How to make money by investing in Gold?

[JackAlabama]

I wonder how much involvement gold will have in the upcoming BRICS currency or SDR.

Even if, it will not solve anything in a digital age and digital commerce.
It would be a joke beyond believe to imagine ships with gold are shipped from country to country to buy some goods and if you do not settle finally, everyone can claim whatever they want.

So gold is fitted as money for an analog world and trade without much sophisticated tech, but we went past that stage.
That said, it is a commodity like any other but it is pretty easy to store compared to oil so it still has advantages and imo is an integral part of a portfolio.

 

[khinkali]

It would be a joke beyond believe to imagine ships with gold are shipped from country to country to settle some goods and if you do not settle finally, everyone can claim whatever they want.

There is no need to ship gold around to settle transactions. It is about having faith in the currency whether metal, paper or digital.

Backing with assets has two benefits. Firstly, some people like the idea of a medium of exchange being backed by something of value. Someone can default on a debt while holding enough liquid assets to cover it, but that already happens. Defaults are even more likely when the debtor lacks the ability to pay, so asset backing can offer some additional confidence.

Secondly (and I think this is the important point), publicly backing a currency by some from of non-fiat asset is a signal that monetary policy will remain sane. Or at least that, if there is some kind of "Nixon shock" then it will be more obvious. This is important because some current and future BRICS members have a worse monetary record than others and some have even printed money like USA, etc.

WTF Happened In 1971?

"I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop." - F.A. Hayek 1984

wtfhappenedin1971.com

So in terms of the topic, I see gold as the obvious choice, if not the only option. If the non-OECD world moves towards gold-backed currencies, what does this do to the value of gold?

And what happens to official prices of gold in Western markets? Exchange controls, capital controls and gold controls could easily become part of the Western playbook - again. Import-export restrictions would make it practically impossible to buy gold in the West. Might we see XAU/USD stay under some price level in Chicago and London (with no availability), while it rises to unseen levels in Shanghai, Singapore and Dubai?

In such a scenario, we will see if "full faith and credit" and "i promise to pay the bearer" continue to give any sense of assurance over the coming decades.

 

[JackAlabama]

There is no need to ship gold around to settle transactions. It is about having faith in the currency whether metal, paper or digital.

Backing with assets has two benefits. Firstly, some people like the idea of a medium of exchange being backed by something of value. Someone can default on a debt while holding enough liquid assets to cover it, but that already happens. Defaults are even more likely when the debtor lacks the ability to pay, so asset backing can offer some additional confidence.

Secondly (and I think this is the important point), publicly backing a currency by some from of non-fiat asset is a signal that monetary policy will remain sane. Or at least that, if there is some kind of "Nixon shock" then it will be more obvious. This is important because some current and future BRICS members have a worse monetary record than others and some have even printed money like USA, etc.

WTF Happened In 1971?

"I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop." - F.A. Hayek 1984

wtfhappenedin1971.com

So in terms of the topic, I see gold as the obvious choice, if not the only option. If the non-OECD world moves towards gold-backed currencies, what does this do to the value of gold?

And what happens to official prices of gold in Western markets? Exchange controls, capital controls and gold controls could easily become part of the Western playbook - again. Import-export restrictions would make it practically impossible to buy gold in the West. Might we see XAU/USD stay under some price level in Chicago and London (with no availability), while it rises to unseen levels in Shanghai, Singapore and Dubai?

In such a scenario, we will see if "full faith and credit" and "i promise to pay the bearer" continue to give any sense of assurance over the coming decades.

That has been tried and failed. As I have outlined in my post before.

The question is "how can you provide credible proof of your currency being backed by some form of analog commodity?"

The non-OECD world is better off using Bitcoin for this. Any proof of any holding can be credibly provided with ease.

 

[Jerry1911]

Exchange controls, capital controls and gold controls could easily become part of the Western playbook - again. Import-export restrictions would make it practically impossible to buy gold in the West.

