that is enough somebodies to drive the price of it up past the point of its sane value. Life is that which has value. The life now, and the lives of the future generations. All else is “fools gold”. Without life, wealth means nothing.
Scrooge eventually found Christmas. The gold balloon will pop eventually, and what is fundamentally worthless will become worthless again.
Regards,
The Mighty Fahvaag
Hold on, people! The story here isn’t about the merits of gold, it’s about the fraud being perpetrated in the commodity markets. It’s about J.P. Morgan trading precious metal that doesn’t exist. It’s about the worldwide price of gold and silver being gamed to profit the cartels.
The story is about the Ponzi scheme that is todays precious metals market, and THEIR OWN GUY admitting 100:1 fractional trading.
Not that you would learn any of that from the pathetic reporting here. Nor will you get to read this in the replies here, because they were CENSORED OUT!
Quick somebody censor this guy!!!!
“with a combined notional value of $120 billion”
Is that a lot or a little? At the current market price of gold, that would be about 100 million troy oz.
The USGS publishes lots of useful information about mining:
http://minerals.usgs.gov/minerals/pubs/commodity/gold/
Annual Gold production in the last decade seems to be 2.25 — 2.5 million kg which is about 80 million troy oz.
Given that the inventory is on the same order of magnitude as annual production, I doubt that it could have much effect on market prices. Next?
If they sold their entire inventory, spaced gradually over a year, it would be the equivalent of the annual gold production jumping by 125%. Selling it at a faster rate would increase this percentage. This WOULD have an sizeable affect upon the price.
Brian Macker: much of what you say has merit but when governments gave banks the power to create money they lost control. Governments are little more than public relations companies under the control of the super rich.
Mark the Great: advances in digital imaging have greatly reduced consumption of silver in the photo industry. Have you included that fact in your calculation of the value of silver?
14.JF: a fair stab in the direction of truth until the last sentence. The Republican Party is the right hand and the Democratic Party the left hand of the same puppet which has been bamboozeling America and the world for at least 100 years. The important question: Who is the puppet master?
A lot of people who buy gold seem to have this fantasy that when the world is in flames they can trade their gold bar for survival items. Sorry, the people who have survival items will be trying to survive and they will be looking for goods and services that help them do so.
In the absence of the Mad Max scenario, let’s go back to basic Austrian economics. The Fed creates inflation, but we have no idea where that inflation will show up – all we know is it won’t be evenly distributed throughout the economy. It showed up first in housing prices. Then it showed up in commodity prices. Both are reasonable inflation hedges, but not when they’re doubling or tripling in price. Gold is a commodity, more or less. Nobody knows where it will go next, and maybe the stock market rise is the start of a new bubble. These bubbles are how the value of the dollar and wealth in general are destroyed.
The gold-is-worthless crowd is ill-informed. The utility of gold is not just electrical conductivity or other industrial uses, jewelry, etc. It also has utility as ‘money’. Look at what you have in prisons: inmates who don’t even smoke are using something that is intrinsically less than useless to them as a form of money. A pack of cigarettes is relatively durable and compact, and is further divisable into individual cigarettes. If a dollar-crises occurs, people will want to ‘barter’, but the fact is that trade is greatly facilited when there is a ‘money’, and the physical items don’t have to be directly swapped. ‘Something’ will be chosen to fill this need, and invariably, gold and silver will be chosen.
Basic Austrian economic inludes the regression theorem, stating that money in a system advanced enough to have banking must be metallic, i.e. a precious metal.
Because so many of these posts seem to think that use value is a factor of price I point out that basic Austrian economic also says that value is subjective. Value is the mind , not the object. That is why a ruby is more valueable than water . That is why marginal utility exists (one’s fifth hammer or bicycle isnt worth as much to it’s owner as the first).
Basic Austrian economics also quite clearly states what happens in a system with a central bank and paper, not commodity , money . The first part has just happened, the second part is just starting. The suppresion of the gold price helps to delude the populace that second part is not already starting to occur.
Try reading Human Action by Von Mises. It is truly one of the great books of economics .
My impression is that the price of gold and other commodities would be far higher if it were not for constant manipulation instigated by the Fed and other European central banks with the bullion banks like Goldman Sachs and JP Morgan acting as their agents, using naked short selling to drop the price and discourage buying and also the paper gold ETF’s which they control to soak up demand. I suspect that because of the level of their naked shorts, the bullion banks were already heavily under water and in serious trouble because of a gradual rising gold price mainly caused by Asian demand, so much so that the Fed was required to bail them out using the TARP money. It is one reason why what happened to the TARP funds will always be kept secret.
I have about eight different text editors on my computer. How many pairs of shoes do you have? Not to restart the consumerism debate, but the only reason that the economy would collapse is that the people with money did it, oh, and the debt of the middle-class who can’t seem to live within their means. The poor have nothing to collapse. Seriously, if Christians would take St. Paul seriously, there would be less pain in economics. What do you really need: food, clothing, and shelter. Eight text editors? If I weren’t a geek, there would be something seriously wrong with that.