Should we expect massive global inflation in the coming years?

[BigDH01]

That generic investment thesis worked great in the early 80s

I love that people arguing for gold generally have no background in finance/economics/investment management. Gold is a fiat just like anything else, since bulk of the 1300/oz price is composed of its extrinsic value.

But if I go here:

http://www.usgoldbureau.com/blog/gold-potential-currency

I see that gold is going to be the new world currency. We are going to have hyperinflation and the time to get my gold is now as my dollars are dead men walking. It's done, I'm a believer, the website and me are on the same page. Thankfully, we're sane. And what is this website (and others like it) using its gold to buy? Are they using their new currency to buy my labor, my TV, or my car? Are they trading it to me for any tangible asset? What of mine is so precious that they are willing to trade their mounds of gold for it? That's right, cash or check.

The people peddling the stuff as currency are willing to trade it for worthless dollars (so they have more dollars to burn to heat their homes I guess). Yeah, no bubble here.

 

[bamacre]

I've got news for you, most people have no idea what the spot price of gold is, own much, if any, gold, or have any idea where to get it.

And yet, it's a bubble.

 

[BigDH01]

And yet, it's a bubble.

Yes, because a select few people are buying and selling it from each other thinking that one day this useless currency will become useful.

 

[jhu]

Tell me about 1 guy that got everything right when he is making a future economic prediction.

Warren Buffet is as close as we're ever going to get.

 

[LegendKiller]

But if I go here:

http://www.usgoldbureau.com/blog/gold-potential-currency

I see that gold is going to be the new world currency. We are going to have hyperinflation and the time to get my gold is now as my dollars are dead men walking. It's done, I'm a believer, the website and me are on the same page. Thankfully, we're sane. And what is this website (and others like it) using its gold to buy? Are they using their new currency to buy my labor, my TV, or my car? Are they trading it to me for any tangible asset? What of mine is so precious that they are willing to trade their mounds of gold for it? That's right, cash or check.

The people peddling the stuff as currency are willing to trade it for worthless dollars (so they have more dollars to burn to heat their homes I guess). Yeah, no bubble here.

LOL. So what, exactly, will happen when all of the world's wealth, from services to extracted materials, cannot be encapsulated just by gold?

Should we merely have all assets sitting in vaults somewhere?

Gold is nothing more than a fiat currency, it can be divided (diluted) down to the atom against any other asset. Its only real value comes as other people place value upon it (as with anything else). Right now that value is being driven higher, by what? By nothing exactly, but expectations.

Gold, denominated in other commodities like oil and food, has gone up to unreasonable amounts. That's because the inflation happening or that which is expected, won't materialize. In fact, gold has never been a good inflation hedge.

Gold is just as prone to bubbles as tulip bulbs, railroads, stocks (29), internet stocks, and houses. In fact, a huge portion of gold prices is now being driven by derivatives, not by physical holdings. Furthermore, a huge portion is being driven by levered gold funds.

How is this being accounted for?

 

[BigDH01]

LOL. So what, exactly, will happen when all of the world's wealth, from services to extracted materials, cannot be encapsulated just by gold?

Should we merely have all assets sitting in vaults somewhere?

Gold is nothing more than a fiat currency, it can be divided (diluted) down to the atom against any other asset. Its only real value comes as other people place value upon it (as with anything else). Right now that value is being driven higher, by what? By nothing exactly, but expectations.

Gold, denominated in other commodities like oil and food, has gone up to unreasonable amounts. That's because the inflation happening or that which is expected, won't materialize. In fact, gold has never been a good inflation hedge.

Gold is just as prone to bubbles as tulip bulbs, railroads, stocks (29), internet stocks, and houses. In fact, a huge portion of gold prices is now being driven by derivatives, not by physical holdings. Furthermore, a huge portion is being driven by levered gold funds.

How is this being accounted for?

My post was sarcasm . I'm obviously not going to buy gold from someone who's telling me that the dollar is dead and then turns around and tries to sell me gold.... for dollars.

 

[Darwin333]

I've been reading Rogoff and Reinhart's "This Time is Different" and on page 76 is an eye-opening figure. It graphs sovereign defaults and inflation. There is a strong correlation. You can find the graph here:
http://www.voxeu.org/index.php?q=node/1067



It's easy to make fun of the people who are buying up gold but the data does not lie. For those who say we should not expect future inflation, is this time really different?

We make fun of people buying up gold because its not a very good hedge on inflation and like any other investment it has associated risk. Not very good at its intended purpose + risk = not a good idea

There are much better ways to hedge for inflation if you think it is coming, including "hyperinflation" using the markets. If you think the markets won't be around or that cash will be utterly worthless then lead will be a much better investment than gold.

And I don't envision inflation in the near future, anything beyond that and I just don't know.

 

[Darwin333]

Yes. There does appear to be a currency war brewing. And the US would like to "win," of course. We don't have a "strong dollar" policy, that's for sure. Folks our interest rates are at ZERO percent. Money is being printed as I type, and even they will admit, they will not be raising rates any time soon. To plan on gold dropping heavily while the printing machines are running 24/7 is not a good bet. And you can add most other commodities to that list. If we were in a deflationary period, commodities would not have had the September they did. As Peter Schiff recently said, the box of Uncle Ben's rice in his cabinet had a better month than the stock market.

Your comment holds true for commodities in general, not just gold. Personally, if I am going to own physical commodities I would rather have something that has some practical use to me should I need it. As far as investments go including commodities both physical and paper (well, except for the occasional impulse purchase of lead and/or copper), I am staying the hell out of everything right now. The market is way too rigged by the "big boys", I have no intention whatsoever of being their bagholder.How many times do people have to get boned in a little over a decade to finally say screw that shit? According to a lot of people I know, at least once more evidently.

Then again, if you inflation guys are right the stock market should shoot the moon. If you really wanted to hedge against inflation or deflation you could easily purchase way out of the money call or put options. Your risk is defined whereas with gold it is not and your potential gain if hyperinflation does indeed hit is much larger than anything you can expect from gold.

 

[Darwin333]

I don't know. But we are taking incredibly large debt, which is paid off far more easily with inflation higher.

Except for those pesky entitlement programs that make up the majority of our budget. Damned things are indexed to inflation so while it might be far easier to pay off the debt it will be far harder to pay grandma her Social Security. I wonder which one the politicians would prefer to stop paying first?

Not to mention the fact that significant inflation, like 4% y/o/y as your buddy Krugmann advocates, would be the final nail in the coffin of the housing market. Home prices would plummet.