David Lutz, head of ETF trading at Stifel Nicolaus said that all the selling in gold so far this year was the result of people "monetizing" their gold holdings. But...I thought gold was already money??
David Lutz, head of ETF trading at Stifel Nicolaus said that all the selling in gold so far this year was the result of people "monetizing" their gold holdings. But...I thought gold was already money??
31 comments:
"Gold is a chemical element with the symbol Au and atomic number.... 79. [Ed: ;) ]
It is a dense..... soft..... malleable..... and ductile metal with an attractive, bright yellow color and luster....."
Gold lovers: Who needs Penthouse Forum when you have the wikipedia page for GOLD!
http://en.wikipedia.org/wiki/Gold
But...I thought gold was already money?? Mike Norman
Not unless government privileges it as such - a point lost on many so-called libertarians.
Wrong approach, Franko, since God likes gold:
I will shake all the nations; and they will come with the wealth of all nations, and I will fill this house with glory,’ says the Lord of hosts. ‘The silver is Mine and the gold is Mine,’ declares the Lord of hosts. ‘The latter glory of this house will be greater than the former,’ says the Lord of hosts, ‘and in this place I will give peace,’ declares the Lord of hosts.” Haggai 2:7-9 New American Standard Bible (NASB)
Of course, He doesn't want people to value it above justice:
They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the Lord. They cannot satisfy their appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling. Ezekiel 7:19
I dont know F it looks to me like He, Moses and Aron got together to expose a bunch of these people and have the Levites exterminate them to give His people a bit of an advantage going forward....
http://mikenormaneconomics.blogspot.com/2013/01/moses-came-down-from-mountain.html
Probably helped at least for a while...
rsp,
Can you say, non effing sequitur, moron. It's clear you don't understand or respect the idea of people trading precious metals and using fiat money to do so.
@ mule
I think you don't understand. If gold was money there would be no need to convert back to usd. Gold would be exchanged for goods and services. The fact that gold isn't used in commerce and only used for trading, makes it certain it is not money
The argument that gold is money is because cb's hold it. Nonsense argument. Governments hold gold as a real asset to use to influence the value their currency. Buying gold puts more currency into the market and deflates its value in the exchange market, and vice versa with selling gold. It's a monetary op using a real asset. Could be any real asset. Gold is just convenient.
Tom,
That sounds out of a textbook. Are you sure about that explanation?
Since when does the CB buying assets - real or financial - affect the exchange rate? I know they say that in textbooks, like Krugman's "International Economics" textbook. But by that reasoning shouldn't all of this expansionary monetary policy of the past 5 years put massive downward pressure on the value of the dollar? -> i.e. cause the crazy inflation that the Goldbugs were expecting.
My understanding is that CB's purchasing and holding Gold is really just a tradition that remains leftover from the Gold Standard.
Cb's are never ever going to admit that they are dealing in gold as monetary policy to strengthen or weaken their currencies. It fact most people think that buying gold strengthens a currency by giving it "backing." In a fiat regime that's nonsense unless you think that the world is going back on a gold standard in the foreseeable future.
But the market tells another story. When a cb buys gold it increases the amount of currency as $NFA just as if the Treasury were buying real resources and increasing $NFA.
When the currency falls relative to the gold price, the currency is devalued relative to the gold purchasing power of other currencies.
"When the currency falls relative to the gold price, the currency is devalued relative to the gold purchasing power of other currencies."
But does the actually currency-to-currency exchange rate change as a result? If it doesn't, then it would seems there is room for arbitrage. If it does, then it seems your saying injections of NFAs devalue a currency. Is the correct?
Say the Fed by buys gold in London or HK and pays in USD, that's $NFA injected into the international marketplace. It would be frowned upon as manipulation if the Fed bought pounds sterling or Hong Kong dollars but cb's trade in gold all the time.
Again, why would a cb ever sell gold other than to take its currency off the market making it hard to come by in the fx market? Cb's never need to get their own currency, so why would they sell gold other than as a monetary operation, which is what cb's do, after all.
Can you clarify for me what the "international marketplace" is? … e.g. "in effect"... how is buying gold to affect exchange rates different from open market operations? Seems both of them inject "currency" (although in the latter not NFAs)
"I think you don't understand. If gold was money there would be no need to convert back to usd. "
Some people, despite their contrarian rhetoric, realize there are real men with real guns and real prisons with real bars waiting for those who don't bow down and worship (i.e. conduct business in) the Almighty USD.
It's funny - nay, ironic - just how much respect the anti-fiats are willing to give to the USD in order to keep peace/law/order but how little respect the supposedly tolerant of the tolerants are willing to give to gold and other precious metals.
Treasury doens't operate in international markets, cb's do. Treasuries inject and withdraw currency domestically but cb's regularly carry out international operations to maintain the stability of their currency. They can do this with other currencies or assets they carry on their balance sheet. Cb's regularly carry gold and buy and sell it. All cb's do is carry out monetary ops, other than being charged with regulating the financial sector. Why are cb's buying and selling gold if not for monetary operations. They change their balance sheet for a reason not just because they think that they can turn a profit on gold trades.
" Some people, despite their contrarian rhetoric, realize there are real men with real guns and real prisons with real bars waiting for those who don't bow down and worship (i.e. conduct business in) the Almighty USD."
gold conspiracy behind every bush.
Tom,
Thanks for the response. But you didn't really answer my question. I asked how buying and selling Gold.. "in effect" (for exchange rates) is different than open market operations, both of which are performed by the central bank.
More specifically, does buying and selling gold inject currency into "international markets" but open market operations do not?
