Need explanation - Gold

[codger]

All hypothetical:

I convert the majority of my cash to gold coins. The economy goes to hell. possibly worldwide. Hyper inflation kicks in. I reach into my stash of gold and set out to buy a major appliance. How do I actually pay? How does the merchant give me change? What can the merchant do with the gold? This seems more like barter (gold for goods) to me.

At this point, is there still an economy? How is it measured? What good is gold when buying everyday small ticket items?

Can someone straighten me out on this?

[Origisaurus]

You must convert your bullion coin(s) to currency by selling to a bullion dealer at the then-current rate.  Then pay the appliance dealer in currency.

Example: gold is now around $900.  A year from now it's $1,800, and the appliance you want is $2,000.  So you convert 1 oz of gold to currency and make up the difference in currency, or (second-best) convert 2 oz to currency and have extra currency.

OTOH, If your gold is in a Swiss bank account, you can sell partial ounces and withdraw just the cash you need.

The added benefits of holding coins are 1) you can hide them from thieves, including government employees and 2) you can use them as bribes for protection, goods and services in case of social disorder.

[pxsant]

If you are buying gold coins, whether US minted or bullion coins, you are pretty much going to have to sell them through a gold coin dealer to get dollars to spend.   Here is a site which has some pretty good information on buying and selling gold coins.

As a secondary note, if you are buying coins instead of bullion, the cost will be higher than the current price per ounce for gold.  At times significantly higher depending on the specific coin.

If the economy no longer existed and there was no currency, the best buying and selling tool would be your S&W.

Blanchard Online

[Aussie]

....I'd have to wonder whether an economy sufficiently stuffed to necessitate gold over US paper dollars would still:

a)  Have the power on
b) Have appliance stores intact
c) Be able to deliver the device.

Any situation where the US govt's paper ain't no good is getting kinda Triple Aught, or The Postman, or something.

Besides, when folks were using the same reasoning as this in the 1920s or 1930s, didn't FDR step in and cadge all their gold ?

[codger]

I guess you're right. If the US dollar collapses, there won't be anything resembling the world economy we now know. I imagine that a new set of economic rules would have to be constructed to reflect the reality that would then exist. In absence of a reliable monetary system society would be reduced to a Mad Max sort of tribal structure.

It seems that hyperinflation would precede the collapse of the US dollar. Creepy to consider.


I had forgotten about FDRs sucking up of the gold. Did he do this before or after he created the internment camps? Did he do ANYTHING right? (Sorry for the outburst. A sore spot with me.)

[The Gorn]

I would expect that only someone worth  10s of millions (minimum) would be able to successfully pull off what you are proposing. They would be in a position to buy off people and accumulate significant-enough assets that they could pay for the kind of physical security as well as fiduciary assistance that this kind of strategy would require.

I'd expect that for us proles, what we would experience would be outright confiscation of gold assets. Probably making it illegal to trade or deal in physical bullion, and heavily taxing any gold denominated assets. The best you'd be able to hope for as a normal citizen would be a stash of some gasoline to run your portable generator, and whatever was canned or stored in your cellar that didn't require refrigeration.

[Peter Gibbons]

I had forgotten about FDRs sucking up of the gold.

Even if you live in a farm and are completely self sufficient - the government could come and take your produce - leaving you just enough to survive ( or less ).
This was a standard procedure in many countries during war times.

Peter Schiff is predicting price controls before the end of the Obama's term. Let's hope this doesn't happen.
Hope may not be enough though - people should really start speaking up about the impossible  amount of debt the government is accumulating "on their behalf".

By the way Schiff wrote an interesting article where he mentions that the US needs HIGHLY unpopular FED chairman and strong president to back him up. He wrote that people have forgotten how unpopular Paul Volcker was at the time. He is saying that Bernanke will be judged in a different light 20 years from now.

Going back to gold, here is an interesting info:

http://catalog.usmint.gov/webapp/wcs/stores/servlet/CategoryDisplay?langId=-1&storeId=10001&catalogId=10001&identifier=0500

[Peter Gibbons]

You will be vilified for causing the crisis by 'hoarding' gold. Never mind that you paid for it using after tax money.

 

I'd expect   that for us proles, what we would experience would be outright confiscation of gold assets.

This is of course an extreme scenario that we can hopefully avoid. So having some gold in your portfolio is still a very good idea.

[Aussie]

"Even if you live in a farm and are completely self sufficient - the government could come and take your produce - leaving you just enough to survive ( or less ).
This was a standard procedure in many countries during war times."

An old East European market gardener once told me that, when they first were brought to Europe, the peasants 'discovered' the utility of potatoes many decades before the upper levels of society and kept the knowledge to themselves.  They'd have these obscure purple-flowered plants growing around the cottage and outbuildings as if they were flowers to brighten up the place, and army detachments on a 'requisitioning' mission for food supplies would, in their ignorance, ignore them.

[ArnoldW2]

Once upon a time (well several times and places actually), gold and silver were considered money, and paper wasn't.

Today, pieces of paper (and bits in computers) are considered money, whereas gold and silver aren't. We've grown so accustomed to fiat currency that we struggle to imagine life without it.

Gold and silver bugs believe that - eventually:
......We'll end up on a real gold standard.
......The circulation of gold and silver money will be one of the first steps in rebuilding the free market economy.
......Cash registers will contain gold and silver coins, not slips of paper.
......We will spend those coins just like we spend fiat currency today.

Assuming the government will allow it. Which it won't until our fiat currency system collapses from hyper-inflation. We will have to get through much economic and social chaos before the rebuilding can begin.

