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I forget where he said it, but at some point Paul Krugman makes the point that the price of gold will tend to rise when real interest rates are low. He makes a

I forget where he said it, but at some point Paul Krugman makes the point that the price of gold will tend to rise when real interest rates are low. He makes a similar point here (written in 2019): "After all, the price of gold soared from 2007 to 2011... So why did gold soar? The main answer seems to be plunging returns on other assets, especially bonds, which were the product of a depressed world economy." https://www.nytimes.com/2019/07/13/opinion/goldbugs-for-trump.html https://www.nytimes.com/2019/07/13/opinion/goldbugs-for-trum... So we should expect the price of gold to rise while the pandemic is out of control. Once the coronavirus is defeated, we should expect the price of gold to fall.

coder1001 6y ago
Makes sense. However, couldn't this be a sign that people are getting ready for if/when the current financial system fails?
- arethuza 6y ago
  If the current financial system fails how does it help to have bits of paper saying that you "own" gold in a warehouse somewhere?
  - jasode 6y ago
    I didn't downvote your comment but a lot of regular people do buy physical gold (coins & bars)[1] and store the precious metals in a safe. That said, I don't know how much the gold price is affected by gold ETF vs physical transactions. [1] example of gold coins that are very popular with easy liquidity: https://catalog.usmint.gov/coins/precious-metal-coins/gold/ https://catalog.usmint.gov/coins/precious-metal-coins/gold/ [2] example of liquidity via ebay sales: https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+coin+us+mint+%221oz%22&_sacat=0&rt=nc&LH_Sold=1&LH_Complete=1 https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+co...
    - tomalpha 6y ago
      One interesting advantage for UK buyers of gold coins specifically, is that if they're legal tender they're exempt from (Capital Gains) taxation[0]. Even if the gold content is worth significantly more than their face value, which is almost universally true. [0] https://www.royalmint.com/invest/bullion/discover-bullion/capital-gains-tax-on-investments/ https://www.royalmint.com/invest/bullion/discover-bullion/ca...
      - alasdair_ 6y ago
        This reminds me of the guy who paid his employees in silver dollars and paid taxes on the nominal value paid instead of the market price. He also ran a separate business that bought all the silver dollars back for the market price right next door. It all went well for him until he started a payroll company to do the same thing in multiple states.
        refurb 6y ago
        Potentially kooky website (many gold bug sites are), but it has some details for anyone interested. https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-horrific-miscarriage-of-justice/ https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-hor...
  - baconandeggs 6y ago
    It doesn't much. But you could own actual, uhm you know, gold.
    - TheOtherHobbes 6y ago
      You could, but unless you have tiny 1gm slivers you'll find it hard to buy food with it. For total meltdown SHTF scenarios soap, alcohol, cigarettes, chocolate, and maybe seeds are much more practical as barter currencies. Even without SHTF scenarios, physical gold is a poor store of value because selling physical gold to a broker is an expensive business. A lot of prestige gold coins are sold at a price premium which brokers will just ignore when buying from you. Even on weight alone, you're very unlikely to get anything close to your purchase price unless the price has gone up by at least a double figure percentage. The real question is how bad the Covid recession/depression is likely to get. If you're assuming there's a depression-scale downturn then "paper" gold makes more sense than a lot of other investment classes.
      - dmm 6y ago
        > For total meltdown SHTF scenarios There are many, many scenarios other than Business-as-usual and Mad Max. Look at how hyperinflation has played out historically. In Argentina in 2001, imported things like medicine became very expensive. People sold small amounts of gold for fiat when these kinds of expenses came up.
        arethuza 6y ago
        To be fair my comment up thread was wondering about a failure of the financial system - which I interpreted to be more like Threads than The Big Short.
  - Humphrey 6y ago
    I guess it depends on whether the company with your precious metal in a vault chooses to honour your piece of paper or not. I guess the trick is to tap the "ship me my gold now" button before Mr Robot wipes their database.
    - arethuza 6y ago
      More like whether the employees of the company who runs the vault realise that they aren't going to paid at the end of the month and simply run off with "your" gold. In a serious collapse it would seem the logical thing for them to do.
  - cinquemb 6y ago
    And a lot of those papers saying that you "own" gold have similar issues compared to those that say you "own" stock/bonds… rehypothecation, leverage, liquidity, etc.
  - indigochill 6y ago