Would this include Switzerland as well in your opinion? Personally I don't think we will see any gold restrictions there, at least not anytime soon.

 

[khinkali]

The non-OECD world is better off using Bitcoin for this. Any proof of any holding can be credibly provided with ease.

I am a big fan of asset tokenisation. Blockchain yes, for the reason you give. Bitcoin, not so much. Custodians and auditors could get very important, if people finally lose faith in unbacked fiat.

Would this include Switzerland as well in your opinion? Personally I don't think we will see any gold restrictions there, at least not anytime soon

Switzerland has some difficult choices to make. Their neutral position is so tarnished now, I can't see then getting back to their historical position in the world. Sadly

 

[JohnnyDoe]

Meanwhile nobody ever audited the deposits at Fort Knox (or in any other central bank’s storage). It’s well known for example that the Bank of England stores gold at 90% purity. China was scammed by the US with tungsten filled bars etc…
Enjoy gold as a commodity, make money on it as you can do with cocoa, lumber, frozen orange juice, pork bellies etc but everything else about its role as a reserve/storage of value/currency is plain bs.

 

[TheCryptoAnt]

Best thing about Gold is that if you buy 100k worth today and 20 years pass you will still have 100k

 

[backpacker]

Might we see XAU/USD stay under some price level in Chicago and London (with no availability), while it rises to unseen levels in Shanghai, Singapore and Dubai?

Singapore and Dubai are like Switzerland: They will both do what Washington orders them to do.

Would this include Switzerland as well in your opinion? Personally I don't think we will see any gold restrictions there, at least not anytime soon.

True.
Switzerland will do what Bruxelles and Washington demands. Switzerland is master in adopting EU-rules at a faster pace and more accurately than most EU-memberstates.

Best thing about Gold is that if you buy 100k worth today and 20 years pass you will still have 100k

This is a myth and and could not be any farther from the truth!
Compare the price of gold at the end of the 1970's with that 20 years or even 25 years later
Gold is an investment, which, as is the nature with any investment, can go wrong. At anytime I would prefer an investment in globally operating companies like Nestlé or P&G or Unilever over an investment in gold. The dividends of these companies already protect more than gold.

 

[khinkali]

Singapore and Dubai are like Switzerland: They will both do what Washington orders them to do.

Switzerland, sadly has been moving in this direction (though often aligning to EU, which basically amounts to the same at present).

Singapore and Dubai have decisions to make, along with Turkey and others. Remain aligned to the current world order, or pivot. UAE are already taking part in BRICS+.

HARDtalk - K. Shanmugam: Will Singapore have to choose between the US and China? - BBC Sounds

Stephen Sackur speaks to Singapore’s minister of home affairs

www.bbc.co.uk

Around 19:50 into this recent interview, Shanmugam was asked about Singapore's vote against the Ukraine invasion "...you are actually closer to Washington than you are to Beijing?". "We also opposed the US invasion of Grenada, so it's a mater of principle it's not choosing one over another".

There is a direction of travel. Singapore is not moving towards the West in the way that Switzerland is.

If US+EU and some allies decide to implement some kind of global gold price cap, 85% of the World would shrug it off. So I believe that any artificial price (and shortage) will apply in Western countries only. Note that it is often the case that gold, crypto, etc. command higher prices in countries that have capital controls. The risks (and opportunities) of such intervention should not be ignored, when considering non-fiat stores of value.

 

[backpacker]

Switzerland, sadly has been moving in this direction (though often aligning to EU, which basically amounts to the same at present).

Singapore and Dubai have decisions to make, along with Turkey and others. Remain aligned to the current world order, or pivot. UAE are already taking part in BRICS+.

HARDtalk - K. Shanmugam: Will Singapore have to choose between the US and China? - BBC Sounds

Stephen Sackur speaks to Singapore’s minister of home affairs

www.bbc.co.uk

Around 19:50 into this recent interview, Shanmugam was asked about Singapore's vote against the Ukraine invasion "...you are actually closer to Washington than you are to Beijing?". "We also opposed the US invasion of Grenada, so it's a mater of principle it's not choosing one over another".

