Swiss Gold Rejection Deals Blow

Discussion in 'Europe and Russia' started by asianobserve, Dec 1, 2014.

  1. asianobserve

    asianobserve Elite Member Elite Member

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    Swiss Gold Rejection Deals Blow to Investors Hurt by Price Slump - Bloomberg


    This is a resounding "NO" against gold and another blow to Putin (his gold reserve value is going down)...
     
    Last edited: Dec 1, 2014
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  3. pmaitra

    pmaitra Moderator Moderator

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    Good news for gold buyers, especially millions of Indians, who will use this opportunity to buy and hoard gold.
     
    Free Karma, asianobserve and Singh like this.
  4. sgarg

    sgarg Senior Member Senior Member

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    This news does not affect Russia really. Russia is not a big hoarder of gold. The commodities are down so is gold.
    The downcycle of commodities is an advance indicator of downcycle of economy.
     
  5. pmaitra

    pmaitra Moderator Moderator

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    Russia is actually buying out gold. I have a feeling that Russia might peg its Rouble to the gold standard and then sell its energy only in Roubles.

    How would this work?
    1. A purchasing country or company (PC) who wants to buy, say Russian gas, will have to deposit gold with the Russian Central Bank (CBRF), get Roubles in return.
    2. PC will then be able to deposit those Roubles in any bank in Russia.
    3. PC will then use those Roubles to buy Russian gas.
     
  6. sgarg

    sgarg Senior Member Senior Member

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    @pmaitra, a gold standard is not possible at this time. Russia cannot peg ruble to gold.

    International trade cannot run on gold. This is not the way trade is structured.

    I think ruble will stay weak until Ukraine conflict is resolved. This conflict will be resolved - either militarily or diplomacy, as Ukraine cannot sustain this military operation. People forget the dire financial condition of Kiev.
     
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  7. pmaitra

    pmaitra Moderator Moderator

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    Gold standard is the only way out of this perpetual cycle of inflation and deflation that is wrecking havoc around the world.

    You can multiply paper currency by loaning money and expecting interest in return, assuming your loans and interests will be paid back, but you cannot multiply wealth this way. The only way to increase wealth is by increasing production, of food, energy, housing, and tangible things you need to survive.

    The Rouble is not weak. It is only weaker w.r.t. the Dollar, and more the Dollar is used in trade, the more will its demand be, and the stronger it will get, and the only way for the Rouble to get strong is to peg it to gold.

    In my disagreement, I would say that gold standard is possible.
     
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  8. sgarg

    sgarg Senior Member Senior Member

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    @pmaitra, the industrial economy is based on fiat currency. The gold has one big problem - it can be hoarded and this removed from the market. Gold cannot be artificially created.

    A shortage of currency crashes the economy.

    Russia also continues to print rubles in large quantities. Russia does have government budget deficit.

    If Russia ties to gold - then a large number of rubles will have to be taken out of circulation.
     
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  9. asianobserve

    asianobserve Elite Member Elite Member

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    @pmaitra

    The negative vote of 77% of the Swiss electorate will tell you a lot about the unattractiveness of gold standard. Note that what the Swiss proposal was only the hiking up of gold reserve up to 20% yet it was resoundingly struck down.

    Your proposal will spell the doom of Russian oil industry as nobody will go through the trouble of trading in gold. Note that gold is more volatile than the US dollar.
     
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  10. pmaitra

    pmaitra Moderator Moderator

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    That is one way to put it. The Swiss are not going to buy up a lot of gold means there is going to be a glut in gold supply in the market, hence, the price of gold will go down. This is the time to buy up gold.

    As I said, real wealth is anything that is tangible and is necessary for humans to survive.

    If you are hungry, you cannot munch onto a Dollar bill. You need wheat, you need rice, or a piece of fried chicken. Getting my point?

    You can also say that it is the US Dollar that is volatile, not gold.

    Just plot gold on the y axis and US Dollar on the x axis, and then flip the axes. (This is a common exercise in advanced statistics.)

    Anyway, the growth of gold production has been more or less linear, while the Dollar printing/creating has been exponential.

    The US Dollar will go bust, because, it grows exponentially. You might not like to hear what I am saying, but this f(x) = e[SUP]γx[/SUP] is going to go out of control at some point. It is not a question of if - it is a question of when.
     
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  11. asianobserve

    asianobserve Elite Member Elite Member

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    I don't know why you don;t consider dollar as real wealth for individuals. It has its economic value much like gold.

    And regarding the above underlined part of your post, well, if you cannot munch Dollars then the more that you cannot munch gold!



