iTulip.com Gold Myths Cheat Sheet

[FRED]

http://www.itulip.com/images/oligarchrejected1.gifiTulip.com Gold Myths Cheat Sheet

An eight-year-old bull market in gold has spawned more erroneous theories and timing calls along the way than you can count. We break it down to the Top Eight Myths and recount the consensus opinion on gold since the bull began in 2001.

Here are eight popular myths about gold that we have collected since 2001 when we put 15% of our portfolio into the yellow metal (with the iTulip counter-argument in parentheses):

A. Earns no interest. (Gold has out-performed stocks and bonds every year since 2001 in real terms.)

B. Performs poorly on the long term. (True, unless the currency is in long term decline due to structural economic imbalances and negative interest rates are maintained for extended periods to stimulate economic growth of the imbalanced economy.)
http://www.itulip.com/images/itulip8yeargoldreturns.gif

C. Better inflation hedges exist, such as TIPS. (Inflation is a secondary effect of a weak currency. Gold hedges dollar currency risk directly, inflation risk indirectly; dollar denominated bonds cannot.)

D. Is money (In order to qualify as money gold must act as both a store of value and means of exchange. We use cigarettes in a prison as an example. You must convert gold to dollars before you can make purchases in the U.S. so gold only meets the first criteria. Gold is a currency. We call it the Fourth Currency because it competes with the dollar, euro, and yen in international currency markets.)

E. Price is primarily determined by physical demand for gold. (That's backwards. The gold price is primarily determined by global demand for the currency that is used as the unit to measure the gold price.)

F. The dollar will strengthen relative to other currencies and push down the dollar price of gold. (The dollar's long-term value is determined by international political relationships. Its short-term price is influenced by economic events. The long-term trend is negative because the dollar is a reserve currency nearing the end of its life span. Short-term value fluctuations are irrelevant to non-traders.)

G. Asset price deflation will result from a collapsing credit bubble. Central banks cannot contain the asset price deflation. It will spill over into wage and commodity prices and crash the price of gold. (Central banks can create infinite money through the process of double entry bookkeeping. Consider, for example, TARP.)

H. The smart moneys wait for F. and G. to happen before taking a position in gold.
Below we list the popular consensus about gold that we heard over the years since 2000, prefaced by the cumulative average gold price that year.
http://www.itulip.com/images/itulipgoldsentimentchart.gif What they said, when they said it, and the gold price that year:


1. Gold $271: "Gold will continue to decline as it has for 20 years to $200 or lower."

2. Gold $275: "Gold is certain to continue its decline to $200 or lower due to deflation following the collapse of the stock market bubble." (That was the year we backed up the truck.)

3. Gold $310: "Despite a modest recent rise due to increased gold demand driven by investors’ fear associated with the 9/11 attacks, gold will soon resume its decline to $200 or lower once the fear subsides."

4. Gold $363: "The rise in the gold price since 2001 is due to a combination of temporary factors, such as investors’ fears about oil and inflation related to the War in Iraq and a weak dollar. Soon the positive outcome of the war will be clear, the dollar will strengthen, and gold demand will drop off, pushing prices back down toward $200."

5. Gold $410: "Economic recovery is pushing up gold demand and prices. The Treasury department has restated its strong dollar policy. Gold will soon lose its luster and fall back to $300."

6. Gold $445: "Gold prices increased only slightly this year over last year, indicating a topping in the gold price. Next year gold prices will fall to $300 or lower."

7. Gold $604: "The spike in the price of gold this year is due to short term dollar weakness. Look for the dollar to rally and gold to decline back to more normal levels below $400 starting next year."

8. Gold $695: "Gold traded mostly sideways over the last year, indicating a topping in the gold price. Look for gold to decline to well under $500 next year."

9. Gold $872: Early in the year, "Gold is participating in a bubble in commodities. When the commodity bubble pops, gold will fall more than 50% along with oil and other commodities." Later in the year: "Gold has crashed to $716 along with stocks and commodities and will continue to decline to $500 next year."

10. Gold $924: "The gold price reflects widespread concern about the financial system in the wake of the global financial crisis. As the system steadies, the gold price will drift down to under $700."

What does each popular consensus position about gold have in common? One, wrong every time. Two, every few years the prediction of the following year's price "bottom" was increased in ratchet-like fashion. Waiting to buy based on the consensus has been a mistake eight years running.

iTulip.com Position: The price of gold began to rise after the foreign debt dependent and asset price inflation-dependent U.S. FIRE Economy went into decline in 2001. The steady fall in exchange rate value of the dollar and rising dollar gold prices reflects the decline of the FIRE Economy.

We hold gold as long as the U.S. economy remains structured as a finance-based economy, particularly while government policy attempts to resurrect it. We sell gold only after the U.S. economy and dollar-centric global monetary system is restructured and the U.S. is able to grow through saving and investment with positive real interest rates.

We continue to view all short-term pricing factors, such as those we have heard from time to time since 2001, as noise until the global economy and monetary system restructures.