There is a direction of travel. Singapore is not moving towards the West in the way that Switzerland is.

If US+EU and some allies decide to implement some kind of global gold price cap, 85% of the World would shrug it off. So I believe that any artificial price (and shortage) will apply in Western countries only. Note that it is often the case that gold, crypto, etc. command higher prices in countries that have capital controls. The risks (and opportunities) of such intervention should not be ignored, when considering non-fiat stores of value.

For Turkey it is a game: Playing with both sides in order to get something out of it. Works fine - Turkish Airlines earns a fortune by taking all the RU-passengers from stupid EU-carriers.
However, at the end of the day Turkey will stay aligned with the West. It was always the case and the population wants it that way.

Dubai is balancing its economic interests. They play here and there but at the end have no choice to remain aligned to the West. Iran is just a few steps away ...

Singapore is like a Swiss cheese. And, well, it is only a tiny city state. Washington commands.
If tomorrow Washington does not guarantee the security of SG anymore, this island is gone.

Do not put too much faith in BRICS and all this. It's an inhomogeneous club of devolping nations who are in there to profit from the golden goose (China). And this golden goose now has so many self-created problems that it will concentrate more on itself.

 

[JackAlabama]

I am a big fan of asset tokenisation. Blockchain yes, for the reason you give. Bitcoin, not so much. Custodians and auditors could get very important, if people finally lose faith in unbacked fiat.

Switzerland has some difficult choices to make. Their neutral position is so tarnished now, I can't see then getting back to their historical position in the world. Sadly

The narrative "Blockchain, but not Bitcoin" is old and from 2017.
Today it is clear that no other blockchain offers any security and is just a very slow and expensive database. The best example is SQLana.

The claim remains: You can audit the hell out of xyz, you still cannot provide adequate proof compared to signing a Bitcoin balance with a private key.
With bloc building, you have even less incentive to trust audits coming out of the adversary bloc.

 

[khinkali]

OK so for Turkey it's a game or whatever. That's just a label, but this not about selling some air tickets to Russian residents. This year Turkey announced a pivot towards trading in Rubles, Yuan and (the topic is this thread) gold. Why gold?

Dubai is balancing its economic interests. They play here and there but at the end have no choice to remain aligned to the West. Iran is just a few steps away ...

This year Iran's foreign minister visited UAE, the Syrian President visited UAE and UAE announced an ambassador to Iran after years without.

Changes are underway. A lot of eyes rolled when the US launched a charm offensive with Venezuela this year; they'd have been better to focus on keeping ties with Turkey, Saudi Arabia and Brazil (I think Lala will win there, which will accelerate their Eastwood pivot).

BRICs is inhomogeneous, that is a great strength just as North America benefits from Canada's energy, USA's technology and Mexico's workforce. BRICS++ will have the enviable heterogeneity that Europe lacks.

I'm trying to come back to the thread here...in such a heterogeneous environment, I see a strong case that gold should be involved. Partly because people like it and partly because it's a way to keep politicians and central bankers honest. We are starting to see what happens when monetary policies have not been suitably constrained.

If the other 85% do start to rely more on gold as a unit of account, the arbitrage opportunities will be immense.

The narrative "Blockchain, but not Bitcoin" is old and from 2017.

There is nothing wrong with using the Bitcoin blockchain for tracking real-world assets (other than cost, latency and energy use but those can all be improved over time).
For some people, Bitcoin is "the point" of crypto. For others, it makes sense that tokenisation will be the "big thing". Time will tell.

We're discussing gold and as the one relatively consistent unit of value over thousands of years, I'm not writing it off any time soon.

