Venezuela has announced they are repatriating their reserves of gold around the world.

http://www.bloomberg.com/news/2011-08-17/chavez-preparing-government-takeover-of-venezuela-s-gold-mining-industry.html

Funny thing is, it is speculated by many, that these banks like the Bank of England, Federal Reserve of New York, and J.P. Morgan don't have this gold in their possession anymore.

No doubt about it today. Venezuela has formally asked the Bank of England for its gold that is stored there to be returned to Caracas. They are also asking the other foreign depositories for the rest of its gold.

Venezuela has 99 tonnes of gold stored at the Bank of England. It has a total of 212 tonnes so 113 tonnes of gold will come from the BIS and the Federal Reserve Bank of NY.

I would like to point out to you that the gold held at the Bank of England is not earmarked gold. It is on deposit there and the Bank can do whatever it likes with the gold. However it is a liability to them and the bank will fail if they cannot return the gold to Venezuela. The gold at the Federal Bank of NY is earmarked gold and the bank receives fees for its safekeeping. The gold held at the BIS is a site deposit and generally the BIS takes ownership of gold in a foreign jurisdiction in return for needed cash to a nation.

It looks like the BIS has site deposits of gold for Venezuela with the Federal Bank of NY.
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You can now imagine what is going on behind the scenes. The Bank of England will recall its gold from the GLD. If that gold from GLD is now gone to sovereign China, India, Russia, South Korea, Mexico, and to wealthy Europeans fleeing the Euro, then the Bank cannot retrieve its swapped gold to repay Chavez. Not only that but the Bank of England is not the ultimate owner of the gold..it is probably wealthy Arabs or oil barons like Chavez. You can now imagine the wild scenarios possible. Gold was at its nadir of the day and shot up big time on the news of the repatriation of gold. Many understand the significance of today's announcement.

http://harveyorgan.blogspot.com/2011/08/gold-hits-record-close-at.html

So you are either looking at the failure of central banks or you are looking at them buying hundreds of tons of gold on the open market. $2,500 gold might be conservative. If other countries demand their gold as well, the sky is the limit.

A smart contrarian would probably take this as a good a sign as you get that gold has run its course.

I don't know why people assume this gold isn't there - it's not like the deposit is THEIR gold to sell. So the price of gold would then be unaffected by this since the gold wasn't on the market and isn't going to be (unless Venezuela decides they are going to sell it on the open market, which would make 0 sense).

My god, swapping gold?!? There haven't been ships going across the ocean loaded with gold bullion since the 1700's.

gut;867086 wrote: My god, swapping gold?!? There haven't been ships going across the ocean loaded with gold bullion since the 1700's.

I don't know what would make you think that. Central banks around the world have been swapping gold for years and selling it to hold down the price of gold.

Here is some reading about it.
http://towneforcongress.com/economy/unlocking-the-money-matrix-the-summers-gold-price-suppression-scheme-part-1315/

I don't know how much foreign gold the Federal Reserve is supposed to have, if any, but if there is a worldwide run on the central banks for their gold, someone, maybe everyone, is fucked.

I admit my economic naiveté.

So maybe one of you astute OC economists can explain to me - in an "Economics for Dummies" way - what the purpose of gold is and why it even has value.

Let me attempt to explain.

Gold is precious and rare...I get that much. But you can't eat it, you can't drive it, you can't burn it in internal combustion engines, you can't live in it, etc. Sure, it comes in handy for production of sophisticated electronics and looks cool in watches and class rings, but I still don't get it.

Therefore, gold has value only because people have agreed that it has value.

It's like the monetary system as a whole. Paper money, securities, stocks, bonds, and other paper investments have value only because we all agree that it has value. That value is based on good faith that in exchange for my labor, you pay me a specified amount in paper/electronic currency that we all agree I can use in exchange for someone else's goods and/or services.

I cannot easily take a nugget of gold into Best Buy, for example, and exchange it for a 55" flat screen HD television. The cashier will, however, accept pieces of paper printed by our gubmint with lots of pictures of dead white guys on them or a plastic card with a magnetic strip on it that supposedly holds some equal, magical value to that nugget of gold.

In my simplistic world view, if Chavez wants his shiny bars of gold back, by all means give it to him. His people won't be able to eat it, live in it, or put it in their gas tanks. It has value only because we've all agreed that it has.

Shouldn't we stop putting value in shiny pieces of rare metal and put that value where it belongs...in each other?

Or am I blind to the gold-to-overall economy connection? I honestly have always had a difficult time wrapping my arms around the concept.

Let's say I walk out today, sell all my earthly goods, liquidate all my financial assets, and purchase myself a shiny piece of gold to put in my pocket as a safeguard against the upcoming worldwide economic meltdown that will lead us all to Armageddon as Glenn Beck suggests.