Download PDF version. (http://www.itulip.com/images/iTulipGoldMyths.pdf)

Read on google docs. (http://docs.google.com/fileview?id=0B3gFAVhH-wC6ZjA2YzQyZTYtZTY4Zi00MGJmLTk1ZDMtZjIwODI0YWE0MjY z&hl=en)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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[Adeptus]

Nice.
I thought somewhere last year iTulip recommended 30% gold holdings up from 15%. Did this change (yet)?
Adeptus

[Milton Kuo]

Nice.
I thought somewhere last year iTulip recommended 30% gold holdings up from 15%. Did this change (yet)?
Adeptus

I believe iTulip originally recommended allocating 15% of one's liquid net worth in gold in 2001, when they first recommended buying gold. The percentage was upped last year to 30% in light of the increased risk of a currency crisis.

For people who jumped in on EJ's original call to buy gold in 2001 (alas, I was not one of them), very little to no additional purchasing of gold was required last year due to the tripling of their initial investment. For late-comers and new-comers, a 30% "rump of gold" is the currently recommended allocation.

[ThePythonicCow]

D. Is money (In order to qualify as money gold must act as both a store of value and means of exchange. We use cigarettes in a prison as an example. You must convert gold to dollars before you can make purchases in the U.S. so gold only meets the first criteria. Gold is a currency. We call it the Fourth Currency because it competes with the dollar, euro, and yen in international currency markets.)I recall this being stated before (many times) at iTulip, so I have been remiss in not expressing my confusion with this sooner.

I see three classifications that you consider applying to gold here:


store of value
means of exchange
currency

Well, I think it's three. I personally tend to take "currency" and "means of exchange" as synonyms. But what you write makes no sense that way, so I suppose you have some third meaning for "currency."

What do you mean by "currency?"

From your big hint regarding dollars, euros, yen and gold, I take it "currency" means for you "a currency exchange medium" (as opposed to a "goods and services exchange medium", which dollars, euros, and yen are, but gold is not usually.)

So the following rewrite rewrite of these classifications suggests itself to me:


store of value (e.g. land, infrastructure, long lasting goods such as a well built house, precious metals)
goods and services exchange medium (e.g. political fiat currencies, such as dollars, euros and yen)
political fiat currency exchange medium (e.g. gold and perhaps for a while oil)

This rewrite suggests that fiat currencies can be exchanged with each other and with gold, whereas usually only fiat currencies, not gold, are exchanged for goods and services.

Let my state my confusion in a more pungent fashion. It seems that you are stating each of:


Gold is a currency, the fourth currency.
Currencies are used as a means of exchange.
Gold is not used as a means of exchange.

The above three statements are logically inconsistent. So I must be misreading you. Is the above suggested rewrite any clearer or correct, or is it missing the point somehow?

The above clarification, if such it be, leads in my view to the proper structure of the international monetary system. Multiple national or regional (e.g. Euro) currencies are managed separately by their respective nations or regional organizations. They exchange against a gold backed medium in a properly regulated world market. Normal day-to-day affairs continue to be conducted in the currency of ones nation or region. If one nation, say the U.S., prints too much of its currency, say the dollar, then the dollar exchange rate will weaken against the world gold backed medium. This will directly impact only those who have chosen to enter into contracts or trades that cross dollars and some other currency, or cross dollars and the world gold backed medium.

[FRED]

I recall this being stated before (many times) at iTulip, so I have been remiss in not expressing my confusion with this sooner.

I see three classifications that you consider applying to gold here:


store of value
means of exchange
currency

Well, I think it's three. I personally tend to take "currency" and "means of exchange" as synonyms. But what you write makes no sense that way, so I suppose you have some third meaning for "currency."

What do you mean by "currency?"

From your big hint regarding dollars, euros, yen and gold, I take it "currency" means for you "a currency exchange medium" (as opposed to a "goods and services exchange medium", which dollars, euros, and yen are, but gold is not usually.)

So the following rewrite rewrite of these classifications suggests itself to me:


store of value (e.g. land, infrastructure, long lasting goods such as a well built house, precious metals)
goods and services exchange medium (e.g. political fiat currencies, such as dollars, euros and yen)
political fiat currency exchange medium (e.g. gold and perhaps for a while oil)

This rewrite suggests that fiat currencies can be exchanged with each other and with gold, whereas usually only fiat currencies, not gold, are exchanged for goods and services.

Let my state my confusion in a more pungent fashion. It seems that you are stating each of:


Gold is a currency, the fourth currency.
Currencies are used as a means of exchange.
Gold is not used as a means of exchange.

The above three statements are logically inconsistent. So I must be misreading you. Is the above suggested rewrite any clearer or correct, or is it missing the point somehow?

The above clarification, if such it be, leads in my view to the proper structure of the international monetary system. Multiple national or regional (e.g. Euro) currencies are managed separately by their respective nations or regional organizations. They exchange against a gold backed medium in a properly regulated world market. Normal day-to-day affairs continue to be conducted in the currency of ones nation or region. If one nation, say the U.S., prints too much of its currency, say the dollar, then the dollar exchange rate will weaken against the world gold backed medium. This will directly impact only those who have chosen to enter into contracts or trades that cross dollars and some other currency, or cross dollars and the world gold backed medium.