    This one is a good graphical illustration of the relative volatility of gold against the US Dollar:

    [​IMG]

    And here's another interesting article on the comparison of gold and Dollar (and Bitcoin):

     
  12. asianobserve

    asianobserve Elite Member Elite Member

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    I guess I'm wrong about munching gold....

    [​IMG]

    Crazy rich!
     
  13. pmaitra

    pmaitra Moderator Moderator

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    Probably because I have been stuck in floods, twice in my life, and realized the true value of paper currency, food, and basic survival skills.
    Ok, you are correct. You cannot munch onto gold, just like you cannot munch onto a dollar bill.

    Surely, at the time of food shortages, people will value wheat more than either gold or dollar.

    However, if you want to preserve your wealth, you need something that will not multiply into abundance like the Dollar. Gold is one that is least likely to multiply into abundance. There is no guarantee that some day in the future we will not find a humongous amount of gold deposit, but the chances are very low.

    We can only make a fair speculation about the future by judging the past.

    So, what does the past tell us? It tells us, that gold supply will increase linearly, and Dollar supply will increase exponentially.

    That's my point, exactly.


    Regarding BitCoin, frankly, I have very limited knowledge, but coming to the last highlighted part, it all boils down to one thing. Do you hold the gold as a standard and judge how the Dollar fluctuates against it, or do you do it the other way around? This highlighted portion does the latter, to suit their argument.

    Judging by their own merits, which one is better suited to be a standard? One that fluctuates linearly, or one that fluctuates exponentially?
     
  14. asianobserve

    asianobserve Elite Member Elite Member

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    Since it appears that gold gyrates more than Dollar then there's not much argument there which is the better standard (the one with lesser fluctuations). There are simply a lot of constraints to gold being the standard. But as an investment gold trumps Dollar all the time. So you better start buying gold when it bottoms (exactly where is the bottom we don't know)...

    BTW, I don;t know what is bitcoin also.
     
  15. pmaitra

    pmaitra Moderator Moderator

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    Not to me. Hence the ellipsis for the rest of your comment.
     
  16. asianobserve

    asianobserve Elite Member Elite Member

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    You check the history of gold prices and Dollar prices. Gold really is more volatile and this is one of the most important factor being pointed out by experts against gold returning as international monetary standard. So, being more stable than gold (+ more circulated) central banks around the World stick with Dollar as the standard.
     
    Last edited: Dec 1, 2014
  17. sgarg

    sgarg Senior Member Senior Member

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    @pmaitra, actually the argument is fiat vs gold RATHER THAN dollar vs gold.

    If you argue fiat vs gold, then yes gold has its attraction for value in a crisis.

    If you compare dollar to other fiat currencies, then yes, dollar has been more stable.

    The dollar will hold value until US military is strong. However there are signs already that US military power has starts to taper. The situation in middle east vs ISIS may prove very challenging for USA.
     
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  18. asianobserve

    asianobserve Elite Member Elite Member

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    @sgarg

    You're right about fiat versus gold. The Dollar one day may be replaced by another currency as international monetary standard. But I'm certain that we will not revert back to the gold standard. That age is gone. The only people who seem to be serious in implementing it are ISIS. That's not a good sign if you ask me.
     
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  19. sgarg

    sgarg Senior Member Senior Member

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    @asianobserve, I agree with you that gold standard is not possible. However a standard based on "Assets" is possible.
    The biggest issue is taking away national government right to print money; if an international agency prints money for everybody.

    The EU was the experiment that was supposed to create a precursor of an international currency. However EU is under a lot of strain lately. The next two years are crucial.
     
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  20. pmaitra

    pmaitra Moderator Moderator

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    Gold price? In what, Dollars? When we are comparing gold with Dollars? Why should I check the gold "price" when I can check the gold production in tons? Checking gold price is the perfect way to introduce bias into statistics.

    If you want to compute the fluctuation of gold, then look at the graph of gold production in metric tons.
    If you want to compute the fluctuation of the Dollar, then look at the graph of Dollar production in numbers.

    Plot the two graphs on the same x-axis, with the axis representing the chronological years.

    If you hold the Dollar as x-axis and the gold as y-axis, you are biasing your observation in favour of the Dollar.
    If you hold gold as x-axis and the Dollar as y-axis, you are biasing your observation in favour of gold.
     
  21. pmaitra

    pmaitra Moderator Moderator

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    Yes, the argument is Fiat vs Gold.

    Another troll comment. Are you debating on the (de)merits of the gold standard or do you want to somehow link it to ISIS? What next? You are going to suggest that the Austrian economists like to chop off people's heads?

    Gold was only an example. Russia is buying gold, so our discussion proceeded from there. Gold is one of the preferred choices because it is a precious metal. It does not have to be gold, but it has to be something tangible, and I have referred to this even earlier.
     
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