kesler12 Posted February 16, 2014 Posted February 16, 2014 What will the relationship between precious metals/fiat currency look like during a hyperinflation? Some have noted that they have an inversely proportional balance in that, when one strengthens, the other weakens. Is the relationship really that simple and linear?
Daniel Unplugged Posted February 18, 2014 Posted February 18, 2014 Gold is viewed by investors as a hedge against inflation, and a safe store of value in times of economic turbulence. So when bad economic news comes out it tends to go up and vice versa. During hyperinflation, by definition, overall prices in the economy will be going up at a very fast rate. It is very important to note that price inflation is only a manifestation of a decrease in the value of a currency. It is more accurate to say that the value of money is declining than to say that the value of goods and services is increasing. In a hyperinflationary environment it is likely that the price of gold and silver (and probably bitcoin too) will rise far faster than the price of groceries. This is because people will flock to gold and silver to preserve their purchasing power. A huge increase in demand = a huge price increase. Remember, fiat currency is ultimately worthless, it is just paper afterall. Once confidence in it ends, it returns to its intrinsic value of nothing. The value of the us dollar when measured against goods and services drops by ~the inflation rate of ~4% per year and has actually been pretty stable in the last 10 years or so, albeit with a constant decrease in value. Gold on the other hand, fluctuates wildly in comparison with movements of value either up or down more than 15% in most years. Of course, the last 10 years have seen far more up years than down. 9 to 1 I think. The US dollar drops in value every year without fail, although this may change in the near furure if a deflationary spiral sets in, such as what has been happening in Japan in the last 10 or so years, but thats another story. Since the dollar always drops in value but gold can go up or down, the relationship is neither linear nor inversely proportional, even though it may seem so at times. FYI, I own gold, silver, bitcoin and litecoin. I'm out of fiat as much as I can be. I think it is going to end badly for owners of dollars, this bull@!#$ can't go on forever.
ribuck Posted February 18, 2014 Posted February 18, 2014 What will the relationship between precious metals/fiat currency look like during a hyperinflation? Some have noted that they have an inversely proportional balance in that, when one strengthens, the other weakens. Is the relationship really that simple and linear? The relationship is not simple and linear, because the gold price is also affected by additional factors: (1) variation in the production and industrial consumption of gold, (2) investor sentiment as to how much monetary inflation there is going to be in the future, and (3) speculators aiming to profit by predicting changes in the gold price. Of these, I think (2) is dominant. Here's an interesting chart: https://en.wikipedia.org/wiki/File:Gold_price_in_USD.png In this chart, the red line shows the gold price with CPI-U inflation stripped out. Those who bought at the 1980 peak have not recouped their losses in real terms. This is not surprising, because gold is not a productive asset like farmland or a factory, hence we don't expect it to increase in value in the long term. ... if a deflationary spiral sets in, such as what has been happening in Japan in the last 10 or so years ... That's a common misconception. There has not been a deflationary spiral in Japan (or anywhere in the world ever, for that matter). Here are the inflation figures for Japan: http://www.tradingeconomics.com/japan/inflation-cpi Since 1992 there have been periods of inflation (but never above 3%) and periods of deflation (but never below -3%), and neither an inflationary spiral nor a deflationary spiral.
Daniel Unplugged Posted February 18, 2014 Posted February 18, 2014 I agree that "deflationary spiral" is not the correct term to describe what is happening in Japan. I was hoping that one would slip through. I think it is quite possible that the same thing could happen in the US in the next decade. That is, a prolonged period of bugger all inflation and almost no GDP growth. Once US consumers refuse to keep taking on more debt, demand will be insufficient for sustained inflation, even if there is lots of money printing. Basicly, if the dollars/yen getting printed dont chase goods and services in the economy, they don't feed inflation, they just create asset bubbles. GDP will remain weak for oh so many reasons. Of course, the dollar could collapse in a big wave of inflation causing a debt reset in the US and likely around the world. At some point, the ever growing amount of phantom wealth, that exists as fiat currency, will be realised for what it is, and there will be a panic as people try to convert their phantom wealth into real wealth. That will be the death of the dollar, perhaps. We live in interesting times.
ribuck Posted February 18, 2014 Posted February 18, 2014 Basicly, if the dollars/yen getting printed dont chase goods and services in the economy, they don't feed inflation, they just create asset bubbles. Yes I agree with this, and the same thing applies to the UK too. Most of the new money being created is going to those who are wealthy and well-connected. It's no surprise that the price of yachts, antiques, artworks, rare stamps, high-end properties, vintage wines etc is skyrocketing. Those things are not measured in the usual inflation statistics.
tasmlab Posted February 25, 2014 Posted February 25, 2014 Fun tip: If your money is in an IRA or other similar savings account, you can still put it in gold, but you can't take physical possession.
