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Exchange traded gold also carries significant institutional risk. Just when you might be making a killing, the institution could fail. Some gold dealers will hold your precious metals for you, and others have suggested that some such dealers may be engaging in "fractional reserve" gold sales. Physical gold in your own possession can go up or down wrt various currencies as well. The policy of the US Fed seems to be: "Take an assured haircut by holding your dollars or take some risk." Of course one can always take comfort from the fact that the Fed is mandated to regulate the banks and the soundness of the currency.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 26th, 2009 at 01:46:30 AM EST
I've never understood why investors "flee to gold" at times of uncertainty/crisis when gold as so little intrinsic value.  Surely if you are into the commodity speculation business you would be putting your money into the rare earth metals needed for Lithium batteries and electromagnetic engines and generators etc.?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 26th, 2009 at 07:02:27 AM EST
[ Parent ]
Because other investors do.
by Colman (colman at eurotrib.com) on Thu Nov 26th, 2009 at 07:09:07 AM EST
[ Parent ]
But that's worse than generating a housing bubble.  At least there is some underlying need for new houses (to replace old and cater for increasing population/changing needs) - which, while it can be suppressed at times of recession - will nevertheless gradually eat away at any market overhang when the level of building goes below long term needs.  

No one is "consuming" gold, in the sense of making it disappear, and new stuff is being mined all the time.  There is a limit to how much gold even the glitterati can wear.  So how can a rapid and sustained increase in gold prices not be a bubble - especially if some dealers are "selling" gold they don't actually have?

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 26th, 2009 at 07:25:21 AM EST
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Gold is special. It glints just so.
by Colman (colman at eurotrib.com) on Thu Nov 26th, 2009 at 07:36:07 AM EST
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Frank Schnittger:
So how can a rapid and sustained increase in gold prices not be a bubble?

It is a bubble. That's what it's for.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 26th, 2009 at 07:57:10 AM EST
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One can take physical possession of gold and gold has a long history of retaining value. Buy at the top of the bubble and get burned, but usually gold settles back to a level significantly above the trading range prior to the bubble. Silver might hold its value even better, but the weight of an amount of silver equivalent in value to a pound of gold is over forty pounds, so portability is an issue.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 26th, 2009 at 01:56:22 PM EST
[ Parent ]

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