Does it make sense to buy gold as a COVID hedge?

EdGasketTheSecond

thegentleway said:

EdGasketTheSecond said:

csgohan4 said:

Can you buy popcorn with krugerands?

The point is that you'd buy popcorn or anything else in a currency backed or partially backed by something the world trusts as a store of value and which governments can't create out of thin air i.e. gold or silver, or possibly, just possibly, some new world digital currency where,like Bitcoin, supply is strictly limited and cannot be created at governmemt whim.

Currency doesn't need to be a store of value or backed by anything.

Just take a moment and think about what you wrote.

If people thought currency would not hold most of its value at least by tomorrow, we would be in a hyperinflation scenario. Of course it needs to be believed in and trusted to be workable. The GBP and USD are still trusted but as the governments continue to debase their currencies, that trust is diminishing. At some point there will no longer be trust and we will have high or hyperinflation. At that stage no one will believe in a currency that is not backed by anything anymore so the new currency will need to be backed by something and I have already stated what the three possibilities are.

thegentleway

EdGasketTheSecond said:

thegentleway said:

EdGasketTheSecond said:

csgohan4 said:

Can you buy popcorn with krugerands?

The point is that you'd buy popcorn or anything else in a currency backed or partially backed by something the world trusts as a store of value and which governments can't create out of thin air i.e. gold or silver, or possibly, just possibly, some new world digital currency where,like Bitcoin, supply is strictly limited and cannot be created at governmemt whim.

Currency doesn't need to be a store of value or backed by anything.

Just take a moment and think about what you wrote.

If people thought currency would not hold most of its value at least by tomorrow, we would be in a hyperinflation scenario. Of course it needs to be believed in and trusted to be workable. The GBP and USD are still trusted but as the governments continue to debase their currencies, that trust is diminishing. At some point there will no longer be trust and we will have high or hyperinflation. At that stage no one will believe in a currency that is not backed by anything anymore so the new currency will need to be backed by something and I have already stated what the three possibilities are.

Sorry if I wasn't clear Ed: I meant that fiat money by definition has no 'intrinsic value'. It has 'use value' because a government maintains its value (by requiring you pay your taxes in that currency).
Do you have any evidence that trust in GBP and USD is diminishing? Who is refusing or even hesitant to be paid in pounds or dollars?
I agree with you that printing way too much money could result in hyperinflation but we are a very long way off out of control price increases. You do realise that the UK and US governements have printed money previously and there was no hyperinflation?
Printing money is a valid response to a recession.

EdGasketTheSecond

thegentleway said:

EdGasketTheSecond said:

thegentleway said:

EdGasketTheSecond said:

csgohan4 said:

Can you buy popcorn with krugerands?

The point is that you'd buy popcorn or anything else in a currency backed or partially backed by something the world trusts as a store of value and which governments can't create out of thin air i.e. gold or silver, or possibly, just possibly, some new world digital currency where,like Bitcoin, supply is strictly limited and cannot be created at governmemt whim.

Currency doesn't need to be a store of value or backed by anything.

Just take a moment and think about what you wrote.

If people thought currency would not hold most of its value at least by tomorrow, we would be in a hyperinflation scenario. Of course it needs to be believed in and trusted to be workable. The GBP and USD are still trusted but as the governments continue to debase their currencies, that trust is diminishing. At some point there will no longer be trust and we will have high or hyperinflation. At that stage no one will believe in a currency that is not backed by anything anymore so the new currency will need to be backed by something and I have already stated what the three possibilities are.

Do you have any evidence that trust in GBP and USD is diminishing? Who is refusing or even hesitant to be paid in pounds or dollars?
I agree with you that printing way too much money could result in hyperinflation but we are a very long way off out of control price increases. You do realise that the UK and US governements have printed money previously and there was no hyperinflation?
Printing money is a valid response to a recession.

"Do you have any evidence that trust in GBP and USD is diminishing?"

Yes, gold at new highs in dollars and pounds; silver doubled this year; inflated stock markets, hard assets; these are the only places for currency to go when it is on a downward spiral of debasement.

The reason there was not much inflation after the previous QE was because the FED said they were going to reverse it and normalise interest rates and they were believed. This time QE has gone parabolic and no-one believes the FED or BOE can reverse things. In fact it is now impossible for the US to raise interest rates above 2.5% so they can't even control inflation.

Printing currency is NOT a valid response to a recession; it only exacerbates the problem in the long run. A valid response to a recession is to let capitalism and the free market sort it out; initial pain but a quicker and healthier recovery. Get rid of zombie companies and crony capitalism. Minimal government and controls.

thegentleway

EdGasketTheSecond said:

thegentleway said:

EdGasketTheSecond said:

thegentleway said:

EdGasketTheSecond said:

csgohan4 said:

Can you buy popcorn with krugerands?

The point is that you'd buy popcorn or anything else in a currency backed or partially backed by something the world trusts as a store of value and which governments can't create out of thin air i.e. gold or silver, or possibly, just possibly, some new world digital currency where,like Bitcoin, supply is strictly limited and cannot be created at governmemt whim.

Currency doesn't need to be a store of value or backed by anything.

Just take a moment and think about what you wrote.

If people thought currency would not hold most of its value at least by tomorrow, we would be in a hyperinflation scenario. Of course it needs to be believed in and trusted to be workable. The GBP and USD are still trusted but as the governments continue to debase their currencies, that trust is diminishing. At some point there will no longer be trust and we will have high or hyperinflation. At that stage no one will believe in a currency that is not backed by anything anymore so the new currency will need to be backed by something and I have already stated what the three possibilities are.