    Although generally I agree with the thrust of this question, supposing someone is adequately prepared to weather the failure of the financial system to some anticipated recovery (and they are correct at predicting the recovery), then a failure is an opportunity to amass wealth by trading actual useful commodities for these bits of paper at extortionate rates, expecting to be able to collect a greater return once the recovery arrives. That said, I'm mainly playing with a hypothetical here. I'm highly skeptical the system will outright fail simply because the majority of the wealth (and thus power) belongs to those with a deeply vested interest in not letting it fail and there's generally not much power owned by those who actively want it to fail. Fiat has worked this long, so why not longer? When the chairman of the Federal Reserve becomes a prepper, then you know it's time to find a shelter.
- Retric 6y ago
  No, gold is a poor asset should the financial system actually fail. It’s simply a hedge because it doesn’t move the same direction as other assets.
  - rapsey 6y ago
    Gold will retain its value in any financial system reboot. Paper money will not.
    - gridlockd 6y ago
      The question is will gold outperform other asset classes? Historically, gold isn't that great, but that's past performance.
      - rapsey 6y ago
        We are talking about a financial system reboot. Gold has been valuable since civilization existed. In a normal environment it will not outperform.
      - roenxi 6y ago
        > Historically, gold isn't that great, but that's past performance. Crikey. What performance counts as good in your eyes? Gold has been a pretty rewarding investment for the last 20 years. I think the median annual performance for the last 20 years has been something like 10% in USD (worthless metric for an investor I know, but the point is that most years are very solid up years). That is a pretty reasonable performer in my low-risk book. 2010-2014 represented an unusual bad time to buy gold in a decade long trend of great years to buy gold. In terms of actual return it depends when you pick your start and end date; but the fact that we sometimes have major crisis was always totally predictable and the major governments responses have been reasonably predicable. The only surprise at the moment is the specific fact that it is a pandemic and in 2020. The price pattern on the charts is not surprising.
        Retric 6y ago
- malandrew 6y ago
  Guns, ammo, food and fuel are good assets to have in a collapsed economy.
  - aflag 6y ago
    Food spoils too fast. Guns and ammo are not legal to purchase for most. Fuel is a better asset, but takes a lot of space. One good thing about gold is that it's compact.
    - mcny 6y ago
      What kind of fuel? Everyone I know tells me gasoline/petrol will start to go bad in six months and will start damaging my car in two years. Crude oil will last millions? of years but we would need access to a refinery and like you said takes a lot of space anyways.
      - devalgo 6y ago
        In a SHTF scenario I think the idea that you would be able to reach, operate or maintain a refinery is fanciful.
    - minerjoe 6y ago
      > Food spoiles too fast. Depends on what you mean by food. If you have enough time, food can be multiplied. One potato, properly handled, can turn into a field of potatoes. One walnut, properly handled, can turn into a forest.
      - imtringued 6y ago
        Which is why an apocalypse bunker is a pretty stupid idea. The reality is that everyone does subsistence farming again.
        mcny 6y ago
        Speaking of apocalypse bunker, I think the movie 10 clover field lane is genius because I used to think how do people fall for seemingly obvious cult propaganda but if I woke up in a bunker and was told to comply I probably would as well. I think the idea behind an apocalypse bunker is it will remain unsafe to go outside / farm using solar power for a few months to a couple of years but not forever. I agree. You have to start farming at some point.
rbinv 6y ago
That implies that interest rates will actually rise significantly again. That's anything but guaranteed.
- mytailorisrich 6y ago
  No, it's not directly related to interest rates remaining low or not. As economical situation improves after Covid-19, money will flow back to other assets and the price of gold will mechanically decrease because people will sell to invest back in those assets. This is what happens during and after every crisis, and what OP meant. The upwards trend of 2020 is due to Covid-19. There will be a correction when that crisis ends.
  - taneq 6y ago
    *if the economic situation improves
    - mytailorisrich 6y ago
      It will after the Covid-19 crisis. It's not 'if', it's 'when'.
- gridlockd 6y ago
  > That's anything but guaranteed. It's guaranteed not to happen in the short to mid-term. Rising interest rates during a recession when the economy is massively over-leveraged and even the low-interest debt can barely be serviced would result in an even greater wave of defaults. Low interest rates and QE are here to stay. The dollar will depreciate significantly, easing the burden of debtors and making American labor more competitive. Good for exports, bad for people who earn a dollar salary. Gold appreciating (in dollar terms) is just a side-effect of this development.
  - joncrane 6y ago
    The dollar will only depreciate if interest rates in other countries/currencies are higher, right? What leads you to believe interest rates in the US will be significantly lower than in other countries?
gridlockd 6y ago
> So we should expect the price of gold to rise while the pandemic is out of control. Once the coronavirus is defeated, we should expect the price of gold to fall. Gold has been rising steadily for years, interest rates have been low for years. That's a lot of excess liquidity already in the market, it's just exacerbated. Coronavirus disappearing from the news won't make all that excess liquidity disappear. Gold and other assets will drop when that excess liquidity is removed through rate hikes and QT. When will that happen? My money is on "never".