The confusion stems from the concepts of domestic versus international currency.

Go to the local all night service station in the U.S. and try to buy 40 gallons of gasoline for your 2006 Hummer H1 Alpha (http://www.seriouswheels.com/cars/top-2006-Hummer-H1-Alpha.htm) with:

1. A 1/10th ounce Gold Eagle coin*
2. EU70 or JPY9,324

You will get no love. However, bring 10 oz. of gold to any national bank anywhere in the world and walk away with 10 oz. worth of local currency. No one will ever say no.

* Buy price on a 1/10 ounce Gold Eagle coin today is $108. Average 1 gal. gasoline is $2.59. Think about that! You can buy 40 gallons of precious, non-renewable refined oil with a spec of ever-lasting gold so small you store it in a contact lens case.

Thanks for your help with the edits earlier.

[ThePythonicCow]

The confusion stems from the concepts of domestic versus international currency.
Is a "domestic currency" what I described as a

goods and services exchange medium (e.g. political fiat currencies, such as dollars, euros and yen)and an "international currency" what I described as a

political fiat currency exchange medium (e.g. gold and perhaps for a while oil)In which case, perhaps this distinction needs to be called out .. or as is more likely the case, it already has been called out and some kind soul (FRED, metalman, or whomever) will end up pointing me to material.

P.S. -- Everywhere I look so far, the word "currency" is used without distinction between these two kinds (domestic and international) of currency. This leads to such a plainly contradictory statements as the three I listed in my earlier post and impedes comprehension.

[dpandorf]

Just wish I had a bunch of gold filled contact lens cases.

[atlantafox]

However, bring 10 oz. of gold to any national bank anywhere in the world and walk away with 10 oz. worth of local currency. No one will ever say no.


That's nice to know. Would you name some European, South American, and Asian banks.

I'm not aware of any banks in the US. Would you name some, also?

Or, are you referring to bullion banks, such as Kitco.

[cobben]

"The confusion stems from the concepts of domestic versus international currency."

"money" and "currency" could be more exactly written "domestic money" and "international currency"?

Gold was always the international trade currency, whereas domestic moneys were usually silver & copper.

Sweden as most of Europe I suppose minted gold primarily in the form of the international trade coin "ducat". These would not normally circulate at all within Sweden, where the silver mark and later other silver coinage was used.

[D-Mack]

That's nice to know. Would you name some European, South American, and Asian banks.

I'm not aware of any banks in the US. Would you name some, also?

Or, are you referring to bullion banks, such as Kitco.

Is Deutsche Bank still a European bank ?

http://tools.deutsche-bank.de/cc/locationsfinder/en/welcome2.do?country=USA

[doom&gloom]

okay, so a little off-topic but related, what is iTulip position on possible short
term strengthening of dollar before a final slide into the dustbin of history?

[icm63]

<HR style="COLOR: #99ff99" SIZE=1> <!-- / icon and title --><!-- message -->
okay, so a little off-topic but related, what is iTulip position on possible short
term strengthening of dollar before a final slide into the dustbin of history?

$USD bull will start on 2009-09-14 at NOON New York time !:D

[doom&gloom]

http://www.dublinhostels.org/files/u1/bull-matador.jpg

[art]

OK, the suspense is killing me - what's the eighth myth?

A-G is seven, but the lead-in promised eight. :-)

Or is this one of those funny self-referential lists where the 8th myth is that there are 8 myths?

[doom&gloom]

you were that kid alwasys looking for the penny in the corner of the round room, huh?

[orion]

OK, the suspense is killing me - what's the eighth myth?

A-G is seven, but the lead-in promised eight. :-)

Or is this one of those funny self-referential lists where the 8th myth is that there are 8 myths?


You missed H, which mentions when the smart money comes in. However I didn't see a rebuttal posted to that myth.

[metalman]

Is a "domestic currency" what I described as a

and an "international currency" what I described as a

In which case, perhaps this distinction needs to be called out .. or as is more likely the case, it already has been called out and some kind soul (FRED, metalman, or whomever) will end up pointing me to material.

P.S. -- Everywhere I look so far, the word "currency" is used without distinction between these two kinds (domestic and international) of currency. This leads to such a plainly contradictory statements as the three I listed in my earlier post and impedes comprehension.

'money' and 'currency' are not interchangeable terms but there is definitional overlap...