Do you have any evidence that trust in GBP and USD is diminishing? Who is refusing or even hesitant to be paid in pounds or dollars?
I agree with you that printing way too much money could result in hyperinflation but we are a very long way off out of control price increases. You do realise that the UK and US governements have printed money previously and there was no hyperinflation?
Printing money is a valid response to a recession.

"Do you have any evidence that trust in GBP and USD is diminishing?"

Yes, gold at new highs in dollars and pounds; silver doubled this year; inflated stock markets, hard assets; these are the only places for currency to go when it is on a downward spiral of debasement.

The reason there was not much inflation after the previous QE was because the FED said they were going to reverse it and normalise interest rates and they were believed. This time QE has gone parabolic and no-one believes the FED or BOE can reverse things. In fact it is now impossible for the US to raise interest rates above 2.5% so they can't even control inflation.

Printing currency is NOT a valid response to a recession; it only exacerbates the problem in the long run. A valid response to a recession is to let capitalism and the free market sort it out; initial pain but a quicker and healthier recovery. Get rid of zombie companies and crony capitalism. Minimal government and controls.

Sorry but that’s not evidence of eroding trust in dollars and pounds... USD is still the most traded currency (by a long way, GDP 4th after Euro and Yen). Every central bank and institutional investment entity in the world disagrees with your speculations and holds USD.

There were loads of rounds of QE for a decade, none of them caused hyperinflation. When did the FED say they were going to reverse it?! You’re just making things up...

QE prevented the economy tumbling into a deflationary spiral. When there’s economic uncertainty, people hoard their money and the economy grinds to a halt.

EdGasketTheSecond

The price of gold in USD is a proxy for confidence in the future purchasing power of the USD. The high gold price suggests that people do not have confidence that next year's dollar will be worth the same as today's dollar.

December 2013.

QE to a dead economy is like CPR on a corpse. The bitter pill of recession has to be taken and the system cleansed.

coachman12

Hasn't this thread moved far away from O/P's simple and straightforward question ? Where do all the later posts above lead to ? What is the point that is being argued about now?
The O/P asked whether gold would be a good hedge against a crash and the simple answer is always "yes"----and it always will be. Whether we will get a crash ( again?) ,may it be because of Covid or for other reasons, is unknown ( to me anyway). But , as I have said earlier , if gold is bought as a safeguard, the best that can happen to your purchase is that you will see a big gain in your investment (if there is a general economic crash). And, if there is no crash, you simply keep the gold you purchased in reserve or sell it.
Of course I declare an interest as I firmly believe in holding gold in reserve ( and I keep a large amount ----though sadly not the US Federal Reserve of $ 373 billion  ).

short_bread

coachman12 said:

Hasn't this thread moved far away from O/P's simple and straightforward question ? Where do all the later posts above lead to ? What is the point that is being argued about now?
The O/P asked whether gold would be a good hedge against a crash and the simple answer is always "yes"----and it always will be. Whether we will get a crash ( again?) ,may it be because of Covid or for other reasons, is unknown ( to me anyway). But , as I have said earlier , if gold is bought as a safeguard, the best that can happen to your purchase is that you will see a big gain in your investment (if there is a general economic crash). And, if there is no crash, you simply keep the gold you purchased in reserve or sell it.
Of course I declare an interest as I firmly believe in holding gold in reserve ( and I keep a large amount ----though sadly not the US Federal Reserve of $ 373 billion  ).

Actually no, because the price of gold is by definition unknowable. Unlike other commodities it has negligible industrial uses relative the amount mined, traded each year or the amount in existence. Not only does gold not work as a good or consistent anti-crash hedge, but it is impossible to consistently predict, time, or determine the perfect asset allocation in advance. The price history of gold clearly demonstrates a failure to keep up with sufficiently broad market indicates like the FTSE All Share, S&P 500, or global equity indices. If you want a long and hard investing life, constantly having to decide how much of an inanimate, unproductive metal to own, go for it, but for the vast majority of retail investors, a sensible allocation to developed government bonds, cash, or even mining companies should bemore than adequate. By definition, the only good and consistent anti-crash hedge in developed government bonds.

EdGasketTheSecond

Except that now 'developed government bonds' have a negative return compared to inflation. That is why it is important to consider the macro environment which has a direct bearing on the gold price and hence whether investing in gold now is a good idea or not. It is not as simple as 'is gold a good hedge against a Covid crash'. In reality Covid has not got much to do with the price of gold. What has are negative real rates of return, FED utterances that interest rates will not rise from here for years, and the FED actually targeting 'average' inflation of 2% i.e. they realize they have no power left to control it and it will overshoot; all bullish for gold.

bigadaj

EdGasketTheSecond said:

Except that now 'developed government bonds' have a negative return compared to inflation. That is why it is important to consider the macro environment which has a direct bearing on the gold price and hence whether investing in gold now is a good idea or not. It is not as simple as 'is gold a good hedge against a Covid crash'. In reality Covid has not got much to do with the price of gold. What has are negative real rates of return, FED utterances that interest rates will not rise from here for years, and the FED actually targeting 'average' inflation of 2% i.e. they realize they have no power left to control it and it will overshoot; all bullish for gold.

High quality government bonds always have had a negative return compared to inflation, the difference now is that they have a negative return in nominal terns.Everyone has concerns around the current economic situation it's the obsession with gold that is irrational. Most asset classes are expensive but diversification is key, some exposure to gold is fine along with equities but also property, infrastructure, commodities etc

EdGasketTheSecond

'it's the obsession with gold that is irrational.'

The thread happens to be about gold, lol