- bildung 6y ago
  Why never? Gold was down over 40% between 2011 and now.
  - gridlockd 6y ago
    "Gold and other assets" Investors generally don't like gold and would rather put it into any other asset class. When the fear wanes, the liquidity moves from gold into other assets.
awinder 6y ago
Krugman argues that there’s a special nature to the bond-gold relationship but I would argue that it’s because gold is an asset of last resort. The only thing special is that bonds have typically been an asset of last resort, but governments have sort-of taken them off the table in crisis situations.
- daodedickinson 6y ago
  Assets of last resort include things like water, food, air...
  - imtringued 6y ago
    I can see how someone might invest in a personal water tank or food pantry but what exactly are you going to do to prevent people from breathing oxygen that was released by your trees?
plmu 6y ago
It depends. Once the coronavirus is defeated, it will have accelerated the economic cycle downturn, we might see a very deep and long recession, maybe even one like we have not seen in recent centuries. And since the world is progressing in a direction of depletion of natural resources, the next deep recession might be the last. We have seen many recoveries after many recessions, but there is no guarantee that there is a recovery. Sooner or later the earth will be in such a bad condition, that it will be impossible to recover.
whb07 6y ago
Krugman, the same fella who commented on the internet and on bitcoin? He represents everything that’s wrong with government excesses and theft of its citizens via inflation. 50 years ago an ounce of gold was $35/oz. Today that very same 1 oz gold coin is at $2000.
- lebed2045 6y ago
  aside of Krugman, $35 worth of goods and services in 1970 worth about $233 according to https://www.officialdata.org/us/inflation/1970?amount=35 https://www.officialdata.org/us/inflation/1970?amount=35, so it's not currency problem but the gold itself went up.
  - AnimalMuppet 6y ago
    It's not that simple. The government fixed the price of gold at $35 in (IIRC) 1933 or so. [Edit: 1934.] They kept the same price until 1970 or so, when they allowed gold to float. Then all the inflation from 1933 to 1970 showed up in a sudden run-up in the price of gold. That is, the price of gold in 1970 was highly distorted. It was not a market price. You can't use that price as your starting point.
- ac29 6y ago
  You've very conveniently picked a time frame where gold was at a century-long low, to a century-long high. One could easily pick an opposite period, such as 1980-2000, where values dropped precipitously.
Qasaur 6y ago
Krugman in his usual arrogance neglects to consider the price and indeed monetary history of gold. It is and always has been "real money" and most people either consciously or subconsciously trust gold more than the pieces of paper we call money, and its price is not a reflection of people chasing returns but rather people having less faith in the current monetary system (which is backed by nothing). The record physical delivery orders at Comex proves this [1]. If the dollar hyperinflates, where would people go? Crypto is obviously interesting, but gold is the supreme form of money that requires zero trust (while crypto is near trust-less, you still need to trust the cryptography to be secure). [1] https://reuters.com/article/gold-cme/102-tonnes-of-gold-changing-hands-on-cmes-biggest-ever-delivery-day-idINKCN24W1KW https://reuters.com/article/gold-cme/102-tonnes-of-gold-chan...
- gridlockd 6y ago
  > If the dollar hyperinflates, where would people go? The dollar is inflating right now, where are people going, besides gold? Why would the dollar hyperinflate?
  - baconandeggs 6y ago
    Because the dollar is the reserve currency of the world, it will hyperinflate if and when the international community begins transacting en-masse in other currencies or even in gold, and dumping us bonds. Then all those dollars outside the US, which are most dollars, will go back to the US and hyperinflate. This could happen if the current instability in the US continues.
  - Qasaur 6y ago
    Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. We already have extreme asset price inflation (not to mention the rapid expansion of the monetary base). In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. It is worth noting that every fiat currency throughout history, without exception, has eventually hyperinflated and collapsed to nothing.
daodedickinson 6y ago
There are other catastrophes pending than COVID-19. It can't really compete with the repression of schooling or church service or bars or thrift stores or, or, or... Krugman's first piece post 9/11 was about how getting to rebuild a skyscraper was somehow going to be a tremendous economic stimulus, as if the loss of so many knowledgeable and wise people being murdered all at once didn't occur to him... AT ALL! In college I read the NYT everyday, thought it was the best paper in the world. Then one morning I opened my copy to see a full color photo of my rapist attached to a hagiography of how she had been elected to public office. Now the NYT CEO is still Mark Thompson, who got the job because as Director-General at the BBC he covered up Jimmy Saville's... I don't have a word for it yet. Walter Duranty won a Pulitzer for using the NYT to cover up Stalin's genocide of Polish people so that American media didn't seriously cover it until the 1980s. Don't get me started on how many people with Gilead financial ties are acting as if financial incentives might somehow statistically significantly effect their behavior because it seems to just give me sleep deprivation.
