Gold - Commodity or currency?

This is a discussion on Gold - Commodity or currency? within the Commodities & Money Markets forums, part of the Markets category; Give it time....

View Poll Results: Gold - a commodity or currency?
It's a commodity 21 39.62%
It's a currency 25 47.17%
other 7 13.21%
Voters: 53. You may not vote on this poll

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Old May 24, 2011, 7:23am   #31
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Re: Gold - Commodity or currency?

Give it time.
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Old May 24, 2011, 7:49am   #32
 
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Re: Gold - Commodity or currency?

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Originally Posted by danielfisher View Post
Hi,
I think the gold price has greatly effected ever since the coins are replaced by paper money. It was decided many years back all the currency of a country should be back up gold but i am afraid this is not practiced by any country of the world now.....
Yes, only a moron could think abandoning a gold standard is sensible.

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Yeah of course we're all in the habit of going around buying commods with nuggits.

I mean just how much nonsense can you come out with ffs.
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Old May 24, 2011, 9:50am   #33
 
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Re: Gold - Commodity or currency?

While the gold standard has some clear advantages, it also has some very serious flaws. Its flaws make its use completely impractical in the modern economy, which means that all its putative advantages are meaningless. In short, the gold standard is a dream.
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Old May 24, 2011, 9:57am   #34
 
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Re: Gold - Commodity or currency?

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Originally Posted by Martinghoul View Post
While the gold standard has some clear advantages, it also has some very serious flaws. Its flaws make its use completely impractical in the modern economy, which means that all its putative advantages are meaningless. In short, the gold standard is a dream.
America grew to become an economic and military superpower while it was on a full gold standard so do you care to elaborate on the serious flaws which make it completely impractical? Economics is economics, 'modern' economists seem to forget this fact.
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Old May 24, 2011, 10:05am   #35
 
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Re: Gold - Commodity or currency?

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Care to elaborate on the serious flaws which make it completely impractical? Economics is economics, 'modern' economists seem to forget this fact.
It works for a given economy if and only if all its trading partners promise to play by the same rules, i.e. promise to follow the gold standard. Otherwise, the best, most optimistic outcome is that the first guy to adopt it gives up a massive short-term competitive advantage. The worst case is that you''ll be potentially allowing a nefarious competitor to cripple your domestic economy with relatively little effort.

As to you example of America, it's a bit fallacious. All sorts of empires rose and fell throughout history. Is that all because of the gold standard?
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Old May 24, 2011, 10:30am   #36
 
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Re: Gold - Commodity or currency?

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Originally Posted by Martinghoul View Post
It works for a given economy if and only if all its trading partners promise to play by the same rules, i.e. promise to follow the gold standard.
The USA was one of the few countries to remain on a gold standard after WW1 and that is one of the reasons it's curency became the Reserve currency, it was "As good as gold"

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Originally Posted by Martinghoul View Post
Otherwise, the best, most optimistic outcome is that the first guy to adopt it gives up a massive short-term competitive advantage. The worst case is that you''ll be potentially allowing a nefarious competitor to cripple your domestic economy with relatively little effort.
What competitive advantage is given up? Can you give examples?

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As to you example of America, it's a bit fallacious. All sorts of empires rose and fell throughout history. Is that all because of the gold standard?
So are Greece, Ireland, Italy, Portugal, Iceland (to name a few) examples of modern economics? Empires rose and fell generally due to mismanagement of their leaders and currency debasement was a large contributing factor. America will go the same way in much shorter time, the Roman empire lasted for well over 500 years. China is set to overtake the USA within the next 5-10 years.
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Old May 24, 2011, 10:39am   #37
 
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Re: Gold - Commodity or currency?

One last fact, you will often hear Jim Rogers say this: Up until 1980, America was the largest creditor nation in the world, now it is the largest debtor nation in the history of the world. It went off the gold standard in 1971, are you suggesting that all it's economic growth occurred within those 9 years? It's clear the decline occurred since it left the gold standard. I'm not suggesting that it's the only reason for the decline, but the evidence is overwhelming.
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Old May 24, 2011, 11:05am   #38
 
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Re: Gold - Commodity or currency?

