Wednesday, February 9, 2011

Commodities Already Priced in Gold

 If you think in terms of gold coins, there is no commodity inflation since 2002.  However, in paper money prices have jumped up.  In effect the world commodities are already priced in gold.

The last people to switch to the new money will get the worst deal.

Note that 17.5% interest compounded annually for 10 years will result in something being 5 times the original size.  This kind of inflation in commodities will eventually feed through to everything else.

10 comments:

  1. Vincent - A stroke of good luck on my part to find your blog...was reading Zero Hedge today and came across a post by Cullen Roche that I found interesting so I followed a link and wound up reading your exchange with Mr. Roche and others concerning hyperinflation. I must compliment you on your consistntly polite demeanor and calm persistence in replying to what seemed to me to be the exact opposite tone and conduct! Since my grandmother told me to say nothing if I couldn't say anything good about someone, I will say nothing more about Mr. Roche. Was wondering if you are familiar with FOFOA's blog and, in particular, his thoughts on hyperinflation and "free gold?" GSJ

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  2. I have just read a bit one time. I of course think he is right that we are headed for hyperinflation and the collapse of the dollar. And I agree gold will do well. However, I think he is wrong on the gold vs silver question. Historically silver is the money of the people and gold is the money of central banks that issue paper money backed by gold. I think we are headed for silver money. Gold is just too valuable really. At current prices a 1/10th oz gold coin, smaller than a dime, is $150. You can't really make coins much smaller than that. If we figure the price will go way up I just can't imagine using gold coins to buy food after the dollar collapses. It might be used to buy big things like cars and houses, but not for common trade.

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  3. Yes, good points, Vincent. The "Free Gold" hypothesis, as I understand it, is that a massive official revaluation of gold (not silver) will occur in conjunction with a collapse of all "paper" gold and associated paper gold markets...leaving only a physical gold trade... masterminded or allowed to happen (as you please) by "giants" (i.e., central banks and other huge gold holders)... I can't see this happening without silver tagging along so to speak...and isn't the word for money in the Bible---silver? Hugo Salinas Price has an interesting proposal to get Mexico on a silver standard and China's recent talk about gold AND silver support an eventual role for both metals... Perhaps we will end up again with wide usage of gold, silver, AND copper coins--but all having a much higher purchasing power than today... Thanks for your thoughts... GSJ

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  4. I certainly don't think there is a conspiracy to have gold take over. I think there is a sort of game theory situation that is just making it happen. Best paper on this idea is:

    http://www.safehaven.com/article-5205.htm

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  5. No, Vincent... "free gold" is NOT(!) a conspiracy ... but rather a more or less natural evolution that will take our modern monetary fiat system back to a gold foundation ... game theory is beyond my mental capacities. :) GSJ

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  6. Your comment, "masterminded or allowed to happen (as you please) by "giants" (i.e., central banks and other huge gold holders)..".

    "Masterminded" sounded like a conspiracy theory to me. Even "allowed to happen" sounds like someone has a choice. This is more like a force of nature, good money will drive out bad, like it or not.

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  7. Yes. Perhaps a poor choice of words on my part ... GSJ

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