 

[backpacker]

I'm trying to come back to the thread here...in such a heterogeneous environment, I see a strong case that gold should be involved. Partly because people like it and partly because it's a way to keep politicians and central bankers honest

Politicians and central bankers are dishonest by nature, no matter where they are from. For this reason alone there will be no gold standard or stronger involvement of gold.
Anyway, this paper is quite realistic and still worth reading -> https://www.cambridge.org/core/elements/can-brics-dedollarize-the-global-financial-system/ . It has been published before the recent UA vs. RU confrontation.

 

[GeneralGogol]

Best thing about Gold is that if you buy 100k worth today and 20 years pass you will still have 100k

Except if you bought at 2012 and in 2017 you wake up having -50% less.

There is nothing magical in Gold. It's just a commodity. Just the same you can ask "how to make money by investing in Cobalt".
Except Cobalt is actually being used for EV batteries and probably will rise in price much more than Gold.

 

[JackAlabama]

OK so for Turkey it's a game or whatever. That's just a label, but this not about selling some air tickets to Russian residents. This year Turkey announced a pivot towards trading in Rubles, Yuan and (the topic is this thread) gold. Why gold?



This year Iran's foreign minister visited UAE, the Syrian President visited UAE and UAE announced an ambassador to Iran after years without.

Changes are underway. A lot of eyes rolled when the US launched a charm offensive with Venezuela this year; they'd have been better to focus on keeping ties with Turkey, Saudi Arabia and Brazil (I think Lala will win there, which will accelerate their Eastwood pivot).

BRICs is inhomogeneous, that is a great strength just as North America benefits from Canada's energy, USA's technology and Mexico's workforce. BRICS++ will have the enviable heterogeneity that Europe lacks.

I'm trying to come back to the thread here...in such a heterogeneous environment, I see a strong case that gold should be involved. Partly because people like it and partly because it's a way to keep politicians and central bankers honest. We are starting to see what happens when monetary policies have not been suitably constrained.

If the other 85% do start to rely more on gold as a unit of account, the arbitrage opportunities will be immense.



There is nothing wrong with using the Bitcoin blockchain for tracking real-world assets (other than cost, latency and energy use but those can all be improved over time).
For some people, Bitcoin is "the point" of crypto. For others, it makes sense that tokenisation will be the "big thing". Time will tell.

We're discussing gold and as the one relatively consistent unit of value over thousands of years, I'm not writing it off any time soon.

Yes, sure no one denied of gold having any value nor there being a case for not owning it.
But it is a commodity like any other e.g. pig stomachs, silver, oil, rare earth, iron, nat gaz etc.

However it is well suited for private storage compared to other commodities but thats about it. It is not suitable as money today in a digital age.

 

[TheCryptoAnt]

Except if you bought at 2012 and in 2017 you wake up having -50% less.

There is nothing magical in Gold. It's just a commodity. Just the same you can ask "how to make money by investing in Cobalt".
Except Cobalt is actually being used for EV batteries and probably will rise in price much more than Gold.

 

[khinkali]

Politicians and central bankers are dishonest by nature, no matter where they are from. For this reason alone there will be no gold standard or stronger involvement of gold.

I'm not going to argue about politicians and honestly. There has been a change in Western central bank (and fiscal) policies since the Nixon Shock. Debasement has increased at unprecedented levels since 2008. From one crisis to another, they increase the supply of their currencies.

One way to signal that you're taking another approach, is to back the currency with something more tangible.

There is nothing magical in Gold. It's just a commodity. Just the same you can ask "how to make money by investing in Cobalt".

Habits and history are quite magical in the minds of voters, politicians, central bankers, investors and traders. But that's not my "end game" prediction.

it is well suited for private storage compared to other commodities but thats about it. It is not suitable as money today in a digital age.

I agree. One Big Question is whether digital money will be valued by fiat, or if there will be something backing it.

USD is backed by "full faith and credit" and GBP is backed by "I promise to pay the bearer". When pressed about _what_ these guarantees are, people answer "the economy". So Western economies could grow to the point that the inflated Dollars, Euros and Pounds come into line with what their respective economies can provide (e.g. export to foreign creditors who wish to redeem). Or those Western countries could actually practice the next part of the MMT approach they started and tax back the trillions (no, they're not really going to do that). Or they can just let the debts inflate away (this approach can spiral as it has in the past).

