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Terribly performing memecoin (lemmy.world)
submitted 2 months ago by to c/memes@lemmy.world
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[–] 6 points 2 months ago* (14 children)

The alternative view is that the real value of government issued currencies has fallen and Gold just kept going along with its 1.2% yearly inflation due to gold mining.

That the official currencies buy less and less (as I pointed) leans more towards the view that the value of government issued and controller currencies is being inflated away much faster than the value of an ancient currency which is not controlled by any government and only devalues by more of it being mined.

In other words, at medium and long time frames Gold is not an investment asset, it's a store of wealth outside the control of politicians.

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  • [–] 0 points 2 months ago (13 children)

    If there is more gold, it's value should go down. The price should only go up when supply becomes limited, or some new thing demands more than usual.

    Gold has a lot of practical use, but because it's value is hyper inflated it is almost always more cost effective to use a cheaper material. Which, incidentally, is driving the cost of those materials up.

    I'm not saying gold should be the same price as copper. I am saying that in a rational environment the prices should be comparably similar.

    As it is, gold is 10,000 times as expensive as copper.

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  • [–] 1 point 2 months ago* (11 children)

    If there is more gold, it’s value should go down. The price should only go up when supply becomes limited, or some new thing demands more than usual.

    You're thinking of Gold as a consumer good, I'm thinking of Gold as a currency which is what traditionally gold has been. Even nowadays very little gold is actually consumed (it's used in small quantities for things like wiring inside a microchip package the pads of the dies to the package pins).

    When a cross-currency exchange rate changes all that you know for sure is that the relative value of a currency has changed vs that of a different currency - maybe one currency went up in worth, maybe the other currency went down in worth, maybe both at the same time, maybe both went down at different speeds, maybe both went up at different speeds.

    It's exactly because "if there is more gold, it’s value should go down" AND gold has being up in quantity by about 1.2% per year due to mining, that I'm saying that the movement of the cross-currency exchange rate of the GLDUSD pair is more easilly explained by the fall in value of the US Dollar rather than by some greater worth of Gold.

    It makes sense that the currency that nowadays is mainly created when banks lend money (as explained in the Bank Of England paper "Money Creation in the Modern Economy") would lose value way faster than the currency that's created when more of it is mined and mining only adds around 1.2% to its amount in human hands per year.

    I'm actually saying that Gold is going down in value, it's just that the Dollar, Euro and most other paper currencies are going down in value even faster so the cross-currency exchange rates between Gold and those currencies are such that the same amount of Gold can buy more of those currencies.

    Gold has a lot of practical use, but because it’s value is hyper inflated it is almost always more cost effective to use a cheaper material.

    Well, you see, you got the consequence right but you didn't go back enough enough in analysing the causal chain to get to the root causes - gold price vs the price of inferior alternatives for many of its uses, such as Copper, is at its root what it is because there is way less Gold in the Earth's crust that we can mine than there is Copper as you can see here (note that the vertical scale is logarithmic).

    Copper is between 100,000 and a million times more abundant than Gold.

    Per your logic Gold should be at least 100,000x more expensive than Copper, not just 10,000x.

    In Human History stuff that is rare and doesn't decay tends to become a store of value - at one point even Aluminum was a store of value because it was rare since the process to extract it from Bauxite handn't been invented yet.

    This also means that if suddenly some way to mine way more Gold is found (say, asteroid mining), its price will collapse vs things that don't benefit from it, similarly to what happened to Aluminum when the process to get it from Bauxite was invented.

    It's the modern government issued currencies whose tokens are not themselves rare materials (the so-called "paper currencies") or a stated guaranteed IOU for a rare material (such the USD was during the Gold standard when the USD was legally tradable for Gold by the US Government at a fixed rate) that are in Historical terms unusual and very recent (less than a century old). For me it makes sense that any weird movements in the exchange rate between Gold and government issued currencies is more likely explained by issues with these "recent" inventions rather than issues with what was a currency for millenia.

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  • [–] 2 points 2 months ago* (last edited 2 months ago) (6 children)

    Currencies are arbitrary. Gold has some industrial value, but essentially no utility to own.

    Imagine the global economy collapses, and you have 100 tons of gold - what good will it do you?

    Currencies have value based on what you can exchange them for - that is why dollars (and euros and all fiat) are valuable. People will give me things I want if I give them some paper. Gold as a currency is the same, but only as long as people value it. Exactly the same as fiat. It being limited only affects the per-unit PRICE assuming some value, it doesn't give it value to begin with.