Main Entry: ¹mon·ey
Pronunciation: \ˈmə-nē\
Function: noun
Inflected Form(s): plural moneys or mon·ies \ˈmə-nēz\
Usage: often attributive
Etymology: Middle English moneye, from Anglo-French moneie, from Latin moneta mint, money — more at mint (http://www.merriam-webster.com/dictionary/mint)
Date: 14th century

1 : something generally accepted as a medium of exchange, a measure of value, or a means of payment: as a : officially coined or stamped metal currency b : money of account (http://www.merriam-webster.com/dictionary/money+of+account) c : paper money (http://www.merriam-webster.com/dictionary/paper+money)
2 a : wealth reckoned in terms of money (http://www.merriam-webster.com/dictionary/money#) b : an amount of money c plural : sums of money : funds (http://www.merriam-webster.com/dictionary/funds)
3 : a form or denomination of coin or paper money
4 a : the first, second, and third place winners (as in a horse or dog race) —usually used in the phrases in the money or out of the money b : prize money <his horse="" took="" third="">money>
5 a : persons or interests possessing or controlling great wealth b : a position of wealth <born into="">money>



Main Entry: cur·ren·cy
Pronunciation: \ˈkər-ən(t)-sē, ˈkə-rən(t)-\
Function: noun
Inflected Form(s): plural cur·ren·cies
Date: 1624 1 a : circulation as a medium of exchange b : general use, acceptance, or prevalence currency> c : the quality or state of being current (http://www.merriam-webster.com/dictionary/current) : currentness (http://www.merriam-webster.com/dictionary/currentness)
2 a : something (as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange b : paper money (http://www.merriam-webster.com/dictionary/currency#) in circulation c : a common article for bartering d : a medium of verbal or intellectual expression


anyway, itulip is making the wrong point here. rather than say 'gold is not money' the point itulip has made in the past that makes sense to me is that 'gold is not natural money'. gov'ts made gold into money for tax collection purposes. that's historically accurate and defensible position... and it tweaks the gold bugs just as surely. :cool:
</born></his>

[metalman]

$USD bull will start on 2009-09-14 at NOON New York time !:D

11. Gold $999: "$USD bull will start on 2009-09-14 at NOON New York time and gold will crash."

[metalman]

http://www.dublinhostels.org/files/u1/bull-matador.jpg

i'll fix that up for ya... :D


http://imgur.com/wzq1Q.jpg

ref to...

Five Reasons to Avoid the Gold Rush | The Big Picture (http://www.google.com/url?sa=t&source=web&ct=res&cd=3&url=http%3A%2F%2Fwww.ritholtz.com%2Fblog%2F2009%2F 09%2Ffive-reasons-to-avoid-the-gold-rush%2F&ei=E52qSo7YLMfUlAfPq6nsBg&usg=AFQjCNHSeI-y9Oai6DA8uGzK0ks0MgSK3Q&sig2=DbQNbeZH0CRtBIEPADqvfQ)

6:56amSep 9, 2009 ... Vitaliy N. Katsenelson presents the counterpoint for the gold argument: ~~~ The reasons why one should sell the cat, pawn the mother-in-law, ...

[metalman]

You missed H, which mentions when the smart money comes in. However I didn't see a rebuttal posted to that myth.

h added after art's comment?

we need to come up with a name for that.. when we post a comment about an editing/spelling/etc. error in a thread before the error's corrected. something along these lines... (http://www.youtube.com/watch?v=oHg5SJYRHA0)

[ThePythonicCow]

'money' and 'currency' are not interchangeable terms but there is definitional overlap..<his horse="" took="" third=""><born into=""></born></his>
After FRED's reply "The confusion stems from the concepts of domestic versus international currency" it was clear to me that we're agreeing on concepts. This was not a conceptual confusion. FRED and I presented the same concepts (though I did so less clearly :o)

My only remaining point is thus.

iTulip seems to habitually use the unadorned word "currency" to refer to both domestic and international currency.

This makes reading these parts of iTulip difficult and confusing. These are two of the central concepts to iTulips analysis here. They should call them out clearly as two separate concepts and routinely use two different terms or phrases to name them.

[open4]

As a reciprocal to stock market demolition ?

[Charles Mackay]

Fred used the % change using the year end price. I believe it should be % change of the Start price since that is your dollars invested at the beginning of the year, hence the % increase of that investment.

http://webpages.charter.net/bigboard/Snap6.jpg

[ThePythonicCow]

This "Gold Myths Cheat Sheet" just popped up at the top off the "Best of the Web" list on the http://www.dollarcollapse.com/ website. Cool!

Best of the Web

Gold Myths Cheat Sheet – iTulip (http://www.itulip.com/forums/showthread.php?p=121715#post121715)

[sishya]

Good cheat sheet. This is Excellent record of iTulip.

[metalman]

Just wish I had a bunch of gold filled contact lens cases.

your avatar...

http://www.itulip.com/forums/customavatars/avatar6576_1.gif

is that jim nickerson walking past the texas state house after he lit it on fire? ;)

[BuckarooBanzai]

I recall this being stated before (many times) at iTulip, so I have been remiss in not expressing my confusion with this sooner.

I see three classifications that you consider applying to gold here:


store of value
means of exchange
currency

Well, I think it's three. I personally tend to take "currency" and "means of exchange" as synonyms. But what you write makes no sense that way, so I suppose you have some third meaning for "currency."

Your definition is slightly off. Money has three defining characteristics:

(1) store of value
(2) means of exchange
(3) unit of account

The fiat dollar used to have all three of these characteristics. However, gold has been gradually taking over characteristic (1) from the fiat dollar over the last 40 years.

It isn't clear how the global economy will function once gold completes its takeover of characteristic (1). The experience of Weimar Germany (and many other failed fiat regimes) demonstrated that a currency can exist for a maybe a few years at best while retaining only characteristics (2) and (3). However, that was back when currency had to be physically printed... we live in a digital age now and that limitation has been removed.

