How safe is digital gold?

[Little John]

Gold may perform well in the volatile world of commodity markets.

As for arguments along the lines of gold being true or honest money or being a historically constant medium of exchange - any medium of exchange only has the value that people collectively agree it has. If no one accepts my cash, it's effectively not money.

I can't go in to the average UK shop and pay with pieces of gold or silver. They won't accept them. Will people accept gold as money in the post-peak economic wasteland? Quite possibly not. That'll leave all those LATOC readers with gold coins shoved under their mattresses just as stuffes as the rest of us.

In a post-peak economic landscape, which do you think people will more willingly come to see as a universal unit of exchange?

A rare metal that cannot be created out of thin air.

Or

A piece of paper with ink on it.

mmmmm.....

let me think

That's a real toughie...

[Little John]

Gold's greatest usefulness is as money, with all the desirable characteristics (a store of value, not just a currency).

Nops. Gold is not a "store of value". At least not by any physical laws. True value is found in stuff you need to survive and thrive - food, clothes, shelter, tools, knowledge etc.

It's extremely arrogant to believe that you will be able to have access to the result of other peoples work simply by owning gold.

If gold was mined only for dental repair and electric contacts, I would not have the same problem with the earth-raping. My main argument is that the majority of the gold is mined for perverse reasons.

Have you thought this all the way through?

The only kind of society that is possible without money is an extremely primitive hunter-gather one of no more than a few hundred individuals who are all basically plying the same "trade" in life. Namely, hunting and gathering. That being the case, there would be a very limited number of commodities that people will need to exchange. So, I guess, the necessary conincident of wants would be just about possible for direct barter to suffice.

Or to put it another way.

The stoneage

If that's what you would like to see, then money is completely irrelevant and uneccessary.

If that is not what you wish to see, the you simply must accept the necessity for money to exist.

Once you have accepted the above, you need to say what commodity you think will have the most desirable qualities to be used as a universally agreed store of exchange value.

I have yet to hear an argument that beats gold

However, I am all ears.....

[Little John]

If you are going to invest in gold, I would always reccomend actual physical bullion. Also, I would not have it stored by anyone other than yourself in this country. If things get really bad and there is a rush for gold, the authorities could easily sieze it. There are historical precedents for this.

As for electronic gold. This is basically fiat and will have all of the fractional reserve lending lies involved with it that are inherent to all fiats. I wouldn't like to be in the position of going to the gold broker and asking for my real gold at the same time as all of the other people. I strongly suspect that many of them would be sorely dissapointed to find it is not actually there

GoldMoney sells allocated gold and silver. The metals are vaulted in Zurich and London. I would recommend Zurich over London. Lists of the bars are published. It belongs to the customers.

You seem to be suggesting that GoldMoney is fraudulent.

That can lead to legal action against this website if they discover it.
(I'm certainly not telling them.)

The original goldsmiths who minted the gold coins would offer safe storage for poeple. In return , the goldsmiths would porvide a piece of paer with a record of the amount stored. It had written on the "I promise to pay the bearer of this note the sum of gold...ect

Eventually, these paper "promises" to pay" became units of exchange in themsleves. People would wilingly accpet in exchange for goods and services becasuer they knew they coulkd take them to the goldsmith at any time and excahnge for the yellow stuff. However, the goldsmiths bagan to note that only ever about 10% of depositors would ask of rtheir gold at any one time. this meant that the goldsmiths could "lend" people gold in the form of promisory notes, with interest put on the repayments. hoiwever, these promisory note didn't actuyally have any gold backing them. Or at least, 90% of thjem didn't. Thus was born fractional reserve lending. Otherwaise known as fraud. If the depositors ever lost confidence in these ewraly forms of banks, there would be a bank krun and 90% of depositors would find themselves sorely dissapointed.

well, guess what, it is still going on. fractional reserve lending is the basis for all modern banking practices. And, it's completely legal!

What has all of the above got to do with an outfit like "Gold Money".

Welll....

You are basing your faith in their service on a "promise to pay" you your gold should you ever want it...

I think we can both see what history tells us about such promises.

"gold-money" is just another form of fiat. Another promise to pay....

Another potential opportunity for fraud

Give me physical bullion every time

[jcw]

You are basing your faith in their service on a "promise to pay" you your gold should you ever want it...

I think we can both see what history tells us about such promises.

"gold-money" is just another form of fiat. Another promise to pay....

