Has Gold Only Remained Flat in Purchasing Power Over The Past 40 Years ?

[sixgun]

On 19/06/2021 at 06:42, SidS said:

I've always measured inflation through chocolate bar prices.

In 1991, a Dairy Milk cost 15p, now it's about 60p-75p depending where you're shopping.

That's 400-500% price rise in 30 years. Now if inflation is at 2-3%, officially most years, then it shouldn't be so high.

As long as you are comparing the same weight of chocolate it works. Chocolate bars have a tendency to suffer shrinkflation.

[Coverte]

2 hours ago, KRO said:

https://www.linkedin.com/pulse/gold-mother-all-buying-opportunities-back-70s-big-reset-ross-norman

 

Getting out of cash and into hard assets is my key takeaway from this; which I fully agree with - thank you.

[sixgun]

Inflation is an increase in the money supply (Austrian economics).
An increase in the money supply (Inflation) is necessary and good if the economy is expanding. Currency is the means of exchange and if there are more exchanges going on you will likely need more currency. Currency is needed to grease the wheels.

The problem arises when governments issue more currency than the economy requires for stable prices. This is easy in a fiat system where currency can be turned on and off at will. They do this for wars, for political giveaways, to get re-elected, to fund their cockeyed plans and projects, to pay their mates overinflated contracts, to fund the scamdemic and so on.

Prices may or may not go up with an increase in money supply. If the economy needs the increased supply there may not be price increases (unless say there are raw material / labour shortages). If the system is flooded with currency and if there is more currency chasing the same number of goods and the supply / demand equation leads to increased prices.

If you take currency out of the system you will see deflation, where less currency results in falling prices. The Great Depression in America was a results of a number of factors but reduced money supply and money velocity with 2 big ones.

You could have a situation where there was inflation (more money supply) but it was not keeping up with the expansion of the goods coming into the economy. In this case there is deflation and falling consumer prices. You could have a situation where there is more money supply but the money doesn't move around - where money velocity falls. No-one is spending money and so supply / demand causes prices to drop.

Following the so-called financial crisis, $trillions were issued to make good the balance sheets of failing banks (too big to fail). That currency stayed within the financial system. The currency did not get onto the High Street. We saw bond prices rising, we saw stock prices rising (financial products). We saw cheap currency to borrow and as a result property prices also soared. However High Street prices remained low. Indeed the recession in the economy resulted in less demand for goods and stable / falling prices in some sectors. 

This time the financial sector and the High Street are being doused with a flood of currency. This is resulting in both inflation and a rise in prices.
 

[Spark268]

On 17/06/2021 at 19:55, Pete said:

The number that popped out for 2020 was £1,316 for parity so inflation created a multiple of over 400%.

given that CPI inflation is the lower bound of any estimate of true inflation, its reassuring that Gold has retained its value.

On all other measures, it has under-performed significantly, which in other words means that it is an excellent buy, and not so great if you are looking to sell. Past performance is not an indicator of future results.

the 80s-00s saw a period of unprecedented structural economic changes, with the following trends that push inflation lower:

* Increased productive capacity from China & South East Asia (more supply of goods)

* older and aging population in the west (less demand for goods)

* Technology, internet, smart phones. Larger retailers (amazon), more cheap fashion items & other knick-knacks

The inflation rateis further pushed lower by 'Hedonic' adjustments: so for example, if the iPhone 11 is twice as expensive as the iPhone 4, its impact on the inflation rate is actually pushed lower because it has more features (5 cameras instead of 2, longer attery life etc). The adjustment pushes the stated rate of CPI down a lot.... here's a more detailed description: https://wolfstreet.com/2019/12/05/what-worries-me-about-hedonic-quality-adjustments-cpi/

Also: A university education now costs in excess of 30,000 GBP, compared to free 15 years ago: How has this impacted CPI? who knows !

 

 

Edited June 21, 2021 by Spark268

[HawkHybrid]

On 17/06/2021 at 19:55, Pete said:

Going back to early 1980 when gold was £300 and came out of your salary I entered this value into the Bank of England Inflation Calculator.
The number that popped out for 2020 was £1,316 for parity so inflation created a multiple of over 400%.

average inflation given by the boe calculator since 1980 works out to be ~3.7%.

not quite as high as chocolate bar inflation from 1991(4.7%-5.5%), but boe figure includes

a extra decade of data.

 

HH

[EdwardTeach]

20 hours ago, sixgun said:

...

Following the so-called financial crisis, $trillions were issued to make good the balance sheets of failing banks (too big to fail).

...

Sorry for this off topic question but your comment here has got me thinking. 🤔

What would happen to someone who has a mortgage with a bank and there is an another financial crisis but this time the government doesn’t bail out the banks. Who would own your house?

[HerefordBullyun]

1 minute ago, EdwardTeach said:

Sorry for this off topic question but your comment here has got me thinking. 🤔

What would happen to someone who has a mortgage with a bank and there is an another financial crisis but this time the government doesn’t bail out the banks. Who would own your house?

I am of the belief the government would NEVER not bail out the banks. The 2008 crisis proved it. They are in bed with each other. The banks would just be indebted to the BOE and the holdings would be held by teh tax payer and probably bought out the winners who shorted the market. Look how much GS made on the big short!