[ThePythonicCow]

Originally Posted by ThePythonicCow http://www.itulip.com/forums/images/buttons/viewpost.gif (http://www.itulip.com/forums/showthread.php?p=121732#post121732)
I recall this being stated before (many times) at iTulip, so I have been remiss in not expressing my confusion with this sooner.

I see three classifications that you consider applying to gold here:


store of value
means of exchange
currency

Your definition is slightly off. Money has three defining characteristics:

(1) store of value
(2) means of exchange
(3) unit of account

So we agree on items (1) store of value and (2) means of exchange.

The word currency is ambiguous, however.

When I raised this topic, FRED explained (see his reply above) there was domestic and international currency. Domestic currency is useful as a local means of exchange (e.g. to purchase gas). International currency, such as gold, is useful between national banks to exchange for various national, aka domestic, currencies. "Domestic currency" is we are calling a "means of exchange." "International currency" is what I clumsily called "political fiat currency exchange medium (e.g. gold and perhaps for a while oil)" in my initial post, meaning a medium (e.g. gold) which could be used to exchange for various political fiat currencies.

You saw the ambiguous word "currency" in my post and presumed I meant a "unit of account", which is another critical role for money. It is a critical basis construct for measuring tradable value of goods and services independently of their specifics (which good or service, when and where traded.) Accounting for "value" in the abstract requires a unit of measure. You are correct that such a 'unit of accounting' is a critical role of money.

FRED is correct that there are domestic and international currencies as he describes.

There are more than just three roles for money. Combining these lists, we have four roles for money:


store of value
means of exchange (aka domestic currency, e.g. dollars, euros, pesos, or yuan)
international currency (exchangeable for various national currencies)
unit of account

This list might not be exhaustive.

My key remaining point stands. We should not use the unadorned word "currency" to refer to both items (2) and (3) in the above list. It's confusing.

I find your post, thank-you, to be further evidence for this point.

[newnewthing]

Being slothful I entered late putting about 15% of my assets in gold in early 2004. I started adding Platinum and Silver last year and plunked another 10% in Gold last month. I'm now at around 40% which currently seems reasonable.

[metalman]

Being slothful I entered late putting about 15% of my assets in gold in early 2004. I started adding Platinum and Silver last year and plunked another 10% in Gold last month. I'm now at around 40% which currently seems reasonable.

2004 ain't slothful. gold ave. $410 that year.

waiting for 2009, when the wsj started to run the gold price at the top of the front page along with stocks, bonds, etc... that's slothful.

[BuckarooBanzai]

So we agree on items (1) store of value and (2) means of exchange.

The word currency is ambiguous, however.

When I raised this topic, FRED explained (see his reply above) there was domestic and international currency. Domestic currency is useful as a local means of exchange (e.g. to purchase gas). International currency, such as gold, is useful between national banks to exchange for various national, aka domestic, currencies. "Domestic currency" is we are calling a "means of exchange." "International currency" is what I clumsily called "political fiat currency exchange medium (e.g. gold and perhaps for a while oil)" in my initial post, meaning a medium (e.g. gold) which could be used to exchange for various political fiat currencies.

You saw the ambiguous word "currency" in my post and presumed I meant a "unit of account", which is another critical role for money. It is a critical basis construct for measuring tradable value of goods and services independently of their specifics (which good or service, when and where traded.) Accounting for "value" in the abstract requires a unit of measure. You are correct that such a 'unit of accounting' is a critical role of money.

FRED is correct that there are domestic and international currencies as he describes.

There are more than just three roles for money. Combining these lists, we have four roles for money:


store of value
means of exchange (aka domestic currency, e.g. dollars, euros, pesos, or yuan)
international currency (exchangeable for various national currencies)
unit of account

This list might not be exhaustive.

My key remaining point stands. We should not use the unadorned word "currency" to refer to both items (2) and (3) in the above list. It's confusing.

I find your post, thank-you, to be further evidence for this point.

You are confusing the words "currency" and "money".

A currency is a medium of exchange. That is only one of the defining characteristics of Money. A currency can also have one or both of the other qualities of money as well-- it can be a store of value, as well as a unit of account.

The word "currency" literally means something that circulates. I suppose an "international currency" is a currency that is freely accepted and/or exchangeable beyond the country of origination's borders. But how widely the currency circulates does not necessarily have anything to do with that currency's "moneyness", so to speak.

[ThePythonicCow]

You are confusing the words "currency" and "money".

A currency is a medium of exchange.
Either I am not getting your point, or you are not getting mine.

Sorry.

[ThePythonicCow]

I suppose an "international currency" is a currency that is freely accepted and/or exchangeable beyond the country of origination's bordersCould you examine more closely what EJ is saying when he speaks of gold as the fourth currency, which he also labeled an "international currency?"

Then could you determine if what he has in mind fits your understanding of the meaning of the word "currency"? I suspect it won't fit, but we'll see.