lma21 6y ago
What if... we don't really defeat it? no, maybe that's too pessimistic... What's the worst case scenario in case we have to live with Covid-19 for a few more years?
- karlkatzke 6y ago
  The worst case scenario is that 10-15% of our population that comes down with COVID-19 over the age of 40 has some sort of permanent organ damage. https://jamanetwork.com/journals/cardiology/articlepdf/2768916/jamacardiology_puntmann_2020_oi_200057.pdf https://jamanetwork.com/journals/cardiology/articlepdf/27689...
- eloff 6y ago
  Likely a serious recession or even an economic depression, judging from the economic knock on effect of lockdowns, whether involuntary or just people curtailing their spending and activities, that we have observed so far. 10-30% contractions in GDP in the second quarter, in dozens of countries. I won't touch the market with a stick because it's going in the opposite direction to the economy. There has to be a correction coming. I know there aren't good alternatives, interest rates are so low, etc. But I still think there's a correction coming, that's my two cents.
hydroreadsstuff 6y ago
Yes, this is indeed about the low bond yields paired with inflation expectation - low real yields. But I would not hold my breath that this changes much after Corona. In 2019 the Fed tried quantitative tightening, which resulted in the December stock market correction, and a big overnight lending spike. From there they resumed QE (Which was one day supposed be a temporary measure in the great financial crisis). They did drop interest rates again in response to Corona, though. Not before. J Powell already promissed rates would stay as low as they are for 2 years. But right now the yields of the 10 year, e.g. are going below what a new issue should yield I believe. Gold/Silver should lose some steam when the DXY goes up, or bond yields increase. (Both of which should also have a negative influence on stock and bond prices). Also don't marry the idea of inflation to the CPI. There is asset inflation (think housing market and stock market), and inflation in certain products like food. But other things like transportation (perhaps of lower importance to poorer than for rich). It's not a black and white matter.
- alasdair_ 6y ago
  Taleb makes this same point about inflation repeatedly - that the things he plans on spending money on in the future may inflate far more than the CPI.
  - jkhdigital 6y ago
    Yeah, almost like inflation is concentrating into a handful of Giffen (I'm using the term loosely) goods--healthcare and education most notably.
    - smabie 6y ago
      And what do Healthcare, education, and housing have in common? Massive influx of money by the government.
      - lkrubner 6y ago
        Actually, you should say: "Massive indirect unguided subsidies of money by the government." Where the government does something directly, the results can be good. Look at Medicaid, which is generally thought to be the most cost effective form of health insurance that exists in the USA. The government overseas that directly. But everywhere the government tries to offer end consumers a subsidy, so they can then try to use it toward some social goal, the result seems to be inflation.
alasdair_ 6y ago
The thing is, at the beginning of the pandemic panic, this didn’t happen at all. Instead everyone sold gold and the price dropped (same with bitcoin, which went to $3.5k) because they wanted liquidity rather than a speculative investment.
- jkhdigital 6y ago
  Same thing happened in 2008--gold dropped along with everything else after Lehman, but quickly turned around and was already making new highs while stocks were still bottoming out. Liquidity crises are anomalous events which don't say much about the long-term forces that move asset prices.
jkhdigital 6y ago
Yes, this is elementary economics--and I'm not trying to say that pedantically, it's just easily overlooked. Gold is an inert metal that pays no dividend and incurs storage costs, so any rational market participant who believes that they can achieve a risk-adjusted real return above 0% will not own gold. A poor economic outlook reduces expected real returns on equities, and currency devaluation (i.e. inflation) reduces real returns on fixed-income securities (bonds). Combine the two and you've got a perfect storm for skyrocketing gold prices--just look at the 1970s.
- smabie 6y ago
  Gold is a good investment because it has such low correlation to the broader market. Even though the return of gold is poor, the vol of your portfolio can be significantly reduced. I actually have a blog post https://cryptm.org/posts/2020/07/09/alt.html https://cryptm.org/posts/2020/07/09/alt.html where we create a minimum variance portfolio using gold and the S&P 500. And even though gold has high volatility and poor returns, this approach generates a higher risk adjusted return than the S&P 500. Especially in an age when bonds are no longer countercyclical, gold is an attractive component of a portfolio.
  - mantap 6y ago
    Not just the volatility of your portfolio but the volatility of your life. Market downturns tend to occur coincidently with job losses.
  - jkhdigital 6y ago
    I know that portfolio theory treats the prices of assets like random variables, but I prefer to ground my understanding of asset valuation in human action.