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  • [–] -2 points 2 months ago* (5 children)

    Again, you stopped your logical analysis before you got to the end of the logical chain.

    Gold differs from fiat currencies in that it cannot be inflated away by politicians and central bankers.

    That's it.

    It's everything as you wrote AND gold's value over the mid and long term isn't really controlled by politicians or central bankers because they can't issue more of it, which they can with fiat currencies - since the end of the Bretton Woods system, Gold in average just putters along losing 1.2% of value a year, not really caring about the quality of politics in any country.

    So holding Gold rather than EUR, USD, GBP or so on is really just trying to protect oneself from Economic mismanagement of currencies.

    Everything as you wrote applies and anybody thinking that Gold will hold value if society collapses is a fool.

    You could do the same protection against political mismanagement in your own native currency by holding your savings in other currencies, but that comes with the extra work of having to track the quality of politics and Economic management in the countries issuing those currencies (as by holding those currencies you're now exposed to the political fuckups there), plus main currencies tend to be highly positivelly correlated during big Economic Crashes (like in 2007 when all main currencies suffered and maybe only the CNY didn't suffer as much), whilst Gold is not and just does its thing.

    As it so happens putting my savings in Gold has already done exactly that: when I lived in Britain I put my savings in Gold and then Brexit came and the British Pound crashed 20% and suddenly my Gold would buy me 20% more British Pounds. It wasn't really Gold going up in value, just the pound going down. Mind you, my savings in EUR did the same, but that wasn't a major international Crash, were the EUR would suffer as much as the GDP or the USD.

    Just like there was no Brexit effect on Gold, there is no Trump Effect on Gold or Realestate Bubble effect - the price of houses in GLD has actually been pretty stable, might even have fallen a little bit.

    That's the point of it, nothing else. All the bollocks about Gold replacing fiat currencies and so on is just fanboyism from goldbugs - Gold is just an investment class that has less correlation with the quality of Economic management in the largest nations than the currencies of those nations or anything listed in those currencies (such as stocks or realestate).

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  • [–] 2 points 2 months ago (1 child)

    I'm not the person you were arguing with before.

    You are talking about prices, I am talking about value. While you have clearly read plenty of libertarian monetary policy primers, you aren't prepared to discuss this topic beyond that level.

    Value does not come from rarity. It comes from utility - what a thing can do - and desire - how much other people want it.

    Gold has a small amount of utility and a large amount of desire. Fiat currencies have a small amount of utility (namely paying taxes to avoid jail time) and a large amount of desire.

    You rail and rail against inflationary monetary policy as if it is some inherent evil of fiat currency. The money supply can be reduced, just as it can be increased, just the supply of gold can change. It doesn't change the source of value, only the price.

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  • [–] -1 points 2 months ago* (last edited 2 months ago)

    Either:

    • Fiat currency has no value because it's literally useless to do anything with and gold has a tiny bit of utility value due to its industrial uses.
    • Fiat currency has value from its utility as a trade value token and wealth store, whilst gold has value as a wealth store, both only because and as long as people are willing to exchange them for things which do have a more utilitarian value.

    I'm talking within the second value framework, so where trade tokens and wealth stores only have valuable as long as people think they have value and their value only is as much as people think they are worth - in other words their value derives from people's trusting them to have value.

    My point is entirely that there are more people in this world capable of reducing and even destroying the trust (and hence how much people are willing to exchange for them) on fiat currencies than there are of gold - fiat currencies are issued and controlled by governments, hence are a lot more subject to political interference than gold which is not issued or controlled by any government.

    (My entire perspective is basically a financial risk exposure analysis on fiat currencies and gold as if they were assets just like all other assets, which concludes that gold has smaller political risks than even the major and most stable currencies. Whilst for major currencies usually the difference is too little to matter, in times like now with a bunch of bubbles - like the AI bubble - at the brink and the US Economy in a consistent downwards trajectory, that higher exposure of fiat to such risks is a lot more important - mismanagement of the crash or even as we see now with Trump of international confrontations is likely to hit fiat currencies much harder than gold)

    One can think within the first value framework, but that's pretty useless in modern society because that's not how humans are operating, though it would make sense for a society with bartering only.

    My talk about inflation was just an attempt at providing a mathematical perspective on it because I have some experience in Finance and a background in Science hence tend to see and explain via the perspective of Mathematics, but I guess that only made things more confusing.