Even if it does fit, still it seems to me that EJ's comments significantly depend on distinctions between ordinary currency (such as paper bills used for a medium of exchange when buying and selling goods and services) and this "fourth currency", the "international currency", gold.

My primary point remains that to use the same word for two purposes which have an important distinction in ones presentation is confusing. Are you aware that this is my primary point?

[BuckarooBanzai]

Could you examine more closely what EJ is saying when he speaks of gold as the fourth currency, which he also labeled an "international currency?"

Then could you determine if what he has in mind fits your understanding of the meaning of the word "currency"? I suspect it won't fit, but we'll see.

Even if it does fit, still it seems to me that EJ's comments significantly depend on distinctions between ordinary currency (such as paper bills used for a medium of exchange when buying and selling goods and services) and this "fourth currency", the "international currency", gold.

My primary point remains that to use the same word for two purposes which have an important distinction in ones presentation is confusing. Are you aware that this is my primary point?

Yes I am quite aware what your point is. You are getting yourself all wrapped around the axle regarding your definitions.

What I hear EJ saying is that gold is becoming the "fourth currency" because the other three major currencies (dollars, euros, yen) are becoming very unreliable stores of value. You seem to have interpreted this another way-- something to do with the "internationalness" of gold. I would argue that this is a misinterpretation of EJ's meaning. It is the "moneyness" of gold that is of interest here.

To review: How "moneylike" is gold today?

Is it a store of value? Yes-- in fact, probably the best store of value in the last 8 years. Consequently, it is getting used a lot more in this capacity by people who own lots of dollars/yen/euros

Is it a medium of exchange? Yes-- but not a very efficient medium of exchange, given that you have to first trade it for a more functional medium of exchange first (i.e. use it to buy dollars or yen or euros). But as a "currency for other currencies" or as a "meta-currency" it has always excelled, and continues to do so today.

Is it a unit of account? No, today, definitely not.

Conclusion: Gold's "moneyness" is increasing, and the "moneyness" of fiat currencies is decreasing.

[ThePythonicCow]

But as a "currency for other currencies" or as a "meta-currency" it has always excelled, and continues to do so today.Bingo. If EJ had used the term "meta-currency" rather than reusing the term "currency" when referring to gold's usefulness when exchanging (ordinary) currencies, then I wouldn't be here.

However we have EJ stating, in the opening cheat sheet of this thread, pointing out that gold is not a medium of exchange (aka, as you noted, a "currency"):

Is money ([Rebuttal:] In order to qualify as money gold must act as both a store of value and means of exchange. We use cigarettes in a prison as an example. You must convert gold to dollars before you can make purchases in the U.S. so gold only meets the first criteria.Again in his response to my initial post to this thread on this matter, EJ observes that it would be difficut to buy gas with a piece of gold.

To repeat myself from above, EJ is stating, I claim:


Gold is a currency, the fourth currency.
Currencies are used as a means of exchange.
Gold is not used as a means of exchange.

These statements are logically inconsistent. The following rework of these statements using your term "meta-currency" is correct:



Gold is a meta-currency, a means of exchange between currencies.
Currencies are used as a means of exchange for goods and services.
Gold is not used as a means of exchange for goods and services.

Yes, one such as yourself who was already clear on such terms and on the various attributes of money can read EJ and understand easily enough.

On EJ's web page http://fourthcurrency.com/ I count 26 instances of the words "currency" or "currencies". Even though the ostensible purpose of that site is to present gold as a currency, the fourth currency, almost all instances of the words "currency" or "currencies" except three in the title and opening only make sense if referring to a set of paper currencies excluding gold.

EJ's ideas are quite sensible in my view and I suspect I agree. But it took me several re-readings to make any sense of them. This was I believe because I didn't realize he was using two inconsistent meanings for "currency", a key word in the whole presentation, if I do say so.

[babbittd]

European Central Bank Joint Statement on Gold (from August 7th)

http://www.ecb.int/press/pr/date/2009/html/pr090807.en.html

In the interest of clarifying their intentions with respect to their gold holdings the undersigned institutions make the following statement:

1. Gold remains an important element of global monetary reserves.

2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2009, immediately after the end of the previous agreement. Annual sales will not exceed 400 tonnes and total sales over this period will not exceed 2,000 tonnes.

3. The signatories recognize the intention of the IMF to sell 403 tonnes of gold and noted that such sales can be accommodated within the above ceilings.

4. This agreement will be reviewed after five years.

(emphasis mine)

****

for perspective:

http://gold-2009.com/gold-2009-central-bank

...in 1999 that a treaty was signed by the big European banks, capping the level of central bank gold sales at 400 tonnes per year...

[..]

The Central Bank Gold Agreement (CBGA) was renewed in 2004, raising the annual gold sales limit to 500 tonnes.

Last year, central bank gold sales under the CBGA totaled just 357 tonnes, well short of the 500-tonne limit. Because as the world's second largest gold-holding central bank – Germany's Bundesbank – said in the summer (August 2008), "National gold reserves have a confidence and stability-building function."

It's position is worth repeating as 2009 begins: "This function has become even more important given the geopolitical situation and the risks present in financial market developments."

