Hedges

The point is why all the world's central bank continue to buy gold.

The only reasonable metric for Inflation is the price of Gold. All of other government metrics are manipulated and very flawed. If you look at a gold price chart over the past 3 years it is not to hard to notice the parabolic rise of prices. That is what happens when the central banks get crazy with the money printers.

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Free Valuation

Gold is a real rate instrument. As real rates fall, gold goes up. Check out the relationship with 10-yr real yields since 2009 -- colossal r-squared. Before that the relationship is not so strong but a long-term scatter plot should convince you it is really there. I have made money trading it over the past year, most recently with a purchase on 29 Dec.

For a theoretical justification, see this link from Paul Krugman. Don't miss the Summers piece that Krugman links to at the bottom.

http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-won...

The more I read about these technical charts, the more I'm baffled by the assumptions held.

The assumptions being, people store gold to hedge themselves against hyperinflation.

How about this assumption "People hold gold cause the coming war will wipe out current fad holding paper currency(ies).

Now there are people who hold god as electronic entires. But who cares what a few dicks think.

$10 trillion in mined gold to date. The world economy is roughly worth $60 Trillion. The American debt alone is worth more than all the gold in the world. Also, isnt mining for more gold the equivalent of printing more money, the argument gold bugs use against fiat currency?

Gold, attractive as such? yes; safe-haven no so sure:
a) Central Banks are the biggest participants (by far) in gold markets: they can manipulate prices at will. b)Governments can confiscate gold if appropriate to keep the status quo anytime.
On top of that, imagine a doomsday (f.e., post world war III) scenario: what really worth will be food, water, antibiotics.
And don't forget gold usually has a 30% implied volatility, which means can increase/decrease 30% in one year within 68% probabilities range.
Having said that, still like physical gold (a bit).

Yet again someone else trying to convince us gold is a "barbarous relic". If I had held a £1 gold sovereign in 1900 until now it would be worth over £200. Surely the 200-fold increase is not reflected in this graph but tells us the true increase of gold versus paper pounds?

This articel does not adress the real issue about inflation. Investors cares about the real interest rate(riskfree interest rate on government bonds minus inflation). When the market offers a negative real interest rate which is just a smoother way of default over years it provides a supporting environment on the price of gold.
You guys should build a correlation model on that issue.

Besides of that you definitely can't compare gold with industrial metals like platinum or copper. Gold has a stocks to flows ratio of about 60-80(years to double to current stocks). Copper and platinum just have a ratio of a low single digit number.

You should have a reading on this paper: http://www.professorfekete.com/articles/AEFPrematureObituaries.pdf

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Silver not mentioned, hmmm. Rarely is it by the banking/pseudo-economist crowd. They're too busy taking the cream off the top.
http://www.roadtoroota.com/public/223.cfm

A family expense should be equal to 10 gm gold.in India Gold is around 28000 Rs. means a family should be making expenses of Rs 28K Inother words middle class family eats up 10 gm gold per month>>See the recod when gold was Rs. 20 /tola a nice family had home expenses of Rs,20 p.m.
Gold is an idle investment.snce it does not grow up or regenerate self. If the same amount is used to procure machinery it regenerates.e.g. if Rs.28 K is used to buy Sewing machine or other machine it geneates income ?! So one should buy Gold only 10~20% of his saving between Income and expenditure and balance in good Company which manufactures needy items and not luxury items

Yes, gold is a commodity speculation, not a safe haven. Gold entered a 20 year bear market once tall Paul tamed the printing press. If the printing press is ever again similarly slowed down, gold will probably enter another multi decade bear market.

That said, gold has been a stellar performer since the bank ramped up printing as the supposed "cure" for the Y2K Minsky deleveraging. Citizens also flocked to McMansions as inflation hedges, but that did not work out so well. It turns out that all inflation hedges are volatile, including real estate and stocks. Even TIPS mutual funds proved volatile. The real interest rate beyond the CPI adjust varies over time, which makes TIPS vary in price.

Warren is right that stocks (productive assets) will perform best in the long run, but if you bought them in Y2K you faced 20 years of losing ground to inflation. Buying productive assets at the peak of a bubble is not very enticing. The long run can be longer than most people's patience.