Another potential opportunity for fraud

Give me physical bullion every time

I'm sure James Turk, the CEO of GoldMoney, is well aware of the history of money.

GoldMoney sells allocated gold. It belongs to the customers not the custodian. Lists of bars with their serial numbers are published. Customers (owners) can, and sometimes do, take delivery of the metal they own.

That's the primary purpose of allocated gold, and of GoldMoney.

So you are saying that GoldMoney is a fraudulent company?

[Little John]

You are basing your faith in their service on a "promise to pay" you your gold should you ever want it...

I think we can both see what history tells us about such promises.

"gold-money" is just another form of fiat. Another promise to pay....

Another potential opportunity for fraud

Give me physical bullion every time

I'm sure James Turk, the CEO of GoldMoney, is well aware of the history of money.

GoldMoney sells allocated gold. It belongs to the customers not the custodian. Lists of bars with their serial numbers are published. Customers (owners) can, and sometimes do, take delivery of the metal they own.

That's the primary purpose of allocated gold, and of GoldMoney.

So you are saying that GoldMoney is a fraudulent company?

I'm saying that history is littered with examples of promise-to-pay units of excange, being based on an actual commodities underlying such promises, being subject to fraud. As for whether "GoldMoney" is vunerable to such shennanigans, this could only be answered by intimate knowledge of the facilities involved. However, as a general point of principle, I personally am quite content to follow the lessons of history and hold physical gold only.

There is also a secondary issue that I have not mentioned yet. That of siezure of gold by the authorities in the event of a financial crisis. There are historical precedents for the above. Again, another good reason to hold your own personal bullion.

PS:

I have just taken a look at the GoldMoney site and a couple of questions immediately spring to mind....

1) it says that the gold is insured. Insured with what?...fiat money? There are two circumstances where one might envisage the need to cash in on such insurance. Firstly in the event of a theft. Most unlikely given the safe storage facilities. Ther second might be in the event of a siezure by the authorities. This is something I think quite possible if there is a sudden rush from fiat to gold by the general population. what do you think the fiat insurance is going to be worth at that point?


2) it says that you can get your gold at any point. Given that the gold appears to be stored in the form of good delivery bars, how exactly are you able to get hold of your physical bit of it? Are they going to chop a good delivery bar up? I think not. It may well be the case that your name is on a bar. However, it will be on along with lots of other people. In order to get your own allocated gold, a given bar would have to be sold on the open market and then excahnged for smaller units that could then be distributed to any accouint holder who wanted their share. How much would such a service cost? I suspect that GOldMoney does not expect such an eventuality to occur because, in the ordinary run of things, not everyone is going to want their gold in physical form at the same time. Sounding a little bit like th old goldsmiths again, isn't it. The truth is, if everyone wanted their gold in physical form at the same time, "gold money" and the depositors would be in a bit ofd a pickle wouldn't they. Notwithstanding whether or not all of the gold is actually there, and I would nto wish to dispute this at a specific level of this company, I would want to know, in detail just how much would be shaved off the value fo my gold in terms of the transfer charges from portion of good delivery bar to my own bit.

[MacG]

Gold's greatest usefulness is as money, with all the desirable characteristics (a store of value, not just a currency).

Nops. Gold is not a "store of value". At least not by any physical laws. True value is found in stuff you need to survive and thrive - food, clothes, shelter, tools, knowledge etc.

It's extremely arrogant to believe that you will be able to have access to the result of other peoples work simply by owning gold.

If gold was mined only for dental repair and electric contacts, I would not have the same problem with the earth-raping. My main argument is that the majority of the gold is mined for perverse reasons.

Have you thought this all the way through?

The only kind of society that is possible without money is an extremely primitive hunter-gather one of no more than a few hundred individuals who are all basically plying the same "trade" in life. Namely, hunting and gathering. That being the case, there would be a very limited number of commodities that people will need to exchange. So, I guess, the necessary conincident of wants would be just about possible for direct barter to suffice.

Or to put it another way.

The stoneage

If that's what you would like to see, then money is completely irrelevant and uneccessary.

If that is not what you wish to see, the you simply must accept the necessity for money to exist.

Once you have accepted the above, you need to say what commodity you think will have the most desirable qualities to be used as a universally agreed store of exchange value.

I have yet to hear an argument that beats gold

However, I am all ears.....