[BuckarooBanzai]

This was I believe because I didn't realize he was using two inconsistent meanings for "currency", a key word in the whole presentation, if I do say so.

I don't think EJ was using two inconsistent meanings for currency. Gold is a currency just like dollars or euros. The difference is that, as it is used in today's global economy, gold is just not the most efficient currency out there, as you generally have to exchange it for dollars or euros or something first, before you can use it.

Think of it this way. Say you want to buy something, like a car. You don't have any dollars, but you do have, say, 25 ounces of gold. How will a seller of a car perceive your qualifications as a buyer? I would argue that the seller would look upon you very favorably, as he almost certainly knows that within a few hours you would be able to easily and conveniently exchange your gold for a very predictable amount of dollars. Can you really argue that gold, in this transaction, was not perceived as a viable currency? In fact, the car dealer might have gladly accepted the gold, but because he has to keep a set of books, the unit of account of which is denominated in dollars, he prefers that the transaction of record be facilitated with dollars.

Imagine that instead of gold, you walked into the car dealer with nothing but an inventory of, say, 10,000 tons of portland cement. Now how would the dealer perceive your qualifications as a buyer? He has no interest in the cement, and furthermore, he knows that it is not particularly easy or convenient to convert the cement into the unit of account he requires to keep his books-- i.e. dollars. You will not be regarded seriously.

Are you getting what I am driving at? There is no "currency/not currency" distinction here. Rather, different currencies have different degrees of "moneyness", and are all evaluated and used in the marketplace according to their own merits.

[GRG55]

your avatar...

http://www.itulip.com/forums/customavatars/avatar6576_1.gif

is that jim nickerson walking past the texas state house after he lit it on fire? ;)

Nah. It's the conclusive proof of conspiracy...a security camera shot of the demolitions expert walking away just after setting off the explosives under the WTC on 9/11/01...:rolleyes:

[goadam1]

Wait. Are you saying, "buy gold"?
http://goodluckwithallthat.files.wordpress.com/2007/04/idiot1.jpg

[ThePythonicCow]

Are you getting what I am driving at? There is no "currency/not currency" distinction here. Rather, different currencies have different degrees of "moneyness", and are all evaluated and used in the marketplace according to their own merits.
I give up again. I'm back to my previous position that one of us is not understanding the other. Take care.

[ThePythonicCow]

Nah. It's the conclusive proof of conspiracy...a security camera shot of the demolitions expert walking away just after setting off the explosives under the WTC on 9/11/01...:rolleyes:
Ah - but the real conspiracy is why the CFR hid this tape from us all these years :eek::eek::eek:.

[BuckarooBanzai]

I give up again. I'm back to my previous position that one of us is not understanding the other. Take care.

I think you might be stuck on the idea that a currency is not a currency unless you can take it down to the store and buy a loaf of bread with it.

I'm saying that isn't necessarily the case.

[ThePythonicCow]

I think you might be stuck on the idea that a currency is not a currency unless you can take it down to the store and buy a loaf of bread with it.

I'm saying that isn't necessarily the case.
At least one of us is not understanding the other.

[Diarmuid]

Bingo. If EJ had used the term "meta-currency" rather than reusing the term "currency" when referring to gold's usefulness when exchanging (ordinary) currencies, then I wouldn't be here.

However we have EJ stating, in the opening cheat sheet of this thread, pointing out that gold is not a medium of exchange (aka, as you noted, a "currency"):

Again in his response to my initial post to this thread on this matter, EJ observes that it would be difficut to buy gas with a piece of gold.

To repeat myself from above, EJ is stating, I claim:


Gold is a currency, the fourth currency.
Currencies are used as a means of exchange.
Gold is not used as a means of exchange.

These statements are logically inconsistent. The following rework of these statements using your term "meta-currency" is correct:



Gold is a meta-currency, a means of exchange between currencies.
Currencies are used as a means of exchange for goods and services.
Gold is not used as a means of exchange for goods and services.

Yes, one such as yourself who was already clear on such terms and on the various attributes of money can read EJ and understand easily enough.

On EJ's web page http://fourthcurrency.com/ I count 26 instances of the words "currency" or "currencies". Even though the ostensible purpose of that site is to present gold as a currency, the fourth currency, almost all instances of the words "currency" or "currencies" except three in the title and opening only make sense if referring to a set of paper currencies excluding gold.

EJ's ideas are quite sensible in my view and I suspect I agree. But it took me several re-readings to make any sense of them. This was I believe because I didn't realize he was using two inconsistent meanings for "currency", a key word in the whole presentation, if I do say so.

Where does this come in, under the above definitions

http://upload.wikimedia.org/wikipedia/commons/thumb/e/ef/2006_AEGold_Proof_Rev.png/150px-2006_AEGold_Proof_Rev.png

One should be able to buy gas with it - 50 dollars worth, in fact, if one were silly enough to do so. It would have to be accepted for remittance of a debt it is legal tender after all. Brings one to the question of what exactly is a dollar? if an electron, a peice of paper and gold can all serve to represent it. Under such ambiguity, has the very nature of money changed in the last 38 years and is there such a thing any longer?

