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Gold: preserves or creates?

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August 17, 2010 – Comments (7)

Two quick questions, I will post more later, gotta run:

1) If gold goes up will it actually create wealth for you, or just preserve your wealth if it moves at the same rate of inflation?

2) If miners keep mining more gold wont that push prices down the way that printing more money pushes dollars down?

7 Comments – Post Your Own

#1) On August 17, 2010 at 4:27 PM, SockMarket (36.00) wrote:

I feel like an idiot answering your Q's considering that u probably know more than me. but anyway:

1) inflation is the price of value, so to speak. it measures how much value a dollar will buy. If gold goes up at the same rate as inflation you are making money but you are not gaining wealth. essentially your money can't buy any more stuff (value) than it could before.

2) technically yes. any increase in supply = lower prices.

However for what I think you inferred: possibly, it depends how much they mine. Some is used in industry and thus dissapears from the bullion/coin market which creates a reduction in supply. So if producers mine more of the stuff than is used in industry the price drops and vice versa. This is, of course, assuming demand does nothing in the mean time.

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#2) On August 17, 2010 at 7:21 PM, chk999 (99.97) wrote:

If gold moves at the same rate as inflation, it will preserve wealth, but not grow it. If it goes up faster than inflation it will create wealth for the holders and if it goes up slower, it will destroy wealth for the holders. Gold is a commodity with a funny demand curve, but it is still a commodity.

Mining does increase the supply, which would tend to drop the price, but the yearly mining output is only a percent or two of the total gold holdings, so it is insignificant in the gold price changes.

 

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#3) On August 17, 2010 at 10:11 PM, Valyooo (99.39) wrote:

Sorry I was rushing too much to explain what I meant to ask...DOES gold beat inflation? If it just preserves it, why not choose a better investment option?

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#4) On August 17, 2010 at 10:11 PM, Valyooo (99.39) wrote:

Daniel, why do you think I know more than you? I think you know more than me.

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#5) On August 17, 2010 at 10:11 PM, Valyooo (99.39) wrote:

Daniel, why do you think I know more than you? I think you know more than me.

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#6) On August 18, 2010 at 1:14 PM, SockMarket (36.00) wrote:

valyoo,

well you do have 3 years on me... I guess we are both still learning.

anyway for the second set of Q's:

Gold shouldn't really beat inflation over the long term, it should match it. I think. 

 

People buy it because:

1) they are worried about stagflation/inflationary recession (or depression) in which they expect gold to perform the best of all assets, even if it only matches inflation.

2) they think that there is some reason for it to temporarily outperform inflation. Some people claim that it will go up (in the short term) because:

                - banks are holding the price down (ah, conspiracy theories) and will have to stop soon.
                - it will act as a safe haven for investors when the world economy falls apart
               - inflation will be very, very high
               - gold is currently undervalued without any good reason

3) because people want a hedge against inflation. 

 

As for other options I think that people don't think about that. It is a typical symptom of a gold bug

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#7) On August 18, 2010 at 1:26 PM, truthisntstupid (93.15) wrote:

I was close to both your ages (plus only a few years) in the eighties.

LOOK at what gold did in the eighties.  Now, I was there.  The cost of living went up...and up....and UP. 

Look at the peak price of gold in 1980.  Look at gold prices over the next 20 years! 

Then "invest"  in gold if you see anything different than I do.

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