coder1001 6y ago

Makes sense. However, couldn't this be a sign that people are getting ready for if/when the current financial system fails?

arethuza 6y ago
If the current financial system fails how does it help to have bits of paper saying that you "own" gold in a warehouse somewhere?
- jasode 6y ago
  I didn't downvote your comment but a lot of regular people do buy physical gold (coins & bars)[1] and store the precious metals in a safe. That said, I don't know how much the gold price is affected by gold ETF vs physical transactions. [1] example of gold coins that are very popular with easy liquidity: https://catalog.usmint.gov/coins/precious-metal-coins/gold/ https://catalog.usmint.gov/coins/precious-metal-coins/gold/ [2] example of liquidity via ebay sales: https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+coin+us+mint+%221oz%22&_sacat=0&rt=nc&LH_Sold=1&LH_Complete=1 https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+co...
  - tomalpha 6y ago
    One interesting advantage for UK buyers of gold coins specifically, is that if they're legal tender they're exempt from (Capital Gains) taxation[0]. Even if the gold content is worth significantly more than their face value, which is almost universally true. [0] https://www.royalmint.com/invest/bullion/discover-bullion/capital-gains-tax-on-investments/ https://www.royalmint.com/invest/bullion/discover-bullion/ca...
    - alasdair_ 6y ago
      This reminds me of the guy who paid his employees in silver dollars and paid taxes on the nominal value paid instead of the market price. He also ran a separate business that bought all the silver dollars back for the market price right next door. It all went well for him until he started a payroll company to do the same thing in multiple states.
      - refurb 6y ago
        Potentially kooky website (many gold bug sites are), but it has some details for anyone interested. https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-horrific-miscarriage-of-justice/ https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-hor...
- baconandeggs 6y ago
  It doesn't much. But you could own actual, uhm you know, gold.
  - TheOtherHobbes 6y ago
    You could, but unless you have tiny 1gm slivers you'll find it hard to buy food with it. For total meltdown SHTF scenarios soap, alcohol, cigarettes, chocolate, and maybe seeds are much more practical as barter currencies. Even without SHTF scenarios, physical gold is a poor store of value because selling physical gold to a broker is an expensive business. A lot of prestige gold coins are sold at a price premium which brokers will just ignore when buying from you. Even on weight alone, you're very unlikely to get anything close to your purchase price unless the price has gone up by at least a double figure percentage. The real question is how bad the Covid recession/depression is likely to get. If you're assuming there's a depression-scale downturn then "paper" gold makes more sense than a lot of other investment classes.
    - dmm 6y ago
      > For total meltdown SHTF scenarios There are many, many scenarios other than Business-as-usual and Mad Max. Look at how hyperinflation has played out historically. In Argentina in 2001, imported things like medicine became very expensive. People sold small amounts of gold for fiat when these kinds of expenses came up.
      - arethuza 6y ago
        To be fair my comment up thread was wondering about a failure of the financial system - which I interpreted to be more like Threads than The Big Short.
- Humphrey 6y ago
  I guess it depends on whether the company with your precious metal in a vault chooses to honour your piece of paper or not. I guess the trick is to tap the "ship me my gold now" button before Mr Robot wipes their database.
  - arethuza 6y ago
    More like whether the employees of the company who runs the vault realise that they aren't going to paid at the end of the month and simply run off with "your" gold. In a serious collapse it would seem the logical thing for them to do.
- cinquemb 6y ago
  And a lot of those papers saying that you "own" gold have similar issues compared to those that say you "own" stock/bonds… rehypothecation, leverage, liquidity, etc.
- indigochill 6y ago
  Although generally I agree with the thrust of this question, supposing someone is adequately prepared to weather the failure of the financial system to some anticipated recovery (and they are correct at predicting the recovery), then a failure is an opportunity to amass wealth by trading actual useful commodities for these bits of paper at extortionate rates, expecting to be able to collect a greater return once the recovery arrives. That said, I'm mainly playing with a hypothetical here. I'm highly skeptical the system will outright fail simply because the majority of the wealth (and thus power) belongs to those with a deeply vested interest in not letting it fail and there's generally not much power owned by those who actively want it to fail. Fiat has worked this long, so why not longer? When the chairman of the Federal Reserve becomes a prepper, then you know it's time to find a shelter.
Retric 6y ago
No, gold is a poor asset should the financial system actually fail. It’s simply a hedge because it doesn’t move the same direction as other assets.
- rapsey 6y ago
  Gold will retain its value in any financial system reboot. Paper money will not.
  - gridlockd 6y ago
    The question is will gold outperform other asset classes? Historically, gold isn't that great, but that's past performance.
    - rapsey 6y ago
      We are talking about a financial system reboot. Gold has been valuable since civilization existed. In a normal environment it will not outperform.
    - roenxi 6y ago
      > Historically, gold isn't that great, but that's past performance. Crikey. What performance counts as good in your eyes? Gold has been a pretty rewarding investment for the last 20 years. I think the median annual performance for the last 20 years has been something like 10% in USD (worthless metric for an investor I know, but the point is that most years are very solid up years). That is a pretty reasonable performer in my low-risk book. 2010-2014 represented an unusual bad time to buy gold in a decade long trend of great years to buy gold. In terms of actual return it depends when you pick your start and end date; but the fact that we sometimes have major crisis was always totally predictable and the major governments responses have been reasonably predicable. The only surprise at the moment is the specific fact that it is a pandemic and in 2020. The price pattern on the charts is not surprising.
      - Retric 6y ago
malandrew 6y ago
Guns, ammo, food and fuel are good assets to have in a collapsed economy.
- aflag 6y ago
  Food spoils too fast. Guns and ammo are not legal to purchase for most. Fuel is a better asset, but takes a lot of space. One good thing about gold is that it's compact.
  - mcny 6y ago
    What kind of fuel? Everyone I know tells me gasoline/petrol will start to go bad in six months and will start damaging my car in two years. Crude oil will last millions? of years but we would need access to a refinery and like you said takes a lot of space anyways.
    - devalgo 6y ago
      In a SHTF scenario I think the idea that you would be able to reach, operate or maintain a refinery is fanciful.
  - minerjoe 6y ago
    > Food spoiles too fast. Depends on what you mean by food. If you have enough time, food can be multiplied. One potato, properly handled, can turn into a field of potatoes. One walnut, properly handled, can turn into a forest.
    - imtringued 6y ago
      Which is why an apocalypse bunker is a pretty stupid idea. The reality is that everyone does subsistence farming again.
      - mcny 6y ago
        Speaking of apocalypse bunker, I think the movie 10 clover field lane is genius because I used to think how do people fall for seemingly obvious cult propaganda but if I woke up in a bunker and was told to comply I probably would as well. I think the idea behind an apocalypse bunker is it will remain unsafe to go outside / farm using solar power for a few months to a couple of years but not forever. I agree. You have to start farming at some point.