So I take that hunk of gold after the meltdown and I walk into a grocery store and announce, "Yo listen up. I have me here a healthy hunk o' real, live gold. I'll shave a little off the top in exchange for one of those T-bones I see there in your meat counter." Naturally since all paper currency will be worthless, the proprietor will salivate and say, "Yessir, Mr. Believer. Chip me off a small piece of your precious metal while I wrap up your steak."

I just don't get it.

Gold has been valued for various reasons for centuries, and has been valued monetarily for centuries because it is rare and expansion of the supply is limited by what is mined. Honestly, would you rather get paid in something you know is rare and has value or get paid in paper than was created out of thin air along with trillions of others? Gold is always the preferred currency of the working class for this reason, because they know no one can take the value of it away. Because gold always has this monetary value, there is always a danger of nations around the world wanting their gold back when the amount of paper backed by nothing is growing faster and faster every day.

If I could get my paychecks in the equivelant amount of gold every week, I would prefer that.

Short answer: gold is a commodity that can't be replicated so to the extent it is used as currency it is very valuable. It has other uses, so it has some commercial value other than currency. Then again as does paper money, I can use it as toilet paper if the government issuing it can't back its value.

Gold has limited commercial use (unlike copper or even silver). So long as the market agrees it has value, then it works. If people didn't view it as a store of value, which is based again almost entirely on perception (as oppposed to, say, oil), then it would cease to have much value. There's very little you can actually buy with gold (we aren't a barter economy any more), so it works only as long as the people you would sell it to for currency to buy something agree on its value. A big part of this is driven by the USD as a reserve currency.

It's a market driven almost exclusively by fear and speculation, rather than fundamentals.

Have fun eating gold. I invest in land.

Bigdogg;867453 wrote:Have fun eating gold. I invest in land.

If there were to be a true economic meltdown, your property ownership is unlikely to impress anyone.

queencitybuckeye;867458 wrote:If there were to be a true economic meltdown, your property ownership is unlikely to impress anyone.

Nor all the gold in the world.

Bigdogg;867462 wrote:Nor all the gold in the world.

Correct.

queencitybuckeye;867458 wrote:If there were to be a true economic meltdown, your property ownership is unlikely to impress anyone.

If you have enough to grow your own food and raise some livestock it will.

Agreed major spark. It's not the value of the land that's expected to be impressive but rather the value of the basic necessities the land can harbor.

queencitybuckeye;867458 wrote:If there were to be a true economic meltdown, your property ownership is unlikely to impress anyone.

Only if there were a return to a barter economy. Land and real estate are just as good a store of value as gold, and actually superior as they aren't [typically] nearly as prone to the wild speculative swings. Gold last had a run like this in the late 70's/early 80's, I think, and then did nothing for about 20 years (and even with it's run, in the some 25 or so years it actually underperformed treasuries).

Sure, in armageddon gold is more liquid than land or real estate...but at least you can grow food and hunt on land if we're really talking armageddon. And you're just as likely to be shot for your gold as he is for his land.

majorspark;867490 wrote:If you have enough to grow your own food and raise some livestock it will.

Ammo would determine ownership far more than a deed.

queencitybuckeye;867506 wrote:Ammo would determine ownership far more than a deed.

Hehe. That's probably true in that type of environment.

queencitybuckeye;867506 wrote:Ammo would determine ownership far more than a deed.

You could always melt the gold into bullets...."I've got your fucking handout right here"

gut;867505 wrote:Only if there were a return to a barter economy. Land and real estate are just as good a store of value as gold, and actually superior as they aren't [typically] nearly as prone to the wild speculative swings. Gold last had a run like this in the late 70's/early 80's, I think, and then did nothing for about 20 years (and even with it's run, in the some 25 or so years it actually underperformed treasuries).

The value of gold is pretty much constant. The price of gold in dollars is what fluctuates. Inflation in the 70s drove the price up, Volcker's tight money in the 80s drove it down, and now 20+ years of runaway inflation is driving the price up again.

Cleveland Buck;867552 wrote:The value of gold is pretty much constant. The price of gold in dollars is what fluctuates. Inflation in the 70s drove the price up, Volcker's tight money in the 80s drove it down, and now 20+ years of runaway inflation is driving the price up again.

Gold has little to no intrinsic value. It's just mutual agreement on some worth. We haven't had 20+ years of runaway inflation, the reason gold didn't do shit for 20+ years was because there was no excessive fear and speculation driving it, which is the ONLY thing that drives it. If only inflation drove gold, then it would never have these huge runs and crashes. Have you ever actually looked at a chart of gold over 30-40 years?

gut;867698 wrote:Gold has little to no intrinsic value. It's just mutual agreement on some worth. We haven't had 20+ years of runaway inflation, the reason gold didn't do shit for 20+ years was because there was no excessive fear and speculation driving it, which is the ONLY thing that drives it. If only inflation drove gold, then it would never have these huge runs and crashes. Have you ever actually looked at a chart of gold over 30-40 years?