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  • [–] 0 points 2 months ago* (last edited 2 months ago) (2 children)

    Gold differs from fiat currencies in that it cannot be inflated away by politicians and central bankers.

    Citation needed. You'll find that not only can this happen, it has. Arguably this is currently happening. They can't just make more appear, but if that were the only thing driving it's value up, again, it's price over time would go down as we continue to extract more of it than we realistically need.

    If you're worried about the collapse of currency, gold is a particularly bizarre investment. If the currency isn't worth anything, you wouldn't buy any of it with your gold. The people with currency aren't going to want gold, they will want things like food, and shelter.

    Notably, during the several hyperinflation crises we can point to to study, at no point in any of them did citizens resort to using gold. They bartered with common crap that everyone needed.

    That's assuming the worthless paper you have that says you own gold could ever actually be traded for gold in such a situation. Unless you have the physical actual factual gold in your possession, you just have a gold backed currency. Which is doubly worthless in an inflation crisis.

    You do at least have the paper right? You don't just own numbers in an app?

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  • [–] 1 point 2 months ago (3 children)

    Even with a fixed money supply, prices are still set by a formula that accounts for the velocity of money, or how often any particular unit of money is spent (I spend a dollar at the store, who spends the dollar with a supplier, who spends the dollar by paying a worker, who spends the dollar and so on and so forth). It also accounts for the total economic production.

    Peg the whole thing to a semi fixed supply of gold and the prices can still change drastically with shifts in the velocity of money or total aggregate production. That's why fiat currency is good, so that the central bank can pull on different levers to try to keep prices stable, even as different things are happening.

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  • [–] 1 point 2 months ago* (last edited 2 months ago) (2 children)

    Two points:

    • We don't have a fixed money supply in the modern system when banks can issue debt. Not even close. I suggest you read the Bank Of England's paper called "Money Making in the Modern Economy" which I mentioned.
    • We're talking about different things here. I'm not suggesting Gold as a trade token, I'm not even suggesting Gold as a store of value for stable times, I'm suggesting gold as a store of value against things like large economic crashes (the upcoming AI bubble crash, possibly with a Realestate bubble crash) and those times when the dominant Imperial Power in the World is being replaced by a now one (such as it seems to be the case new ones, as now with the US decaying and China rising). I'm suggesting that, purely because Gold has way less exposure to Politics and human mismanagement in general than even major currencies.

    I think I failed so far at explaining myself mainly by talking too much.

    My point is simple: gold and fiat currencies are roughly the same, but gold isn't issued by anybody and isn't managed by anybody whilst fiat currencies are, so gold is less exposed to the risks inherent to greed and corruption of those who issue and manage currencies - there's not temptation to "issue more gold" because it's not at all possible, there is nobody deciding "gold interest rates" because there is no such thing (to have interest you need to have more money tomorrow than you have today, as today's loan will be repaid tomorrow plus interest and you can't really make more gold any faster than mining it)

    Gold has less exposure to Politicians and Central Banks - that's it, that's the important difference.

    In stable times when living in mature Economies, that difference is pretty much irrelevant, in times like now it can make a huge difference which is probably why the GLDUSD exchange rate took of with the Russian invasion of Ukraine and accelerated even more with Trump's second mandate as POTUS.

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  • [–] 2 points 2 months ago (1 child)

    We don't have a fixed money supply in the modern system when banks can issue debt. Not even close. I suggest you read the Bank Of England's paper called "Money Making in the Modern Economy" which I mentioned.

    Yes, I'm quite familiar with that paper.

    I'm not arguing that we have a fixed money supply. I was saying that if we were on a gold standard, in an alternative universe hypothetical, where the money supply was close to fixed, we would probably see worse price volatility.

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  • [–] 1 point 2 months ago*

    Oh, yeah, Gold seems to fail miserably as a trade token in a growing economy.

    However I'm not making the case that Gold should replace fiat currencies, I'm making the case that Gold is a good long term store of value in times of large political risks such as the ones we seem to be going through in the West right now (most notably in the US, though the explosion in wealth inequality and growth in the Far-Right is far from only there) as well as during economic crashes with global impact (such as what's likely to happen when the AI bubble blows), whilst even the currencies of major stable countries are much less so.

    There's not going to be a "Brexit" impacting Gold as Brexit impacted the GBP or an end of the dominance period of the nation issuing Gold as there is sure to be for the USD.

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