Author tries to make it an academic debate ("When central banks print money..."), thus abstracting the fact that it is precisely what central banks are doing today. The fact is we are living in a time where central banks are effectively creating huge amounts of liquidity and thereby diluting the amount of money in circulation. Why are they doing this? Because countries are crushed by the overwhelming amount of debt they have created. The rarity of gold (which for the author is just like another casual property - being shiny and yellow, for example) is precisely why it will not devalue in the same way as the debt western nations are trying to dilute. However, the correlated bet governments are taking at this point is this: they believe that by impoverishing their populations (austerity) this will counterbalance the enormous sums of liquidity put in circulation. This is where gold will take its revenge and prove the technocrats wrong: the real economy will and cannot put up with this draconian diet. As the pressure increase, govt's are left with no other choice than to increase the stakes and print more money, hence *real* inflation of *real* assets. It's within this context that the value of gold should be judged. And in this context it's a truly wonderful investment. Perspective, history, all are in favour of gold. Harry Schultz mentioned that the current era shouldn't be compared to previous 20th century crises, but rather that we should go way back (17th century financial collapse) to get a more accurate precedent of where we're heading. With gold, one could even go much further back in time and always find how good a hedge gold has proven to be. Author is prisoner/slave of his lack of perspective and limited insight, like most financial hacks of the day. We'll see.

Gold's volatility is a direct result of the volatility of the underlying or reference currency, ie. $/oz; Eur/oz. For gold to be volatile then by definition the currency is volatile. That begs the question then whether it is gold that is volatile or the dollar. I think we all know the answer to that.
Also, if gold is not viewed as a currency, why then do central banks (BoE, Federal Reserve) continue to hold it? Why do emerging market countries (China) keep adding to reserves?

Obama wants cheaper pennies and nickels

(CNN)- The U.S. mint is facing a problem -- especially during these penny-pinching times. It turns out it costs more to make pennies and nickels than the coins are worth.

And because of that, the Obama administration this week asked Congress for permission to change the mix of metal that goes to make pennies and nickels, an expensive recipe that has remained unchanged for just over 30 years.

To be precise, it cost 2.4 cents to make one penny in 2011 and about 11.2 cents for each nickel.

The raw material cost of the metals used in a current penny is only about 0.6 cents per coin, according to prices quoted on the London Metal Exchange, and a breakdown of a penny's composition from the mint. A nickel's raw material costs comes to almost 6 cents per coin.

There have been times in recent years when a run-up in zinc and copper prices has taken the raw material cost of a penny above one cent.

Despite popular belief, since 1982 pennies have only been copper plated, not copper through and through. Much less expensive zinc makes up 97.5% of the mass of a penny, the rest is a copper coating.

Nickels actually have much more copper in them -- 75% copper and 25% nickel, the same mix it has always had.

Regards

Agreed, it was funny how people who had been investing in gold because "inflation will go up" made money although inflation went nowhere.

In terms of civilisation collapse, I would mention the example of Cambodia under the Khmer Rouges when money was abolished and most of the population moved to slave/labour camps. Gold and jewellery sometimes retained some value for barter, but only a tiny fraction of what they were worth pre 1975. Rice was by far the most valuable commodity and was itself used as form of currency.

True enough but when it comes to confidence few can argue that gold hasn't always been perceived as something of meaningful, tradeable value - as far back as recorded history goes. Maybe it's in our genes?

The fact that it's rare makes it all the more reassuring.

If things did go awry (it wouldn't be the first time, Confederate Dollars?) then you'd want to be holding something that's as good as cash but not cash and gold fits that bill.

The main problem with diamonds as a store of value is that technology for synthesizing diamonds already exists. The manufacturing process is capital intensive. Growing gemstone-size diamond is not economical. This could change suddenly though.

When I studied metallurgy, I remember my professor mentioning how aluminum was considered to be a precious metal once upon a time. It is very difficult to extract the metal chemically. Once we mastered electricity, the cost of its production plunged. Nowadays we throw the stuff in trashcans. It's only precious to hobos.

I thought Gold was MONEY whereas the Dollar, for example, is a currency. That's the big lie of course, you can inflate andeflate a currency but not Gold. Anyway, it's all academic the commodities markets are manipulated by gold in my sacks et al, no true price discovery.

Gold as currency may see it quantity increase or decline from different mechanisms than a nation currency does, but its status as a currency medium is little different from a fiat currency in that it only has value if the person you're giving it to can actually give it to someone else in exchange for something. Gold may have seen use as a currency but isn't that in situations where there is a society, not in ones where there isn't?

I wondered at time whether Gold's relative lack of industrial use would make it a purer inflation hedge than other materials. The above graph though seems to show just how much it reacts to what are apparently non-inflation related events. There must exist a hedge that tracks inflation better than that.

...Hey though... is that tracing the UK's Inflation against what essentially is a world price for gold?