7 ms·

So if gold is the only real money (and everything else is just debt)... What does gold’s year-long rally this year tell us?

tunesmith 7y ago
I think outside of all the political talk about fiat currencies, gold, and other commodities are valued as diversification instruments just because they tend to move separately from stocks and bonds. There are environments when stocks and bonds both behave poorly.
H8crilA 7y ago
I'd say about the same as what the inverted yield curves say (i.e. the rally on long term, high quality bonds). That the market expects growth to tighten: The Economist | Curveball https://www.economist.com/node/21767839 https://www.economist.com/node/21767839 Gold is not "the only real money", though. There is no such thing as "real money": > Law thought that the important thing about money wasn’t its inherent value; he didn’t believe it had any. “Money is not the value for which goods are exchanged, but the value by which they are exchanged,” he wrote.
- atq2119 7y ago
  Even beyond that, there's an argument to be made that money (and debt) are at their core quantified and malleable representations of social relations.
  - zeotroph 7y ago
    Isn't that stretching "social"? The money I hold is not tied to the yet unknown individual or group with with whom I will exchange it for goods or services, the person might not even be born yet.
    - pjmorris 7y ago
      I'm willing to bet a US dollar that at least some of the money you hold is tied to some national group, a government.
    - H8crilA 7y ago
      Well try to imagine there are no people around in 5 years, only you. Or that your country becomes North Korea. Or that the "yet unborn" generation, for some mysterious reason, completely rejects money. What good is your money.
    - paganel 7y ago
      The money one holds always has ties to the people surrounding its owner, no matter if those people are known, unknown, born or unborn (I honestly didn't understand the thing about the unborn people, as we as a society do lots of societal stuff for the people not yet born), and in that regards money is indeed one of the most social/societal things ever. As a matter of fact sociology itself as a science was partly born as a result of Georg Simmel's book called "The Philosophy of Money" [1], published more than 100 years ago. > Probably considered Simmel's greatest work, Simmel saw money as a structuring agent that helps us understand the totality of life. [1] https://en.wikipedia.org/wiki/The_Philosophy_of_Money https://en.wikipedia.org/wiki/The_Philosophy_of_Money
    - notahacker 7y ago
      The reason the unknown individual or group will choose to accept it is very much tied to their social and legal relations with other people.
  - ftlio 7y ago
    > representations of social relations What Nick Szabo would call reciprocity, or the delay thereof. https://nakamotoinstitute.org/shelling-out/ https://nakamotoinstitute.org/shelling-out/
- JackFr 7y ago
  > I'd say about the same as what the inverted yield curves say (i.e. the rally on long term, high quality bonds). That the market expects growth to tighten You know what they say: Inverted yield curves have predicted 10 of the last 7 recessions.
0x8BADF00D 7y ago
If it breaks a certain threshold, then you can be certain it will be the global reserve currency again. People often forget how stable the world economy was under Bretton Woods.
- et2o 7y ago
  This is a kind of revisionist argument that I read a lot. The Bretton Woods system only existed for about 30 years until it collapsed from a variety of pressures; it was unsustainable. Even during its short lifetime various suboptimal policy adjustments were required to maintain it. I think it's a mistake to attribute the stability of the post-war world economy to the Bretton Woods system alone; there are numerous factors that coincided. Bretton Woods probably helped to some extent insofar as it allowed the US to rapidly exert a lot of influence, but we in the US still do that now without the Bretton Woods system. https://history.state.gov/milestones/1969-1976/nixon-shock https://history.state.gov/milestones/1969-1976/nixon-shock
- notfromhere 7y ago
  There's not enough gold to go around. Gold isn't a very stable base for economies, as we can see throughout the hundreds of years of gold standards
et2o 7y ago
In what sense is gold the real money? Gold doesn't back most currencies any longer. Money is the real money.
- digitalengineer 7y ago
  Then why would it make sense for a country like say China to build up massive (largest ever) hoarse of good? https://tradingeconomics.com/china/gold-reserves https://tradingeconomics.com/china/gold-reserves
  - et2o 7y ago
    If gold is 50mm a ton (wouldn't be of they had to liquidate that), rounding up, then they have at most 100 billion in Gold. Which sounds like a lot until you realize they have many trillions in USD reserves and debt.
  - ak39 7y ago
    China since 2016 has signed bilateral agreements with several oil-producing nations to receive payments in yuan backed by gold. This bypasses the need for the "petrodollar". This is the most likely reason for China's recent insatiable demand for gold.
    - vishnugupta 7y ago
      My "naive" theory for China to do this is that it's working towards making Yuan an alternate currency for countries to peg their currencies to.
  - navigatesol 7y ago
    >Then why would it make sense for a country like say China to build up massive (largest ever) hoarse of good? Why would it make sense for the people/countries that China is buying gold from to sell it, if it's "real money"?
misja 7y ago
The value of gold is inversely correlated with the trust in government bonds. The reason is clear when reading the article; gold is the only real money so the higher the chances of defaults on bonds, the more attractive it becomes to swap paper money for gold. The current gold rally tells us that there is a lot of global political and economical uncertainty. Think of the Brexit, the Iran troubles and the global trade war. All these issues could cost big money for governments so it makes their bonds less attractive.
