Buffett on gold

[Guest broxburnboy]

 

Currencies collapse all the time (in a historical context), and civilization marched right along. The Black Swan event is most people think this is an unthinkable scenario is when it comes to the USD. In fact if you look at the historical patterns, it's not only "thinkable", it's damn near inevitable. The one sentence scenario is simply: US defaults on debt via currency devaluation which terminates with or without a bout of hyperinflation in a "new currency", probably a North American Dollar of some sort and a new worldwide monetary regime in which central bank reserves are held in a basket of euro, north american dollar and something else.  In the overall scheme of things it'll be confusing to the masses, newsworthy and novel, but it won't mean we're living in a "Mad Max" world fighting over tins of dogfood with clubs.

 

 

 

Thanks for your practical input, the only thing I would disagree with is that the new currency will be not be anchored by a basket of currencies, unless those currencies are themselves anchored by precious metals or some other "real" store of value. The current problem is currency instability (mostly weakening) due to disparate monetary and fiscal policies amongst the main sovereign currencies.

Unless they all agree to balance there fiscal budgets and set a standard interest rate, the instability will continue (and worsen). At this point a new currency will have to be anchored by precious metals, immune to manipulation by government. That's not likely to happen without a complete disintigration of confidence in the offending currencies and a flight to precious metals, supplanting fiat money, as a means of exchange. IMHO.

Cheers

[cwericb]

Here`s my two cents worth. Like Mark Jr. I have dabbled in gold for a long time and have learned a few lessons. A long time ago - when I certainly could`t afford it - I bought a few Krugerrands and Maple Leafs. First off I had to pay a commission to the bank to purchase them, then I had to pay to have them shipped to my branch. Then they sat in a safety deposit box for a year or so while the price of gold dropped to half. Then I decided to get rid of them and I discovered that I had to pay to ship them, have them assayed (required before I could cash them and wasn`t cheap), then there more bank and shipping charges. Things may have changed since but that cured me of the gold bug - at least as far as holding the metal itself was concerned.

 

However, five or six years ago I put some money into the RBC Precious Metals Fund that is now worth just about exactly four times what it was then. The more trouble the world currencies are in, the more valuable gold will become. However it will peak at some point and while I`m not quite sure about the $2,500 figure, I think Mark Jr has got the signs of a gold peak exactly right.

 

The only real surprise gold has given me in the past few years was the decline after the financial meltdown when gold dropped from $1,000 to $700. But I have chalked that up to the fact that there was just so much money taken out of the system that everything got hit hard - however FFH helped make up for that at the time. :)

 

Here is a chart of the price of gold 1975-2010, factor inflation into it when you read and today's chart looks eerily like about 1980.

http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

 

[Rabbitisrich]

Cwericb, if I'm reading you correctly aren't you basically saying that you can only determine a gold price peak, and presumably trough, by observing the global indicators Mark jr. referenced?

 

In other words, you aren't pegging gold prices to dollar prices with quantitative relationship, but rather with a qualitative one? Gold prices are worth more than the current value because we still have global indicators occuring, and they will be worth less when some set of opposite indicators occur.

 

If the above interpretation is correct, then how do you relate the timing of gold price movements to global events?