Yo are consequently putting words in my mouth I have never uttered, and its a bit annoying. You are *not* all ears, that's just some form of rhetoric.

[Vortex]

I have yet to hear an argument that beats gold

In some situations, a few gallons of water might beat gold.

Or penicillin.

Or an AK47.

Or some food.

Or a winning smile.

[Little John]

Nops. Gold is not a "store of value". At least not by any physical laws. True value is found in stuff you need to survive and thrive - food, clothes, shelter, tools, knowledge etc.

It's extremely arrogant to believe that you will be able to have access to the result of other peoples work simply by owning gold.

If gold was mined only for dental repair and electric contacts, I would not have the same problem with the earth-raping. My main argument is that the majority of the gold is mined for perverse reasons.

Have you thought this all the way through?

The only kind of society that is possible without money is an extremely primitive hunter-gather one of no more than a few hundred individuals who are all basically plying the same "trade" in life. Namely, hunting and gathering. That being the case, there would be a very limited number of commodities that people will need to exchange. So, I guess, the necessary conincident of wants would be just about possible for direct barter to suffice.

Or to put it another way.

The stoneage

If that's what you would like to see, then money is completely irrelevant and uneccessary.

If that is not what you wish to see, the you simply must accept the necessity for money to exist.

Once you have accepted the above, you need to say what commodity you think will have the most desirable qualities to be used as a universally agreed store of exchange value.

I have yet to hear an argument that beats gold

However, I am all ears.....

Yo are consequently putting words in my mouth I have never uttered, and its a bit annoying. You are *not* all ears, that's just some form of rhetoric.

Fair enough

Please explain which part of what I have said is "putting words into your mouth"

Also, please explain how you see a civilisation working without the necessity of at least some commodity being used as a universal unit of exchange.

I ask the above, not becasue they are words you have used. Rather, because I see them as being inevitable and extremely important questions that arise from your seeing a universal store of exchagne as being either uneccesary or even a bad thing. The fact that it is gold happens to be an arbitary function of geology. So, I am assuming you are not objecting to gold because it is gold. Rather, you are objecting to the very notion that any commodity should be used in this monetary way.

I wouldn't wish for you to think I had put words in your mouth with that last question. So, just to clarify, I have based it on the following:

Nops. Gold is not a "store of value". At least not by any physical laws. True value is found in stuff you need to survive and thrive - food, clothes, shelter, tools, knowledge etc.

It's extremely arrogant to believe that you will be able to have access to the result of other peoples work simply by owning gold.

I would, perhaps, also add the following:

Assume the following scenareo:

You have some chickens

Someone else has a goat

You want a goat

He does not want chickens

He does want wheat

You know someone who lives many miles away who has some wheat

The man with the wheat wants chickens

You travel to him and exchange your chickens for wheat

You travel back with your "stored" exchange value in the wheat

You exchange the wheat for the goat

In the above scenareo, wheat has been used as "money"

Now.....you may argue that this is as it should be. The only commodities that should be used to store exchange value are useful ones.

However, such an argument would be a mistake.

The whole point of money is that it should be useless

If it isn't, you will constantly be suffering with monetary deflation and severely fluctuating exchange rates because of the "money" being siphoned off to do other work

It is gold's relative uselessness in all other respects that makes it useful as money

Also, the commodity being used as money should not be easy to inflate. I could, in the above scenareo, grow myself a few acreas of wheat and become a millionaire overnight. It would do me no good of course, since the supply would have been greatly inflated and so the exchange value would drop.

It is gold's relative scarcity that makes it useful as money

Finally, the commodity being used as money should not degrade easily. If all of my wheat becomes rotten, there is the problem, once again, of deflation of supply and the consequent effect this will have on the exchange rate predicatbility

It is golds lack of degradability that makes it useful as money

[Little John]

I have yet to hear an argument that beats gold

In some situations, a few gallons of water might beat gold.

Or penicillin.

Or an AK47.

Or some food.

Or a winning smile.

absolutely...in some situations

however, for most of our economic dealings in life, I think you will find that money is a more reliable unit of exchange. Particularly if times are hard. Particularly if the person you wish to exchange with is neither an ally nor family member

In any event, if you had no use for, say the AK47, yourself, then that AK47 was money, so far as you are concerned.

The trouble with an AK47, of course, is that not everyone will want to exchange what they have for it.

However, if there is a given commodith that is being used as a universal unit of exchange, you can bet that you will be able to exchange it for a much wider range of goodas and services than for your AK47.