Prairie Posted February 25, 2014 Posted February 25, 2014 Fun tip: If your money is in an IRA or other similar savings account, you can still put it in gold, but you can't take physical possession. It'll be easy to get possession of it during an economic collapse. Right?
Magenta Posted February 26, 2014 Posted February 26, 2014 What will the relationship between precious metals/fiat currency look like during a hyperinflation? It's hard to predict when the markets are so heavily manipulated. http://www.gata.org/node/11507
fridolutin Posted February 26, 2014 Posted February 26, 2014 Gold and silver a good investment ? Many informed about the financial system are looking to buy gold and silver knowing the coming collapse of existing currencies. This is because they don't know basic economy, and for that reason will fall in the trap of illusion one more time. The problem is not that the money system is based on an accepted collateral by bankers or banksters like some call them, the problem is that some intermediator is positioned in the exchange market. One day or another those courtiers will abuse the system. Where fraud is possible there will be fraud. When talking of basic economy I'm referring to natural economy, the one used by nature, the basic and true value life needs to sustain itself. Unless we go back to the natural system all will go wrong again, its only a question of time. Buy a land where there is good water and air, improve the soil and grow your food in a direct economy closed system where you never take more than what can be produced with what is available locally. Your bank account will be your soil fertility. Learn about community, how to deal and share with others, those you help today will help you tomorrow. While close to nature the knowledge and skills you will acquire will be you insurance contract that will help you if ever you have to move to another location. Self sufficiency is more valuable than money.
kesler12 Posted February 27, 2014 Author Posted February 27, 2014 When talking of basic economy I'm referring to natural economy, the one used by nature, the basic and true value life needs to sustain itself. Unless we go back to the natural system all will go wrong again, its only a question of time. Problem is, everyone claims their school of thought is the most in tune with nature. I'll need some clarification on what system you actually identify with (chicago, austrian, keynsian, etc). It sounds like you are coming from an anarcho-primitivist stance! Buy a land where there is good water and air, improve the soil and grow your food in a direct economy closed system where you never take more than what can be produced with what is available locally. Your bank account will be your soil fertility. Learn about community, how to deal and share with others, those you help today will help you tomorrow. I have ambitions of doing just that, but prices are far too high now. I'd rather wait until the inevitable hyperinflation strikes, and precious metals become an invaluable commodity. If I get my hands on enough physical silver, I ought to have the purchasing power needed to get a run-down old mill or a mine. Something that people will need in a post industrial society, something that produces lots of disposable income. I suggest you lads all do the same! The next 10 years or so will be a good time to unleash your inner capitalist
Josh F Posted February 27, 2014 Posted February 27, 2014 What will the relationship between precious metals/fiat currency look like during a hyperinflation? Some have noted that they have an inversely proportional balance in that, when one strengthens, the other weakens. Is the relationship really that simple and linear? Yeah, under hyperinflation the cost for all things goes up significantly because the currency is worthless. This is doubly true with precious metals, as they might become a safe haven for investors Problem is, everyone claims their school of thought is the most in tune with nature. I'll need some clarification on what system you actually identify with (chicago, austrian, keynsian, etc). It sounds like you are coming from an anarcho-primitivist stance! Truth has no need for ideology, it is a reluctance which accompanies labeling yourself based on your conclusions.
fridolutin Posted March 3, 2014 Posted March 3, 2014 Problem is, everyone claims their school of thought is the most in tune with nature. I'll need some clarification on what system you actually identify with (chicago, austrian, keynsian, etc). It sounds like you are coming from an anarcho-primitivist stance! It is not a claim of detaining the truth, being close to nature is not being far from it, nature is nature and being close to it means being close to fundamentals not superfluities, Be your own master by self providing what you need , not what some pretend you need, basic needs are close to nature and can be provided by nature when you decide to follow her ways. The argument its to expensive is coming from your desires of how and what it should be instead of searching to find a way to adapt to what is available .
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