What good is gold?

[codger]

Pardon my ignorance, but let's say I have buried a bunch of one ounce gold coins in my back yard. The US defaults on its obligations, and hyper-inflation launches and destroys the US Dollar. According to the commercials currently run on radio, I'm good to go.

Now as a practical matter, I go dig up some of the coins, as I have need of basic items to replenish things I've used up. What do I do with the coins so that I can feed, clothe and house myself and my family?

What good is gold bullion in a collapsed economy? If the dollar is worthless, what is the gold exchange rate, and what do I exchange it for?

[The Gorn]

This is a great question. You're right. If the US system collapses, then anyone who owns portable, liquid wealth is a marked man (or woman.)

The teevee marketing of gold and bullion investments is pure irresponsible marketing. Every bubble now has some morons running around trying to fleece other morons, cashing in on panic.

I think gold is a speculative investment and essentially you and I don't want to know what happens if it suddenly becomes inflated in a Weimar republic sense. All bets are off, including legal profiting.

[codger]

If you can't readily exchange the gold for goods and services, it's not a liquid asset, and is therefore useless.

How is it any better to hold gold than to stuff dollars under your mattress? It sounds like they will be equally useless in the event of financial collapse.

[The Gorn]

If you can't readily exchange the gold for goods and services, it's not a liquid asset, and is therefore useless.

How is it any better to hold gold than to stuff dollars under your mattress? It sounds like they will be equally useless in the event of financial collapse.

It would be liquid for anyone who is willing and able to take it from you by force.

I meant that physical gold buried in your backyard (for instance) would be liquid for someone who can presumably keep it safe for themselves. Not for you or me. In other words, it would be liquid to the wrong people, such as corrupted cops, anyone with firearms, etc.

[codger]

If the currency fails, we will likely be reduced to a barter economy. What is the role of gold bullion in a barter transaction. It has no utilitarian function.

If I wanted a machine gun, I could trade any number of things for it. Why would anyone prefer gold? What can they do with gold that I can't?

The main use I see for gold after a currency collapse is to pile it in a room and swim around in it, ala Scrooge McDuck.

[The Gorn]

No argument from me on any of that.

Let's put it this way:

The infomercials about gold are catering to idiots who don't realize that if all hell breaks loose, they will need a realistic end game. And just owning bullion that you can't spend and which any creep could take by force is not an end game.

[TRexx]

I think the idea is that if the US economy collapses, you could take your gold someplace that has an economy and spend it there.    Of course I'm not sure where you could go, or how you would get there.  It's not like prewar Europe when you could pack all your belongings in a cart, hook up your horse and head down the road for the border.

BTW there is an interesting novel called "War Day" that is set in the US after a limited nuclear war.  One of the issues the characters deal with is the economy where there are two currencies, one of which is based on gold.  I remember one part where they try to buy an old car (everything made after 1975 is useless because the electronics were fried by the EMP).  It costs either 5,000 "new" dollars or 18 "gold" dollars.  It's long out of print but well worth reading if you happen across a copy.

[DG9]

Lead might be a good investment, as long as you have something to fling it out of... 

[codger]

Lead might be a good investment, as long as you have something to fling it out of... 

I was thinking the same thing. Weapons,  ammo and reloading equipment and supplies will probably be extremely valuable, as will food, fuel and batteries.

[Rastus P Shagnasty]

Good as Gold

[The Gorn]

I guess the Walter Mitty * style fantasy that the gold infomercials are catering to is:

You buy gold, sit on it until the very threshold of hyperinflation, then sell it right before absolute chaos sets in for 1) land or even a defensible island, 2) stocks of food, 3) smaller denominated coins in gold or silver, 4) vehicles and fuel, 5) other necessities (guns, ammo, batteries, generators, clothing, bla bla bla)

Then you are set up to be a warlord in the New America. 


* Walter Mitty on this board is not being referenced. I mean the archetype.

[The Original Henry]

I agree with codger. I've had these same discussions with people who claim gold is the way to protect your liquid assets and have never received a good answer.

There is nothing intrinsically valuable about gold. Using it as a hedge against inflation or currency failure is just tradition with no fundamental backing. You can't eat it, you can't drink it, and it won't shelter you from the weather. Gold's only value currently (unless you work for Monster Cables) is the ability to convert it to a liquid asset, and if there is no liquid asset to equitably convert it to then it's worthless. These people are basically betting that gold itself will become the liquid currency in a crisis, which there is absolutely no basis for. For all we know pink pebbles, gasoline, or .223 ammo will become the liquid currency - it would all depend on the nature of the crisis.

And that doesn't even take into account that most gold hoarders don't even have physical gold - they have it as some sort of paper claim against a nebulous vault of "official gold" somewhere over the rainbow that they don't even have access to. Good luck with that if catastrophe ever strikes.

[Walter Mitty]

No argument from me on any of that.

Let's put it this way:

The infomercials about gold are catering to idiots who don't realize that if all hell breaks loose, they will need a realistic end game. And just owning bullion that you can't spend and which any creep could take by force is not an end game.

The infomercials are also catering to idiots in the sense that they are pushing the idea that gold today is just as smart an investment as it was five years ago.  It isn't.  The smart money made a lot of profit on gold over the last five years.  That money is not yet to be made.

For the TV I watch, which is mostly proletarian junk, most of the ads are for selling gold, not buying it.  It's about bringing your old unwanted jewelry in to some people who are going to melt it down and trade it.   I suspect that the idiot ads telling you that it's smart to sell gold are connected to the idiot adds telling you that it's smart to buy gold.

It's like the connection between Silk Purse Consulting, Inc.  and Sow's Ear Recruiting, Inc.

[Walter Mitty]

I think the idea is that if the US economy collapses, you could take your gold someplace that has an economy and spend it there.    Of course I'm not sure where you could go, or how you would get there.  It's not like prewar Europe when you could pack all your belongings in a cart, hook up your horse and head down the road for the border.

BTW there is an interesting novel called "War Day" that is set in the US after a limited nuclear war.  One of the issues the characters deal with is the economy where there are two currencies, one of which is based on gold.  I remember one part where they try to buy an old car (everything made after 1975 is useless because the electronics were fried by the EMP).  It costs either 5,000 "new" dollars or 18 "gold" dollars.  It's long out of print but well worth reading if you happen across a copy.

What's really interesting about the August 3 doomsday scenario is that the world economy is collapsing even faster than the US economy.  Investors are dumping European government securities pegged in Euros by the tens of billions.  What are they buying with the cash?  Mostly US Treasury securities.  That's why we can still pay our government bills. 

The rising food prices in North Africa were one of the drivers behind the "Arab spring".  People who put up with dictatorship for 30 years took to the streets when they couldn't afford food anymore.

For all the fact the China has the strongest economy in the world, the recession has cut industrial production in China in half.

[Walter Mitty]

I guess the Walter Mitty * style fantasy that the gold infomercials are catering to is:

You buy gold, sit on it until the very threshold of hyperinflation, then sell it right before absolute chaos sets in for 1) land or even a defensible island, 2) stocks of food, 3) smaller denominated coins in gold or silver, 4) vehicles and fuel, 5) other necessities (guns, ammo, batteries, generators, clothing, bla bla bla)

Then you are set up to be a warlord in the New America. 


* Walter Mitty on this board is not being referenced. I mean the archetype.

You should hear the sound made by my (imaginary) gold making machine:  "ka-pocketa pocketa pocketa... pocketa, pocketa QWEEP!