Your AK47 scenareo requires, by definition, a conincidence of wants. Namely that you want what the other person has, and they want your AK47.

[MacG]

Have you thought this all the way through?

The only kind of society that is possible without money is an extremely primitive hunter-gather one of no more than a few hundred individuals who are all basically plying the same "trade" in life. Namely, hunting and gathering. That being the case, there would be a very limited number of commodities that people will need to exchange. So, I guess, the necessary conincident of wants would be just about possible for direct barter to suffice.

Or to put it another way.

The stoneage

If that's what you would like to see, then money is completely irrelevant and uneccessary.

If that is not what you wish to see, the you simply must accept the necessity for money to exist.

Once you have accepted the above, you need to say what commodity you think will have the most desirable qualities to be used as a universally agreed store of exchange value.

I have yet to hear an argument that beats gold

However, I am all ears.....

Yo are consequently putting words in my mouth I have never uttered, and its a bit annoying. You are *not* all ears, that's just some form of rhetoric.

Fair enough

Please explain which part of what I have said is "putting words into your mouth"

Also, please explain how you see a civilisation working without the necessity of at least some commodity being used as a universal unit of exchange.

I ask the above, not becasue they are words you have used. Rather, because I see them as being inevitable and extremely important questions that arise from your seeing a universal store of exchagne as being either uneccesary or even a bad thing. The fact that it is gold happens to be an arbitary function of geology. So, I am assuming you are not objecting to gold because it is gold. Rather, you are objecting to the very notion that any commodity should be used in this monetary way.

I wouldn't wish for you to think I had put words in your mouth with that last question. So, just to clarify, I have based it on the following:

Nops. Gold is not a "store of value". At least not by any physical laws. True value is found in stuff you need to survive and thrive - food, clothes, shelter, tools, knowledge etc.

It's extremely arrogant to believe that you will be able to have access to the result of other peoples work simply by owning gold.

I have never questioned the utility of money. Its one of the smartest inventions ever. Different societies have used different kinds of money with different mechanisms for issuance, and the development is still ongoing. Gold is actually a historical exception - the western Roman empire was run on silver (which they debased) and Egyptian societies were run on grain as basis for the currency. To equate "money" with "gold" is thus a bit ignorant.

I make a case that gold is one of the worst ideas for money ever conceived.

The real world, the one we need to survive and thrive, is in constant decay. No real values can be preserved. The world require humans to constantly repair and replenish it, otherwise it decays. Food decays, clothes decays, houses decays. Only ideas and knowledge can stay constant, but they can on the other hand be copied at no cost.

The confusion of "money" with "store of value" is just a mental trick to be able to exploit other people, and until the practice ends we will have horrible societies.

The only solution is to restrict "money" to the role of "medium of exchange", and accept that the true values are in the physical world we need to survive.

A lot of smart people have thought a lot about this, and it looks like societies which have restricted the role of money to "medium of exchange" and have banned interest have done pretty well. It was discovered by accident at least twice in history, by the Egyptians and in medieval Germany with start in Magdeburg.

[Little John]

I utterly agree that money in whatever commodity form it takes (I have no particular penchant for gold. It just happens to fulfil the role of money particularly well. Silver also serves this function well, though it can have problems with lack of scarcity) should be restricted to simply a unit of exchange such that exchange value can be temporarily stored in it.

Indeed, the above definition is the fundamental definition of what money is.

What you are reffering to with regards to compound interest is not really money. It is fiat. In other words, "a promise to pay" A record of exchange value held eleswhere. Incidentally, historically, fiat notes have been used to denote the exchange value of gold held elsewhere.

Of course, we now no longer have a gold standard. So our paper and electronic fiat is pegged to absoloutely nothing. It really is just bit of paper with ink on them! That's all.

The disasterous practice of fractional reserve lending is precisely what happens when you don't use a commodity such as gold, silver, or some other rare commodty as a direct unit of excahnge

[MacG]

The disasterous practice of fractional reserve lending is precisely what happens when you don't use a commodity such as gold, silver, or some other rare commodty as a direct unit of excahnge

It don't have to be particularly rare, just "in need". The Egyptians used grain and the Romans used silver and salt.

Its a huge advantage if the underlying commodity decays or is consumed, since it will force a demurrage fee on the money, thus effectively restricting money to the role of "medium of exchange", excluding "store of value".