What are the legal and practical ramifications?

Given me pause for thought anyway.

[ThePythonicCow]

Where does this come in, under the above definitions

http://upload.wikimedia.org/wikipedia/commons/thumb/e/ef/2006_AEGold_Proof_Rev.png/150px-2006_AEGold_Proof_Rev.png

One should be able to buy gas with it - 50 dollars worth, in fact, if one were silly enough to do so. It would have to be accepted for remittance of a debt it is legal tender after all.

For reference, I suppose you refer to these definitions from the post you reply to:


Gold is a meta-currency, a means of exchange between currencies.
Currencies are used as a means of exchange for goods and services.
Gold is not used as a means of exchange for goods and services.

These definitions are stated too broadly. More precise statements would include such qualifications as "efficient", acknowledging that spending a 1000 dollar's worth of gold (is that a 1 oz coin?) for 50 dollars worth of gas is not efficient.

That in mind, the primary use of that gold piece today is as a store of wealth, which is another purpose of money not listed above. I did not list that purpose because my point, seemingly lost earlier in this tread, involved the particular word 'currency', which as we are learning the hard way, is not a good store of wealth ;).

In particular, that coin may be a form of wealth that better holds its value past the substantial world currency upheavals that we fear happening. In that event, that coin might serve as an instance of the first definition, a meta-currency, and it would be in that role that your fine looking coin better preserves your wealth.
Brings one to the question of what exactly is a dollar? if an electron, a piece of paper and gold can all serve to represent it. Under such ambiguity, has the very nature of money changed in the last 38 years and is there such a thing any longer?

Words have many meanings. In some contexts, "dollar" would mean a paper Federal Reserve Note, rather specifically. In other contexts, "dollar" would mean all things physical and electronic that all parties are confident all other parties will readily exchange (perhaps indirectly via some routine action of yourself, such as taking cash from an ATM machine) on equal parity with a dollar. That second definition is situationally specific. If all the ATM's are shut down for a week by a bank holiday or a electromagnetic pulse (EMP) nuclear explosion over Kansas, then people will tighten up their working definition of what is a "dollar" when it comes time to buy groceries.

(Did you ask this question just for the pleasure of posting pictures of fine gold coins? :))

[Diarmuid]

For reference, I suppose you refer to these definitions from the post you reply to:


Gold is a meta-currency, a means of exchange between currencies.
Currencies are used as a means of exchange for goods and services.
Gold is not used as a means of exchange for goods and services.

These definitions are stated too broadly. More precise statements would include such qualifications as "efficient", acknowledging that spending a 1000 dollar's worth of gold (is that a 1 oz coin?) for 50 dollars worth of gas is not efficient.

That in mind, the primary use of that gold piece today is as a store of wealth, which is another purpose of money not listed above. I did not list that purpose because my point, seemingly lost earlier in this tread, involved the particular word 'currency', which as we are learning the hard way, is not a good store of wealth ;).

In particular, that coin may be a form of wealth that better holds its value past the substantial world currency upheavals that we fear happening. In that event, that coin might serve as an instance of the first definition, a meta-currency, and it would be in that role that your fine looking coin better preserves your wealth.


Words have many meanings. In some contexts, "dollar" would mean a paper Federal Reserve Note, rather specifically. In other contexts, "dollar" would mean all things physical and electronic that all parties are confident all other parties will readily exchange (perhaps indirectly via some routine action of yourself, such as taking cash from an ATM machine) on equal parity with a dollar. That second definition is situationally specific. If all the ATM's are shut down for a week by a bank holiday or a electromagnetic pulse (EMP) nuclear explosion over Kansas, then people will tighten up their working definition of what is a "dollar" when it comes time to buy groceries.

(Did you ask this question just for the pleasure of posting pictures of fine gold coins? :))

Hi TPC

I did not ask for the pleasure of posting the picture, although it did bring me some I must say ;)

The questions were posed because as you say words have meaning and definition, they convey ideas and preceptions, in fact words are meaningless without. If ones understanding of that idea is shrouded in ambiguity because one is unable to define properly and tie down the meaning of words it can allow and provide the vehicle for, fraud and abuse, this was the reason I posed the questions, as food for thought.

Sapiens forum offers some on the topic.

[ocelotl]

What I'm glad about this is that I could increase my position before the devaluation of Mexican Peso in October 2008 and in early December 2008 just below US$750.

I've posted before that according to Mexican Laws, Gold and Silver are still part of the Monetary system, but the definition is obscure for the average street dweller. What I'm counting on is about the increase in consciousness and demand that the future can bring. Anyway, knowing the past performance of Mexican Peso, still is a no loss bet.

What I'm waiting is a future opportunity to increase the position and being aware of the signals to get out before the stop or reverse in the actual long term trend.

[Fiat Currency]

Doug Casey on Gold (http://www.caseyresearch.com/displayCwc.php?e=true)

... you might like this one TPC :)

[ThePythonicCow]

Doug Casey on Gold (http://www.caseyresearch.com/displayCwc.php?e=true)

... you might like this one TPC :)
Mr. Casey is "talking his book" (selling gold), as he usually is.