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Originally Posted by new_trader View Post
The USA was one of the few countries to remain on a gold standard after WW1 and that is one of the reasons it's curency became the Reserve currency, it was "As good as gold"
Well, unless you care to offer some facts, this is just you coming up with random causal links. USA was virtually the only industrialized country whose economy wasn't utterly ravaged by war. So I would suggest that USD becoming the reserve ccy had nothing to do with the gold standard, but was due to the US being the one man left standing. Obviously, in such a case what other choice for a reserve ccy do you have, gold standard or not?
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What competitive advantage is given up? Can you give examples?
It's very simple... The ability to increase money supply when the situation calls for it is a massive advantage. Why do you think the Chinese have been kickin' ass for the past couple of decades? It sure ain't 'cause they're on the gold standard. A directed command economy allows them to very easily turn the taps on and off, which is an extreme example of the sort of competitive advantage I am referring to.
Quote:
So are Greece, Ireland, Italy, Portugal, Iceland (to name a few) examples of modern economics? Empires rose and fell generally due to mismanagement of their leaders and currency debasement was a large contributing factor. America will go the same way in much shorter time, the Roman empire lasted for well over 500 years. China is set to overtake the USA within the next 5-10 years.
So what is your point precisely here? Mismanagement, misallocation of resources, etc is, unfortunately, our reality, given how our society is organized. And yes, some of the excesses result from the moral hazard that is sorta inherent in fiat money. But so what? To pretend that the gold standard is the silver bullet (pun sorta intended) that makes it all go away is just plain irrational and escapist.
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Old May 24, 2011, 11:07am   #39
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Re: Gold - Commodity or currency?

NT - check your history. You're treating Bretton Woods as if it were THE Gold Standard. It wasn't.

If it had been, Charles de Gaulle and Vietnam would not have done for them.
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Old May 24, 2011, 11:08am   #40
 
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Re: Gold - Commodity or currency?

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Originally Posted by new_trader View Post
One last fact, you will often hear Jim Rogers say this: Up until 1980, America was the largest creditor nation in the world, now it is the largest debtor nation in the history of the world. It went off the gold standard in 1971, are you suggesting that all it's economic growth occurred within those 9 years? It's clear the decline occurred since it left the gold standard. I'm not suggesting that it's the only reason for the decline, but the evidence is overwhelming.
What evidence? You keep confusing simultaneity and causality. I suggest to you that what happened to the US had nothing to do with the gold standard and everything to do with China and its policies. Happened arnd the same time, so works about as well as your suggestion.
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Old May 24, 2011, 11:24am   #41
 
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Re: Gold - Commodity or currency?

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Originally Posted by Martinghoul View Post
It's very simple... The ability to increase money supply when the situation calls for it is a massive advantage. Why do you think the Chinese have been kickin' ass for the past couple of decades? It sure ain't 'cause they're on the gold standard. A directed command economy allows them to very easily turn the taps on and off, which is an extreme example of the sort of competitive advantage I am referring to..
It's easy to say "The ability to increase money supply when the situation calls for it is a massive advantage" without actually stating what that advantage is. The Chinese have been kickin' ass because they are a productive economy. I'm looking at history as a guide to what has happened and during the gold standard America rose to become an economic and military superpower, since leaving the gold standard it has gone into decline. Some critics would say that the reason for the shift is because China's business is business and America's business is war. However, if you look throughout history, one reason countries have debased their currencies and gone into debt is to fund wars. Being on a gold standard makes this a harder thing to do.

A gold standard is designed to prevent countries expanding their money supply thereby forcing them to live within their means. History has shown that as economies evolve they move away from ‘dirty’ manufacturing jobs and become more ‘service’ sector based. If that is the case, who is making the ‘stuff’ that service sector economies consume? Would you be happy getting dirty and working up a sweat to sell your ‘stuff’ to someone else who is doing nothing but lying on a beach and printing money? At least gold involves labour and consumption of resources, so it is ‘production’ of some sort.
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Old May 24, 2011, 12:14pm   #42
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Re: Gold - Commodity or currency?

gold is a commodity and a currency both
Mainly gold is a currency, but the fact that approx 70% of gold usually goes into jewellery cannot be ignored so it goes to commodity.
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Old May 24, 2011, 12:22pm   #43
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Re: Gold - Commodity or currency?