- navigatesol 7y ago
  >All these issues could cost big money for governments so it makes their bonds less attractive. If bonds are unattractive, why are yields at near-all-time lows? Gold is appealing when real rates of interest are low, as it maintains purchasing power over time.
  - misja 7y ago
    Good point! In a normal market situation you would expect the bond yields to increase when they become less attractive, but this is currently not the case. Here is a hint why this happening: not all government bonds have such low yields: only some European countries and Japan have, the USA bond yield for instance is quite a bit higher. The reason is that there is currently a huge buyer for European government bonds: the ECB. The ECB's "quantitative easening" that has been going on for the last years is artificially keeping the yields low.
- AnimalMuppet 7y ago
  > The value of gold is inversely correlated with the trust in government bonds. And government-issued currency. > gold is the only real money No. But gold is one of the better ways to, in essence, short fiat currency.
nosianu 7y ago
How is gold more real than debt? To me debt is far superior. Debt means you have a commitment from a human (directly or indirectly, if the debt is owed by an organization). Gold has no inherent value at all apart from some minor uses of relatively small amounts in the economy. Except by agreement, which debt also has. An example for debt-based I once read somewhere was a kid writing an IOU for garden work. As long as the debt is not paid - i.e. the kid does the work and the IOU is destroyed - that piece of paper circulates through the neighborhood. It has real value (actual work). This example also illustrates what's wrong with calling for all debts to be repaid, which makes sense for the individual but not for the economy (like so many or maybe even most suggestions around money and power, where things that work very well for someone make no sense if applied to everybody, the difference between "works for anyone" and "works for everyone").
- runeks 7y ago
  You can’t separate debt from money because debt is money owed. And there’s clearly a difference between having something and being owed something.
  - RobertoG 7y ago
    You can have a money debt but you can have all other kind of debts, so, debt is the most general concept.
  - nosianu 7y ago
    It is not quite clear to me how your reply is meant to be interpreted, given what I wrote...(?) Did you perchance click the wrong "reply" link?
  - kiliantics 7y ago
    money is also "money owed" -- you don't know today that the money you have in your account will be able to buy the same amount of stuff tomorrow, it's also a completely faith-based system
- chii 7y ago
  It is easier for somebody to have more faith in gold than in someone's promise to pay back a debt (using work or a commodity). Especially in dealings between sovereign entities.
TheOtherHobbes 7y ago
Faith is the only real money. The only thing money measures is optimism about the future - both micro ("I am optimistic that you can repay this loan") macro ("I am optimistic this country's military spending and worker-hostile environment guarantees my investment will be protected"), corporate ("I am optimistic about the contents of this earnings call"), and specific ("I have more faith in this asset class than in other asset classes.") Crashes are a manic-depressive devotional cycle. Collective optimism becomes stretched to delusional levels. Then it snaps, pessimism and debt paranoia take over, the central government has to make reassuring noises which reassure the right people, and the hype cycle can begin again. Gold is a faith-token - valued because it's heavy and shiny and because there's a long tradition of valuing it when investors become pessimistic about more evanescent asset classes, not because of its relatively limited practical utility. Fiat money is just faith-token money without a tangible base. The process by which it gains/loses trust is the same. The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments. But even they're not faith-free, because they will still lose value in an area if no one believes it has a future.
- JackFr 7y ago
  > Faith is the only real money. Credit => credo => 'I believe'
- runeks 7y ago
  > The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments. Why are you ignoring commodities? Wheat, iron, oil etc. are all commodities that are much more useful as a monetary base than land and housing because they are orders of magnitude more liquid (meaning you can acquire it and subsequently sell it while incurring a smaller loss).
  - vishnugupta 7y ago
    Here's my educated guess. The commodities you mentioned work better as a "currency" than "stored value" for an individual. For a physical object to work as a stored value, especially over longer periods, it's got to be durable and convenient to store and protect. Real estate/land satisfies all those as long as the surrounding political situation remains stable. If the state turns rogue or falls apart then you are better off hoarding (or running away) with gold.
navigatesol 7y ago
>What does gold’s year-long rally this year tell us? People need a place to park the vast sums of capital around the world, especially so with long-term government bonds paying nothing (or even having negative rates). Would you rather stick $10,000 in gold paying nothing, or a Greek 10-year bond paying sub-2%?

tunesmith 7y ago

I think outside of all the political talk about fiat currencies, gold, and other commodities are valued as diversification instruments just because they tend to move separately from stocks and bonds. There are environments when stocks and bonds both behave poorly.