rbinv 6y ago

That implies that interest rates will actually rise significantly again. That's anything but guaranteed.

mytailorisrich 6y ago
No, it's not directly related to interest rates remaining low or not. As economical situation improves after Covid-19, money will flow back to other assets and the price of gold will mechanically decrease because people will sell to invest back in those assets. This is what happens during and after every crisis, and what OP meant. The upwards trend of 2020 is due to Covid-19. There will be a correction when that crisis ends.
- taneq 6y ago
  *if the economic situation improves
  - mytailorisrich 6y ago
    It will after the Covid-19 crisis. It's not 'if', it's 'when'.
gridlockd 6y ago
> That's anything but guaranteed. It's guaranteed not to happen in the short to mid-term. Rising interest rates during a recession when the economy is massively over-leveraged and even the low-interest debt can barely be serviced would result in an even greater wave of defaults. Low interest rates and QE are here to stay. The dollar will depreciate significantly, easing the burden of debtors and making American labor more competitive. Good for exports, bad for people who earn a dollar salary. Gold appreciating (in dollar terms) is just a side-effect of this development.
- joncrane 6y ago
  The dollar will only depreciate if interest rates in other countries/currencies are higher, right? What leads you to believe interest rates in the US will be significantly lower than in other countries?

gridlockd 6y ago

> So we should expect the price of gold to rise while the pandemic is out of control. Once the coronavirus is defeated, we should expect the price of gold to fall. Gold has been rising steadily for years, interest rates have been low for years. That's a lot of excess liquidity already in the market, it's just exacerbated. Coronavirus disappearing from the news won't make all that excess liquidity disappear. Gold and other assets will drop when that excess liquidity is removed through rate hikes and QT. When will that happen? My money is on "never".

bildung 6y ago
Why never? Gold was down over 40% between 2011 and now.
- gridlockd 6y ago
  "Gold and other assets" Investors generally don't like gold and would rather put it into any other asset class. When the fear wanes, the liquidity moves from gold into other assets.