True values are found in the real world, and people constantly need to create and repair the physical world for it to keep its values.

The great shortcoming of gold is that it does *not* decay, and thus does not behave as the physical world we need to survive.

The money we use today derive its value from the end of a gun, since you need it to pay your taxes. The ultimate consequence if you refuse to pay taxes and try to protect your wealth from confiscation is that you get shot. Everybody know this, so its a rare occurrence, but it gives good value to the money - your life!

[Catweazle]

It is gold's relative uselessness in all other respects that makes it useful as money

Not what I'd call a compelling argument to put my wealth into Gold. I'll put mine into land, tools, books. If other people want to use Gold post-crash then that's fine, I'll use it to trade at whatever the going rate is post-crash, making sure I don't hoard it.

[Little John]

The disasterous practice of fractional reserve lending is precisely what happens when you don't use a commodity such as gold, silver, or some other rare commodty as a direct unit of excahnge

It don't have to be particularly rare, just "in need". The Egyptians used grain and the Romans used silver and salt.

Its a huge advantage if the underlying commodity decays or is consumed, since it will force a demurrage fee on the money, thus effectively restricting money to the role of "medium of exchange", excluding "store of value".

True values are found in the real world, and people constantly need to create and repair the physical world for it to keep its values.

The great shortcoming of gold is that it does *not* decay, and thus does not behave as the physical world we need to survive.

The money we use today derive its value from the end of a gun, since you need it to pay your taxes. The ultimate consequence if you refuse to pay taxes and try to protect your wealth from confiscation is that you get shot. Everybody know this, so its a rare occurrence, but it gives good value to the money - your life!

If it is not rare, you are going to have a hard job persuading the majority of people to use it as a universal unit of exchange since they wil be unable to predicts its exchange value at any given time

As for you argument that it should only be used as a unit of exchange and not as a store of exchange. I think you are mistakenly separating these two things, when they are essentially the same.

If you hold a given commodity that is agreed by others to have a universal exchange value, you are storing that exchange value until you exchange it for some good or service

The only way that such a commodity could have an exchange value in the absense of being a store of exchange would be to make such exchanges instantaneously. In other words, to not hold such a commodity for any perdiod of time at all.

This is a physical impossibnility of course. Thus, holding such a commodity as a store of exchange value is a physical inevitablity

Finally, if the commodity decays, again, the exchange rate will fluctuate wildly and so people would not be able to predict ahead what the consequences of their economic actions might be. Again, I think you would have a lot of trouble persuading people to use such a commodity as money.

As for your argument about imposing money on people at the end of a gun. Again, you are referring to fiat. Which again, is not money. It is a "promise to pay".

The reason a gun is often used is because the authorities that issue such "promises" know full well , that they are not backed by anything (or at least 90% of them are not backed by anything in the case of fractional reserve lending). Of course, you need a gun to back up lies.

That is why gold, silver and other rare, non degradable and otherwise useless commodites have been re-invented as money many times over throughout history across the globe.

Money, as I have described above, is not some strange substance. It is simply a commodity that will inevitiably arise in any economy as a universal unit of exchange. Obviously, the actual commodity that is used will vary depending on what is available locally to serve the function

Most often it has been preciuous metals.

For good reasons

[Little John]

It is gold's relative uselessness in all other respects that makes it useful as money

Not what I'd call a compelling argument to put my wealth into Gold. I'll put mine into land, tools, books. If other people want to use Gold post-crash then that's fine, I'll use it to trade at whatever the going rate is post-crash, making sure I don't hoard it.

what you are are describing is a post apocolypitc economic landscape.

Maybe that is where we are headed, in which case, give me a potatoe every time over gold. You can't eat gold.

However, as long as there is any semblance of a economy, there will be a need for a univerasal unit of exchange. Gold has served this funtion repeatedly over history, for good reason. There is no reason to assume that it will not do so again.

Nonthelss, it would be foolsish to hold the bulk of ones exchange value in gold. Indeed, most people do not hold the bulk of their exchange value in fiat. They hold it in the form of a car, a house, land etc.

Where money is useful is as a store of a limited amount of exchange value is for smaller exchanges that need to be made in the short to medium term

At the moment, this is done with fiat throughout most (though not all of the world.

In a post peak world, you can be sure of one thing if nothing else. The promisory lies that are fiat will be one of the first caualties. Indeed, the collapse of fiat is occuring right now as we speak