[sixgun]

20 minutes ago, EdwardTeach said:

Sorry for this off topic question but your comment here has got me thinking. 🤔

What would happen to someone who has a mortgage with a bank and there is an another financial crisis but this time the government doesn’t bail out the banks. Who would own your house?

You own your deeds.
The bank has a lien on your deeds.
God gave man dominion over all the earth.

If the bank went pop someone will pick over the bones and take possession of the lien. i guess it might be available to buy at a decent price and then you could discharge it.

Edited June 21, 2021 by sixgun

[Spark268]

25 minutes ago, EdwardTeach said:

What would happen to someone who has a mortgage with a bank and there is an another financial crisis but this time the government doesn’t bail out the banks. Who would own your house?

the 'owners' of the bank, i.e. depositors/bondholders/shareholders would sell off your mortgage to debt collection agencies and the like - these may pursue the mortgage more aggressive than the bank originally did, and be less bound to offer more affordable deals.

This is the situation of the people who had mortgages with Northern Rock --> BBC News - Mortgage prisoners: Key workers in 'financial nightmare'

[goldenguy]

On 18/06/2021 at 01:59, sixgun said:

i didn't know it was cool to say i have "physical gold or silver."
i lost all mine in a tragic boating accident.

Many here keep the metal themselves. Particularly if you have gold it is very easy to hide if you think about it.
Gold and silver are money. They have been for thousands of years. If they weren't, they wouldn't be manipulated like they are. The economic and financial data in the last couple of days should send gold and silver much higher but you see them falling off a cliff. These are the desperate thrashings of a dying animal. 

Property and stocks are in general in a bubble. Many of them will blow up. The same goes for much of the crypto. It is a craze. If the crypto token isn't part of a proper business which is starting to or actually doing business, it will fizzle out. It is like the dot com boom - lots of ideas going nowhere and on close inspection they were half baked ideas.
When inflation takes off, then property will likely take off. We will have to see what happens when furlough finishes and reality kicks in.

@sixgun hey mate, same thing happened to me, I lost my gold/silver stack because of a robbery at our old apartment. Been quite a trauma since then because I've always had a fear of losing physical gold & silver ever since.. Recently though since crypto has boomed off, I started looking into gold & silver backed crypto tokens, and it caught my interest because I'm able to hold my gold & silver in a digital hardware wallet, and can either liquidate or redeem whenever I want! Look into it mate! I bought mine at Aurus, but there are other options as well 

[silenceissilver]

2 hours ago, goldenguy said:

@sixgun hey mate, same thing happened to me, I lost my gold/silver stack because of a robbery at our old apartment. Been quite a trauma since then because I've always had a fear of losing physical gold & silver ever since.. Recently though since crypto has boomed off, I started looking into gold & silver backed crypto tokens, and it caught my interest because I'm able to hold my gold & silver in a digital hardware wallet, and can either liquidate or redeem whenever I want! Look into it mate! I bought mine at Aurus, but there are other options as well 

Although I find the idea of combining precious metals and cryptos intriguing because it would solve the current incapability of using gold for making distance-payments without broker, I don't see how this could possibly work. With cryptos, everyone or at least many have the full copy of the blockchain, thus it's decentralised compared to just one central serverfarm of a financial institution. Gold however, would have to be stored in a centralised way. Theoretically, you could have a cryptocurrency backed by gold where everyone would contribute his own gold - however, no one would know if someone really had the gold. The only way for gold to be used as money and it not being centralised is for people to use real gold coins for payments.

It seems to me this is a fundamental issue that can't be resolved in a simple manner if at all, but I'm glad to learn I'm wrong. 

[goldenguy]

On 22/06/2021 at 14:44, silenceissilver said:

Although I find the idea of combining precious metals and cryptos intriguing because it would solve the current incapability of using gold for making distance-payments without broker, I don't see how this could possibly work. With cryptos, everyone or at least many have the full copy of the blockchain, thus it's decentralised compared to just one central serverfarm of a financial institution. Gold however, would have to be stored in a centralised way. Theoretically, you could have a cryptocurrency backed by gold where everyone would contribute his own gold - however, no one would know if someone really had the gold. The only way for gold to be used as money and it not being centralised is for people to use real gold coins for payments.

It seems to me this is a fundamental issue that can't be resolved in a simple manner if at all, but I'm glad to learn I'm wrong. 

You seem to grasp the concept well, I’ve done quite some digging myself. I agree, a gold-backed token is fundamentally flawed if the token issuer is the same entity that holds the gold. Such a system doesn’t actually require a blockchain at all. This is actually why I appreciate what Aurus is doing as they are not involved in the tokenisation process. They provide the framework that enables independent gold providers, vaults and dealers to mint and distribute their own gold-backed tokens. Vaults are audited by an external auditing party. Users are not subject to a single-point of failure or gold source. Although ambitious, I believe because it’s possible it will happen - whether Aurus or any other company

[ChrisSilver]

Please keep discussions about cryptocurrency strictly to the cryptocurrency section of the forum. Otherwise it just invites automated spam bots to the forum. 

[GoldDiggerDave]

7 hours ago, ChrisSilver said:

Please keep discussions about cryptocurrency strictly to the cryptocurrency section of the forum. Otherwise it just invites automated spam bots to the forum. 

We don't want any of these on here!