awinder 6y ago

Krugman argues that there’s a special nature to the bond-gold relationship but I would argue that it’s because gold is an asset of last resort. The only thing special is that bonds have typically been an asset of last resort, but governments have sort-of taken them off the table in crisis situations.

daodedickinson 6y ago
Assets of last resort include things like water, food, air...
- imtringued 6y ago
  I can see how someone might invest in a personal water tank or food pantry but what exactly are you going to do to prevent people from breathing oxygen that was released by your trees?

plmu 6y ago

It depends. Once the coronavirus is defeated, it will have accelerated the economic cycle downturn, we might see a very deep and long recession, maybe even one like we have not seen in recent centuries. And since the world is progressing in a direction of depletion of natural resources, the next deep recession might be the last. We have seen many recoveries after many recessions, but there is no guarantee that there is a recovery. Sooner or later the earth will be in such a bad condition, that it will be impossible to recover.

whb07 6y ago

Krugman, the same fella who commented on the internet and on bitcoin? He represents everything that’s wrong with government excesses and theft of its citizens via inflation. 50 years ago an ounce of gold was $35/oz. Today that very same 1 oz gold coin is at $2000.

lebed2045 6y ago
aside of Krugman, $35 worth of goods and services in 1970 worth about $233 according to https://www.officialdata.org/us/inflation/1970?amount=35 https://www.officialdata.org/us/inflation/1970?amount=35, so it's not currency problem but the gold itself went up.
- AnimalMuppet 6y ago
  It's not that simple. The government fixed the price of gold at $35 in (IIRC) 1933 or so. [Edit: 1934.] They kept the same price until 1970 or so, when they allowed gold to float. Then all the inflation from 1933 to 1970 showed up in a sudden run-up in the price of gold. That is, the price of gold in 1970 was highly distorted. It was not a market price. You can't use that price as your starting point.
ac29 6y ago
You've very conveniently picked a time frame where gold was at a century-long low, to a century-long high. One could easily pick an opposite period, such as 1980-2000, where values dropped precipitously.

Qasaur 6y ago

Krugman in his usual arrogance neglects to consider the price and indeed monetary history of gold. It is and always has been "real money" and most people either consciously or subconsciously trust gold more than the pieces of paper we call money, and its price is not a reflection of people chasing returns but rather people having less faith in the current monetary system (which is backed by nothing). The record physical delivery orders at Comex proves this [1]. If the dollar hyperinflates, where would people go? Crypto is obviously interesting, but gold is the supreme form of money that requires zero trust (while crypto is near trust-less, you still need to trust the cryptography to be secure). [1] https://reuters.com/article/gold-cme/102-tonnes-of-gold-changing-hands-on-cmes-biggest-ever-delivery-day-idINKCN24W1KW https://reuters.com/article/gold-cme/102-tonnes-of-gold-chan...

gridlockd 6y ago
> If the dollar hyperinflates, where would people go? The dollar is inflating right now, where are people going, besides gold? Why would the dollar hyperinflate?
- baconandeggs 6y ago
  Because the dollar is the reserve currency of the world, it will hyperinflate if and when the international community begins transacting en-masse in other currencies or even in gold, and dumping us bonds. Then all those dollars outside the US, which are most dollars, will go back to the US and hyperinflate. This could happen if the current instability in the US continues.
- Qasaur 6y ago
  Hyperinflation is the phenomenon when people wake up and realise that real estate and prices rising is not a function of real prices increasing but rather their money losing value. We already have extreme asset price inflation (not to mention the rapid expansion of the monetary base). In my opinion it is only a matter of time before people realise what is going on, start dumping their dollars/euros/pounds/etc., and use something else for their daily transactions and savings, probably crypto at first. It is worth noting that every fiat currency throughout history, without exception, has eventually hyperinflated and collapsed to nothing.

daodedickinson 6y ago

There are other catastrophes pending than COVID-19. It can't really compete with the repression of schooling or church service or bars or thrift stores or, or, or... Krugman's first piece post 9/11 was about how getting to rebuild a skyscraper was somehow going to be a tremendous economic stimulus, as if the loss of so many knowledgeable and wise people being murdered all at once didn't occur to him... AT ALL! In college I read the NYT everyday, thought it was the best paper in the world. Then one morning I opened my copy to see a full color photo of my rapist attached to a hagiography of how she had been elected to public office. Now the NYT CEO is still Mark Thompson, who got the job because as Director-General at the BBC he covered up Jimmy Saville's... I don't have a word for it yet. Walter Duranty won a Pulitzer for using the NYT to cover up Stalin's genocide of Polish people so that American media didn't seriously cover it until the 1980s. Don't get me started on how many people with Gilead financial ties are acting as if financial incentives might somehow statistically significantly effect their behavior because it seems to just give me sleep deprivation.