Some people might be more drawn to a currency that is (at least believed to be) backed by _something_. Of course, that currency will be digital as we're not really going to swap sheep stomachs for cobalt in the local market.

So, backpacker favours USD instruments and Western dividend stocks. JackAlabama favours actual Bitcoin. Some believe a switch to Renminbi is coming. Others, a BRICS SDR I believe that gold will likely play a part in the transition, based on the recent behaviours of some of the players involved.

In the end, we should be carrying digital representation of all sorts of things. Stocks, cobalt gold, oil, land, the right to dividends from solar farms, whatever. If so, gold is a likely gateway drug to non-fiat money.

Western countries have outlawed and restricted gold in the past, so I'm not saying that gold is safe to hold, just that it has a chance to play a part in the heterogenous currency environment once it becomes harder to value USD vs RMB.

 

[369]

BaFin already sent a warning out that banks are at big risks.
where will fiat go ?

I'm not going to argue about politicians and honestly. There has been a change in Western central bank (and fiscal) policies since the Nixon Shock. Debasement has increased at unprecedented levels since 2008. From one crisis to another, they increase the supply of their currencies.

One way to signal that you're taking another approach, is to back the currency with something more tangible.



Habits and history are quite magical in the minds of voters, politicians, central bankers, investors and traders. But that's not my "end game" prediction.



I agree. One Big Question is whether digital money will be valued by fiat, or if there will be something backing it.

USD is backed by "full faith and credit" and GBP is backed by "I promise to pay the bearer". When pressed about _what_ these guarantees are, people answer "the economy". So Western economies could grow to the point that the inflated Dollars, Euros and Pounds come into line with what their respective economies can provide (e.g. export to foreign creditors who wish to redeem). Or those Western countries could actually practice the next part of the MMT approach they started and tax back the trillions (no, they're not really going to do that). Or they can just let the debts inflate away (this approach can spiral as it has in the past).

Some people might be more drawn to a currency that is (at least believed to be) backed by _something_. Of course, that currency will be digital as we're not really going to swap sheep stomachs for cobalt in the local market.

So, backpacker favours USD instruments and Western dividend stocks. JackAlabama favours actual Bitcoin. Some believe a switch to Renminbi is coming. Others, a BRICS SDR I believe that gold will likely play a part in the transition, based on the recent behaviours of some of the players involved.

In the end, we should be carrying digital representation of all sorts of things. Stocks, cobalt gold, oil, land, the right to dividends from solar farms, whatever. If so, gold is a likely gateway drug to non-fiat money.

Western countries have outlawed and restricted gold in the past, so I'm not saying that gold is safe to hold, just that it has a chance to play a part in the heterogenous currency environment once it becomes harder to value USD vs RMB.

nixon is the magic word
They said its temporarly ..........

 

[fc70]

Except if you bought at 2012 and in 2017 you wake up having -50% less.

There is nothing magical in Gold. It's just a commodity. Just the same you can ask "how to make money by investing in Cobalt".
Except Cobalt is actually being used for EV batteries and probably will rise in price much more than Gold.

$750 just before the Lehman Brothers’ bankruptcy on September the 15th 2008 to $1900 an ounce by October 2011.

 

[JackAlabama]

$750 just before the Lehman Brothers’ bankruptcy on September the 15th 2008 to $1900 an ounce by October 2011.

That does not mean much nor is it any indication of quality of strength.
You can claim Bitcoin from Oct 2020 till Apr 2021 and say 10k to 65k and that makes it a great asset.
Or Amazon stock from xyz to zxy.

You could do this everything, maybe the span is lower or larger or different.
It is how the banks sell you their magic fund and stellar performance just for you to discover that their marketing material has similar tactics.