You are still talking about the price of gold in dollars like it has some bearing on its worth. Look at the price of oil in gold versus the dollar. Oil is just about the same price per ounce of gold now that it was 10 years ago and it is pretty much constant. The price of oil in dollars is five times what it was 10 years ago, because the dollar buys much less than it did even years ago. The price of gold in dollars soared in the 70s with reckless monetary policy, crashed when Volcker jacked up the Fed funds rate to stamp out inflation and strengthen the dollar, and has climbed ever since as the dollar gets weaker and weaker with trillion of dollars in cheap new credit being given out every year to whoever wants it.

gut;867086 wrote:A smart contrarian would probably take this as a good a sign as you get that gold has run its course.

I don't know why people assume this gold isn't there - it's not like the deposit is THEIR gold to sell. So the price of gold would then be unaffected by this since the gold wasn't on the market and isn't going to be (unless Venezuela decides they are going to sell it on the open market, which would make 0 sense).

My god, swapping gold?!? There haven't been ships going across the ocean loaded with gold bullion since the 1700's.

Actually, countries were "settling up" on their gold debt as late as the 1960's. Yes, gold was shipped overseas...every year or so. Once Nixon took the US off the gold standard, the US and other countries stopped this practice.

gut;867698 wrote:Gold has little to no intrinsic value. It's just mutual agreement on some worth. We haven't had 20+ years of runaway inflation, the reason gold didn't do **** for 20+ years was because there was no excessive fear and speculation driving it, which is the ONLY thing that drives it. If only inflation drove gold, then it would never have these huge runs and crashes. Have you ever actually looked at a chart of gold over 30-40 years?

I agree with what you say here about gold. But it's not just gold that has no intrinsic value....but all commodities. The price of gold is set by speculators who set a "fair market value" for what they think it's worth.

Buck's argument has a lot of merit too. Since we no longer have any "hard money" to speak of, many investors have run to gold. I personally bought a bunch of gold stock back when it was trading around $900/oz. Everyone told me I was nuts...in that gold had never seen those price levels....ever. Unfortunately for me, I over thought the gold equation, rationalized that I could never eat my gold, and I sold it all....without making a dime. LOL.

believer;867246 wrote:I admit my economic naiveté.

So maybe one of you astute OC economists can explain to me - in an "Economics for Dummies" way - what the purpose of gold is and why it even has value.

Let me attempt to explain.

Gold is precious and rare...I get that much. But you can't eat it, you can't drive it, you can't burn it in internal combustion engines, you can't live in it, etc. Sure, it comes in handy for production of sophisticated electronics and looks cool in watches and class rings, but I still don't get it.

Therefore, gold has value only because people have agreed that it has value.

It's like the monetary system as a whole. Paper money, securities, stocks, bonds, and other paper investments have value only because we all agree that it has value. That value is based on good faith that in exchange for my labor, you pay me a specified amount in paper/electronic currency that we all agree I can use in exchange for someone else's goods and/or services.

I cannot easily take a nugget of gold into Best Buy, for example, and exchange it for a 55" flat screen HD television. The cashier will, however, accept pieces of paper printed by our gubmint with lots of pictures of dead white guys on them or a plastic card with a magnetic strip on it that supposedly holds some equal, magical value to that nugget of gold.

In my simplistic world view, if Chavez wants his shiny bars of gold back, by all means give it to him. His people won't be able to eat it, live in it, or put it in their gas tanks. It has value only because we've all agreed that it has.

Shouldn't we stop putting value in shiny pieces of rare metal and put that value where it belongs...in each other?

Or am I blind to the gold-to-overall economy connection? I honestly have always had a difficult time wrapping my arms around the concept.

Let's say I walk out today, sell all my earthly goods, liquidate all my financial assets, and purchase myself a shiny piece of gold to put in my pocket as a safeguard against the upcoming worldwide economic meltdown that will lead us all to Armageddon as Glenn Beck suggests.

So I take that hunk of gold after the meltdown and I walk into a grocery store and announce, "Yo listen up. I have me here a healthy hunk o' real, live gold. I'll shave a little off the top in exchange for one of those T-bones I see there in your meat counter." Naturally since all paper currency will be worthless, the proprietor will salivate and say, "Yessir, Mr. Believer. Chip me off a small piece of your precious metal while I wrap up your steak."

I just don't get it.

Lotta truth to them there words. My wife doesn't follow such things as gold prices. A couple years ago, she hocked a few gold chains down at the the local pawn shop and was more than elated that the stupid pawn shop guy paid her a whopping $65. That's when the fight started. LOL.

I'd take guns (and the ammo to boot!) and land any day of the week.