lma21 6y ago

What if... we don't really defeat it? no, maybe that's too pessimistic... What's the worst case scenario in case we have to live with Covid-19 for a few more years?

karlkatzke 6y ago
The worst case scenario is that 10-15% of our population that comes down with COVID-19 over the age of 40 has some sort of permanent organ damage. https://jamanetwork.com/journals/cardiology/articlepdf/2768916/jamacardiology_puntmann_2020_oi_200057.pdf https://jamanetwork.com/journals/cardiology/articlepdf/27689...
eloff 6y ago
Likely a serious recession or even an economic depression, judging from the economic knock on effect of lockdowns, whether involuntary or just people curtailing their spending and activities, that we have observed so far. 10-30% contractions in GDP in the second quarter, in dozens of countries. I won't touch the market with a stick because it's going in the opposite direction to the economy. There has to be a correction coming. I know there aren't good alternatives, interest rates are so low, etc. But I still think there's a correction coming, that's my two cents.

hydroreadsstuff 6y ago

Yes, this is indeed about the low bond yields paired with inflation expectation - low real yields. But I would not hold my breath that this changes much after Corona. In 2019 the Fed tried quantitative tightening, which resulted in the December stock market correction, and a big overnight lending spike. From there they resumed QE (Which was one day supposed be a temporary measure in the great financial crisis). They did drop interest rates again in response to Corona, though. Not before. J Powell already promissed rates would stay as low as they are for 2 years. But right now the yields of the 10 year, e.g. are going below what a new issue should yield I believe. Gold/Silver should lose some steam when the DXY goes up, or bond yields increase. (Both of which should also have a negative influence on stock and bond prices). Also don't marry the idea of inflation to the CPI. There is asset inflation (think housing market and stock market), and inflation in certain products like food. But other things like transportation (perhaps of lower importance to poorer than for rich). It's not a black and white matter.

alasdair_ 6y ago
Taleb makes this same point about inflation repeatedly - that the things he plans on spending money on in the future may inflate far more than the CPI.
- jkhdigital 6y ago
  Yeah, almost like inflation is concentrating into a handful of Giffen (I'm using the term loosely) goods--healthcare and education most notably.
  - smabie 6y ago
    And what do Healthcare, education, and housing have in common? Massive influx of money by the government.
    - lkrubner 6y ago
      Actually, you should say: "Massive indirect unguided subsidies of money by the government." Where the government does something directly, the results can be good. Look at Medicaid, which is generally thought to be the most cost effective form of health insurance that exists in the USA. The government overseas that directly. But everywhere the government tries to offer end consumers a subsidy, so they can then try to use it toward some social goal, the result seems to be inflation.

alasdair_ 6y ago

The thing is, at the beginning of the pandemic panic, this didn’t happen at all. Instead everyone sold gold and the price dropped (same with bitcoin, which went to $3.5k) because they wanted liquidity rather than a speculative investment.

jkhdigital 6y ago
Same thing happened in 2008--gold dropped along with everything else after Lehman, but quickly turned around and was already making new highs while stocks were still bottoming out. Liquidity crises are anomalous events which don't say much about the long-term forces that move asset prices.

jkhdigital 6y ago

Yes, this is elementary economics--and I'm not trying to say that pedantically, it's just easily overlooked. Gold is an inert metal that pays no dividend and incurs storage costs, so any rational market participant who believes that they can achieve a risk-adjusted real return above 0% will not own gold. A poor economic outlook reduces expected real returns on equities, and currency devaluation (i.e. inflation) reduces real returns on fixed-income securities (bonds). Combine the two and you've got a perfect storm for skyrocketing gold prices--just look at the 1970s.

smabie 6y ago
Gold is a good investment because it has such low correlation to the broader market. Even though the return of gold is poor, the vol of your portfolio can be significantly reduced. I actually have a blog post https://cryptm.org/posts/2020/07/09/alt.html https://cryptm.org/posts/2020/07/09/alt.html where we create a minimum variance portfolio using gold and the S&P 500. And even though gold has high volatility and poor returns, this approach generates a higher risk adjusted return than the S&P 500. Especially in an age when bonds are no longer countercyclical, gold is an attractive component of a portfolio.
- mantap 6y ago
  Not just the volatility of your portfolio but the volatility of your life. Market downturns tend to occur coincidently with job losses.
- jkhdigital 6y ago
  I know that portfolio theory treats the prices of assets like random variables, but I prefer to ground my understanding of asset valuation in human action.