OMO doesn't change amount of $NFA only term and composition, i.e., not monetary not fiscal. However, cb buying and selling real assets does affect amount of $NFA and is fiscal as well as monetary.
So you're saying changes in NFAs is what puts pressure down (or up) on exchange rates? …
Maybe I'm not understanding, but something doesn't sound right.
I'm under the impression that there really is no good theory of exchange rate determination. All existing theories being wrong. That the "value" of a currency in relation to other currencies has a lot to do with the subjective psychological perception of market participants.
The Engliand Pound is consitently strong relative to all other currencies. Is it really about NFAs? I don't think so.
"It's funny - nay, ironic - just how much respect the anti-fiats are willing to give to the USD"
You mean they describe it as totalitarian toilet paper monopoly funny money that's going to hyperinflate and die any day now so BUY GOLD!!
@Mule Rider,
Inexpensive fiat is the ONLY ethical money form for government debts else some private interest is profiting off the taxation authority and power of government.
There are so many factors involved in fx rates that no one has been able to come up with a model that predicts them. But the overall thinking is that like other markets, price responds to supply and demand and a cb increasing the supply decreases the demand. Cb do this all the time in buying and selling currencies to maintain the stability of their currencies in the market. Maybe the are wrong about this, but that's how currency manipulation is assumed to work. The fx market is not free of government intervention.
The other way it can work is a cb putting more of its currency into the market by buying foreign owned assets.
Conversely, the Fed could inject $NFA into the US domestic economy by buying real assets for its balance sheet, including precious metals like gold. It would raise eyebrow if the Fed were to buy, say, homes, but not gold.
The Fed buying gold would have the same effect as the Treasury doing it, but the Treasury would have to either tax or issue bonds to get the reserves. The Fed just creates the reserves with keystrokes. This would be an actual (fiscal) helicopter drop.
"Gold is a chemical element with the symbol Au and atomic number.... 79. [Ed: ;) ]
It is a dense..... soft..... malleable..... and ductile metal with an attractive, bright yellow color and luster....."
Apologies for arriving late to the party.
Gold is also a first class conductor of electricity as well. And of course it is very scarce. All of the above ground gold ever mined and refined is said would fit into a cube roughly the dimensions of a baseball diamond.
Over the millennia, the supply of gold has only increased at a rate of roughly 1.75% to 2% per year on average with some blips along the way like when big discoveries are made. Interestingly enough this rate of increase in the supply of gold closely matches the rate of human population growth. In other words, its is about as hard to extract gold from the earth as it is to reproduce the next generation.
No other commodity has that relationship to population growth. Maybe that strong correlation has something to do with why gold emerged through trial and error over many years as a reliable medium of exchange and store of value and why it is considered the most monetary of all commodities.
PS: If any of you own any gold but doubt that it has any value, please send it to me.... same goes for fiat money.
"The argument that gold is money is because cb's hold it."
True. For example the NY Fed is holding 54,000 solid gold bars or about 674 tons of German gold worth about $44.9 billion. The Germans want to repatriate their gold back to their home turf but the NY Fed has said they will only return it in partial shipments over 7 years. I'm thinking maybe that's how long it will take the Fed to have that much gold mined and refined into sold gold without any tungsten cores? Moreover, The NY Fed will not even allow the Germans to conduct a full and honest accounting of their gold holdings. Whatever happened to Trust but Verify? Maybe in addition to auditing the Fed, Fort Knox should be audited too.
Maybe that strong correlation has something to do with why gold emerged through trial and error over many years as a reliable medium of exchange and store of value and why it is considered the most monetary of all commodities. RR
Have you ever considered that you have the causation backwards? That gold-as-money has limited human population growth to something as absurd as the mining rate of a non-essential metal?
The inherent injustice of fiat as legal tender for private debts does not justify the use of gold for government debts. Rather, it replaces government counterfeiting of private money with private counterfeiting of government money.
But if real, sustainable economic growth with its corresponding increase in human dignity and happiness is the goal then we should aim for ethical money creation. Then we would see, for example, if a shiny metal and usury can out-compete common stock and just sharing.
sorry, that should have been "so BUY GOLD and give us your dollars!!"
Ed Rombach,
"Over the millennia, the supply of gold has only increased at a rate of roughly 1.75% to 2% per year on average with some blips along the way like when big discoveries are made. Interestingly enough this rate of increase in the supply of gold closely matches the rate of human population growth. In other words, its is about as hard to extract gold from the earth as it is to reproduce the next generation."
Where did you get this info from? Some facts, sources, so I can check, would be appreciated.
"Where did you get this info from? Some facts, sources, so I can check, would be appreciated."
y - you may not like this source for rate of increase in gold supply. In any event I will continue to look for other sources.
https://mises.org/daily/5153
"This price would provide for steady output of the gold monetary base (about an average of 1.5 percent to 2 percent increase per year over a long run, as centuries of available monetary statistics show)."
For increase in population growth...
http://www.globalchange.umich.edu/globalchange2/current/lectures/human_pop/human_pop.html
"The current growth rate of ~1.3% per year is smaller than the peak which occurred a few decades ago (~2.1% per year in 1965-1970)"
Also.....
http://users.rcn.com/jkimball.ma.ultranet/BiologyPages/P/Populations.html
https://en.wikipedia.org/wiki/Population_growth
http://geography.about.com/od/populationgeography/a/populationgrow.htm
Mule Rider said...
"... but how little respect the supposedly tolerant of the tolerants are willing to give to gold and other precious metals."
It's not an issue of respect but of truth.
The assertion that gold & other precious metals are money simply is not true.
Just because money can be made of gold doesn't mean that gold is money anymore than the use of paper money makes paper itself money.
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