I think there's a pretty good chance that the government will follow FDR's example and outlaw gold ownership. However, FDR never got around to outlawing silver. I think there's a good chance that silver will remain legal in this economic crisis as well. Especially if the democratic party manages to stay in power, as they will probably try to emulate FDR (their political super-hero).

[Aussie]

...but was born in southern Illinois used to talk about getting paid in something called 'cartwheels'.  I'm guessing they were some sort of silver dollar.  Would have been a pleasing weight in the hip pocket.

[JTGalt]

Those Cartwheels are also known as the Liberty Head and also known as the Morgan Silver Dollar.

It comes from something called the cartwheel effect.

On large newly minted coins if you move them back and forth at an angle in the light it looks like spinning cartwheels. The bigger the coin the easier it is to see. The very large, 38mm in diameter, Morgan silver dollars really show this effect.

This is a result of the minting process, at high pressure the metal is forced to flow towards the rims and this results in "flow" lines that look like the spokes of a wheel.

Those Cartwheel Morgan Dollars have a fascinating history, they were also called Buzzard Dollars because of the scrawny Eagle on the back.

One of the biggest silver discoveries in history was the Comstock Lode.
There was a problem, there was so much silver that it would have the effect of pushing the price of silver down.
However the mine owners had friends in Washington and they succeeded in passing the Bland-Allison Act of 1878 which required the Federal Government to buy at least $2 Million Dollars worth of silver every month.
It was decided the best thing to do with all that silver was turn it into silver dollar coins.

From 1878 to 1904 over a half Billion silver dollar coins were minted but people hated them because they were so big and bulky so most of them ended up being stored in government vaults where they lay undisturbed for over 80 years.

In the 1950's and 1960's when the price of silver started to rise it started to generate some interest in those old Morgan Dollars but it really took off in 1975 with the discovery of the Redfield Hoard.

LaVere Redfield was a fascinating character who had a deep mistrust of the Government, Banks, and paper money.
Google archives has a lot of newspaper clippings about him.

In 1975 shortly after his death 407,283 silver dollars (about 11 tons worth) were found behind a false wall in the basement of his home in Reno Nevada and ever since then Morgan Silver Dollars have been one of the top must have coins for collectors.

[Aussie]

"In 1975 shortly after his death 407,283 silver dollars (about 11 tons worth) were found behind a false wall in the basement of his home in Reno Nevada and ever since then Morgan Silver Dollars have been one of the top must have coins for collectors."

There was a story here....don't know if it was true...about a bloke who got into video arcade games when they first came out with Space Invaders back in the 70's.  Because no-one knew just how much income they generated at first, he used to back half of the 20c coins and pile up bags of the rest in his house.  When the house was filled to about 2/3 capacity, he bought another house and filled it, and another house and so on.  Eventually his wife left him, and he had to sell all but one of the houses to pay her to make sure she didn't spill the beans.  So he had to find somewhere else to hide the coins.  He couldn't take truck loads of coins to the bank, they'd twig immediately to his scam.  So he moved up to an outback town in the Northern Territory and put all the coins in a metre think layer on the bottom of a tidal lake.  The publican and the other business folk in the town didn't care that he paid for everything in 20c pieces, but the problem is they weigh a ton and you keep running out.  Whenever he needed to visit his 'bank', he would take a shovel out to the lake and dredge it back and forth underwater till he'd picked up enough coins.  Security was provided by the fact that the lake was notorious for large salties (salt-water crocodiles).

It's said that eventually his shovel was found near the lake, with drag marks between it and the water.  What happened to the coins, nobody knows.

[unix]

I don't suggest gold, I think it's overpriced at this point, just hit $1,000 FRNs/ troy oz. When everybody and his uncle jumps on it and you see ads in MSM (mainstream media) you know it's overpriced. Well - maybe not yet.  OTOH, it doesn't matter that it's $1,000 /oz if it's going to $1300 next year.

The problem is that a coin of any size has too much purchasing power. It's impossible to purchase most things used in daily life even with smaller 1/4 and 1/10 oz.  Silver has always been the choice of currency.

Anyway, gold has never been a monetary standard nor has it ever been the primary circulating  medium.  In US law, the dollar always was, and still is 371.25 grains of silver.  The FR Notes were redeemable in dollars but redemption stopped. Legally, the currency in use, the Federal Reserve Note has no connection to the dollar, it's bad to call it a dollar.  The layman is confused and doesn't understand the concept of redemption vs. sellling it for a fluctuating price.

Get some silver rounds, just make sure that they have the weight and the fineness stated on them. You can never go wrong with the US Silver Eagles, but my favorite is the Canadian Maple -- 999 fineness and the nominal value is $5 CAD vs $1 FRN.

I suggest getting 2/3 silver and 1/3 gold, the latter in smaller denomations, maybe 1/4 and 1/2 oz.

At this point, you have to "sell" your money, bullion that is, to get some greenbacks so you can go shopping. That may not last forever.
When the paper currency becomes so unpredictable that you don't know what it will do in 2 weeks, even Joe Six Pack will demand something stable.  Let the silver ounce become the monetary standard.  If everyone or even a substantial minority demands stable money, what will that do to the price of silver? And to the purchasing power of PMs? My guess, they will go up an order of magnitude.

http://usdebtclock.org/

Now looking at the debt, it doesn't look good.  Some say it's impossible to ever pay it back, even theoretically. Does anyone seriously believe otherwise?  It will be defaulted on, via hyperinflation. If anyone has a more rational explanation, I would love to see it and I would love to accept it.   When this happens, who knows. They may continue this game for a long time, decades maybe.   If you get some PMs, you surely won't lose  and you might even gain.

[codger]

I checked the cost of silver 1 oz. coins yesterday. They were over $17 which was several of dollars over spot price. Seems like the gap between the two prices is unrealistically large. Is this typical with silver?