H8crilA 7y ago

I'd say about the same as what the inverted yield curves say (i.e. the rally on long term, high quality bonds). That the market expects growth to tighten: The Economist | Curveball https://www.economist.com/node/21767839 https://www.economist.com/node/21767839 Gold is not "the only real money", though. There is no such thing as "real money": > Law thought that the important thing about money wasn’t its inherent value; he didn’t believe it had any. “Money is not the value for which goods are exchanged, but the value by which they are exchanged,” he wrote.

atq2119 7y ago
Even beyond that, there's an argument to be made that money (and debt) are at their core quantified and malleable representations of social relations.
- zeotroph 7y ago
  Isn't that stretching "social"? The money I hold is not tied to the yet unknown individual or group with with whom I will exchange it for goods or services, the person might not even be born yet.
  - pjmorris 7y ago
    I'm willing to bet a US dollar that at least some of the money you hold is tied to some national group, a government.
  - H8crilA 7y ago
    Well try to imagine there are no people around in 5 years, only you. Or that your country becomes North Korea. Or that the "yet unborn" generation, for some mysterious reason, completely rejects money. What good is your money.
  - paganel 7y ago
    The money one holds always has ties to the people surrounding its owner, no matter if those people are known, unknown, born or unborn (I honestly didn't understand the thing about the unborn people, as we as a society do lots of societal stuff for the people not yet born), and in that regards money is indeed one of the most social/societal things ever. As a matter of fact sociology itself as a science was partly born as a result of Georg Simmel's book called "The Philosophy of Money" [1], published more than 100 years ago. > Probably considered Simmel's greatest work, Simmel saw money as a structuring agent that helps us understand the totality of life. [1] https://en.wikipedia.org/wiki/The_Philosophy_of_Money https://en.wikipedia.org/wiki/The_Philosophy_of_Money
  - notahacker 7y ago
    The reason the unknown individual or group will choose to accept it is very much tied to their social and legal relations with other people.
- ftlio 7y ago
  > representations of social relations What Nick Szabo would call reciprocity, or the delay thereof. https://nakamotoinstitute.org/shelling-out/ https://nakamotoinstitute.org/shelling-out/
JackFr 7y ago
> I'd say about the same as what the inverted yield curves say (i.e. the rally on long term, high quality bonds). That the market expects growth to tighten You know what they say: Inverted yield curves have predicted 10 of the last 7 recessions.

0x8BADF00D 7y ago

If it breaks a certain threshold, then you can be certain it will be the global reserve currency again. People often forget how stable the world economy was under Bretton Woods.

et2o 7y ago
This is a kind of revisionist argument that I read a lot. The Bretton Woods system only existed for about 30 years until it collapsed from a variety of pressures; it was unsustainable. Even during its short lifetime various suboptimal policy adjustments were required to maintain it. I think it's a mistake to attribute the stability of the post-war world economy to the Bretton Woods system alone; there are numerous factors that coincided. Bretton Woods probably helped to some extent insofar as it allowed the US to rapidly exert a lot of influence, but we in the US still do that now without the Bretton Woods system. https://history.state.gov/milestones/1969-1976/nixon-shock https://history.state.gov/milestones/1969-1976/nixon-shock
notfromhere 7y ago
There's not enough gold to go around. Gold isn't a very stable base for economies, as we can see throughout the hundreds of years of gold standards

et2o 7y ago

In what sense is gold the real money? Gold doesn't back most currencies any longer. Money is the real money.

digitalengineer 7y ago
Then why would it make sense for a country like say China to build up massive (largest ever) hoarse of good? https://tradingeconomics.com/china/gold-reserves https://tradingeconomics.com/china/gold-reserves
- et2o 7y ago
  If gold is 50mm a ton (wouldn't be of they had to liquidate that), rounding up, then they have at most 100 billion in Gold. Which sounds like a lot until you realize they have many trillions in USD reserves and debt.
- ak39 7y ago
  China since 2016 has signed bilateral agreements with several oil-producing nations to receive payments in yuan backed by gold. This bypasses the need for the "petrodollar". This is the most likely reason for China's recent insatiable demand for gold.
  - vishnugupta 7y ago
    My "naive" theory for China to do this is that it's working towards making Yuan an alternate currency for countries to peg their currencies to.
- navigatesol 7y ago
  >Then why would it make sense for a country like say China to build up massive (largest ever) hoarse of good? Why would it make sense for the people/countries that China is buying gold from to sell it, if it's "real money"?