LOL

There certianly is a lot of fool's gold in here.
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Old May 24, 2011, 12:23pm   #44
 
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Re: Gold - Commodity or currency?

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Originally Posted by new_trader View Post
It's easy to say "The ability to increase money supply when the situation calls for it is a massive advantage" without actually stating what that advantage is. The Chinese have been kickin' ass because they are a productive economy. I'm looking at history as a guide to what has happened and during the gold standard America rose to become an economic and military superpower, since leaving the gold standard it has gone into decline. Some critics would say that the reason for the shift is because China's business is business and America's business is war. However, if you look throughout history, one reason countries have debased their currencies and gone into debt is to fund wars. Being on a gold standard makes this a harder thing to do.
I don't know how much more explicit I can be. The advantage relies on the ability of the Central Bank or the government to manipulate money supply, whether through monetary policy or exchange rate policy. The yuan peg is the bazooka that would NOT be feasible if China were on the gold standard. That and not some inherent "special" productivity of the Chinese economy is the reson for its economic outperformance. In fact, the Chinese economy on the whole is much less productive than the West (hence, their efforts to catch up), but that's offset more than fully by the peg. As to the wars, you have it totally backwards. In the past, when a country went to war, it placed such a strain on the economy that gold standard had to be "suspended". Hoping that the gold standard imposes so much discipline on the govts that it can prevent wars is beyond wildly optimistic, it's just delusional.
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A gold standard is designed to prevent countries expanding their money supply thereby forcing them to live within their means. History has shown that as economies evolve they move away from ‘dirty’ manufacturing jobs and become more ‘service’ sector based. If that is the case, who is making the ‘stuff’ that service sector economies consume? Would you be happy getting dirty and working up a sweat to sell your ‘stuff’ to someone else who is doing nothing but lying on a beach and printing money? At least gold involves labour and consumption of resources, so it is ‘production’ of some sort.
Here you're confounding a whole bunch of different unrelated issues. Countries living within their means has nothing to do with the expansion of money supply. Greece doesn't have its own central bank, so it has no authority over its money supply, yet it's perfectly capable of living beyond its means. China has been expanding money supply till it can't see straight, yet it finds itself in the most envious fiscal position, with more reserves than it knows what to do with. As to the service sector vs manufacturing, that has absolutely zero to do with the gold standard. Again, China is about as far from the gold standard as you can imagine and it has all the manufacturing it can hope for and more. All that's telling me is that it's so much more about an aggressive exchange rate policy than anything to do with the gold standard.
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Old May 24, 2011, 1:39pm   #45
 
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Re: Gold - Commodity or currency?

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Hoping that the gold standard imposes so much discipline on the govts that it can prevent wars is beyond wildly optimistic, it's just delusional.
What I meant was a gold standard makes expanding its money supply more difficult, not going to war. A few countries are currently embarking on 'currency' wars, so why you think being free from a gold standard gives any country a competitive edge is beyond me. If every country can print as much money as they need, where on earth is the advantage?

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Originally Posted by Martinghoul View Post
Here you're confounding a whole bunch of different unrelated issues. Countries living within their means has nothing to do with the expansion of money supply. Greece doesn't have its own central bank, so it has no authority over its money supply, yet it's perfectly capable of living beyond its means. China has been expanding money supply till it can't see straight, yet it finds itself in the most envious fiscal position, with more reserves than it knows what to do with. As to the service sector vs manufacturing, that has absolutely zero to do with the gold standard. Again, China is about as far from the gold standard as you can imagine and it has all the manufacturing it can hope for and more. All that's telling me is that it's so much more about an aggressive exchange rate policy than anything to do with the gold standard.
Other countries have expanded their money supply to maintain the peg to the $US because it is printing money like mad. The USA was once was on a gold standard and so other countries were on a de-facto gold standard as a result. No doubt you are counting GDP as 'production' even if around 70% of US GDP is consumption (Consumer spending).
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