misja 7y ago

The value of gold is inversely correlated with the trust in government bonds. The reason is clear when reading the article; gold is the only real money so the higher the chances of defaults on bonds, the more attractive it becomes to swap paper money for gold. The current gold rally tells us that there is a lot of global political and economical uncertainty. Think of the Brexit, the Iran troubles and the global trade war. All these issues could cost big money for governments so it makes their bonds less attractive.

navigatesol 7y ago
>All these issues could cost big money for governments so it makes their bonds less attractive. If bonds are unattractive, why are yields at near-all-time lows? Gold is appealing when real rates of interest are low, as it maintains purchasing power over time.
- misja 7y ago
  Good point! In a normal market situation you would expect the bond yields to increase when they become less attractive, but this is currently not the case. Here is a hint why this happening: not all government bonds have such low yields: only some European countries and Japan have, the USA bond yield for instance is quite a bit higher. The reason is that there is currently a huge buyer for European government bonds: the ECB. The ECB's "quantitative easening" that has been going on for the last years is artificially keeping the yields low.
AnimalMuppet 7y ago
> The value of gold is inversely correlated with the trust in government bonds. And government-issued currency. > gold is the only real money No. But gold is one of the better ways to, in essence, short fiat currency.

nosianu 7y ago

How is gold more real than debt? To me debt is far superior. Debt means you have a commitment from a human (directly or indirectly, if the debt is owed by an organization). Gold has no inherent value at all apart from some minor uses of relatively small amounts in the economy. Except by agreement, which debt also has. An example for debt-based I once read somewhere was a kid writing an IOU for garden work. As long as the debt is not paid - i.e. the kid does the work and the IOU is destroyed - that piece of paper circulates through the neighborhood. It has real value (actual work). This example also illustrates what's wrong with calling for all debts to be repaid, which makes sense for the individual but not for the economy (like so many or maybe even most suggestions around money and power, where things that work very well for someone make no sense if applied to everybody, the difference between "works for anyone" and "works for everyone").

runeks 7y ago
You can’t separate debt from money because debt is money owed. And there’s clearly a difference between having something and being owed something.
- RobertoG 7y ago
  You can have a money debt but you can have all other kind of debts, so, debt is the most general concept.
- nosianu 7y ago
  It is not quite clear to me how your reply is meant to be interpreted, given what I wrote...(?) Did you perchance click the wrong "reply" link?
- kiliantics 7y ago
  money is also "money owed" -- you don't know today that the money you have in your account will be able to buy the same amount of stuff tomorrow, it's also a completely faith-based system
chii 7y ago
It is easier for somebody to have more faith in gold than in someone's promise to pay back a debt (using work or a commodity). Especially in dealings between sovereign entities.

TheOtherHobbes 7y ago

Faith is the only real money. The only thing money measures is optimism about the future - both micro ("I am optimistic that you can repay this loan") macro ("I am optimistic this country's military spending and worker-hostile environment guarantees my investment will be protected"), corporate ("I am optimistic about the contents of this earnings call"), and specific ("I have more faith in this asset class than in other asset classes.") Crashes are a manic-depressive devotional cycle. Collective optimism becomes stretched to delusional levels. Then it snaps, pessimism and debt paranoia take over, the central government has to make reassuring noises which reassure the right people, and the hype cycle can begin again. Gold is a faith-token - valued because it's heavy and shiny and because there's a long tradition of valuing it when investors become pessimistic about more evanescent asset classes, not because of its relatively limited practical utility. Fiat money is just faith-token money without a tangible base. The process by which it gains/loses trust is the same. The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments. But even they're not faith-free, because they will still lose value in an area if no one believes it has a future.

JackFr 7y ago
> Faith is the only real money. Credit => credo => 'I believe'
runeks 7y ago
> The tangible items that aren't primarily faith-based are land and housing, so they do well as reliable investments. Why are you ignoring commodities? Wheat, iron, oil etc. are all commodities that are much more useful as a monetary base than land and housing because they are orders of magnitude more liquid (meaning you can acquire it and subsequently sell it while incurring a smaller loss).
- vishnugupta 7y ago
  Here's my educated guess. The commodities you mentioned work better as a "currency" than "stored value" for an individual. For a physical object to work as a stored value, especially over longer periods, it's got to be durable and convenient to store and protect. Real estate/land satisfies all those as long as the surrounding political situation remains stable. If the state turns rogue or falls apart then you are better off hoarding (or running away) with gold.

navigatesol 7y ago

>What does gold’s year-long rally this year tell us? People need a place to park the vast sums of capital around the world, especially so with long-term government bonds paying nothing (or even having negative rates). Would you rather stick $10,000 in gold paying nothing, or a Greek 10-year bond paying sub-2%?