Quote from: nioc on June 04, 2014, 04:01:05 PM

Quote from: AlexGR on June 04, 2014, 11:01:02 AM

Quote from: ArticMine on June 04, 2014, 02:49:52 AM

The trouble for gold is that Austrian / Libertarian or "real money" capital could very easily flee en mass to Bitcoin. In addition there is the indication that gold is due for a big correction, without even considering Bitcoin. If one takes a look at the inflation adjusted price of gold over the last 100 years http://inflationdata.com/Inflation/images/charts/Gold/Gold_inflation_chart.htm one sees a double top developing. If one puts all of this together one has the perfect storm for a brutal bear market in precious metals.

Official inflation numbers are problematic because the indexes are constantly re-adjusted. If you use the official indexes of 1980 or 1990, you see inflation is much larger (applying these indexes in 2014). If you want to lower inflation these days, all you have to do is increase the percentage of technological products and services in the index and say "see? the prices are going down because you can get a mobile phone for less, a better laptop for less, a telecommunications contract for less etc etc".

Growth = increase in GDP minus inflation. So it "pays" when you under-report and hide* your inflation, as you can show a larger "real" increase in GDP. Additionally no-one complains because if you give people 3% interest and they have 5% low inflation, they'll rise up and go to PMs.

So instead of trying to convince people that they are "gaining" money by leaving their money at the bank, they undereport the inflation to make it "obvious" that people will "gain". Inflation 2% (instead of 5% actual), interest 3%, so 1% "profit" instead of 2% loss. Much easier to sell it in this way.

The larger the inflation, the more visible this under-reporting is. In some countries inflation is running at 20-25% and the government is reporting like half of it. That's visible and people complain because they can see that their money are running out FAST. 3-5-7% isn't so much and people at this level are under the influence of the Al Gore frog analogy... the frog is boiling at a rate too slow to notice. By the time the frog "gets it" (after a decade of depreciated bank deposits) it'll be too late because the interest doesn't cover the losses. So it has to be some other asset that protects people from inflation. Whether gold, silver, BTC etc etc - things that either inflate to a lower degree than fiat, or that have an increase in demand which is larger than their inflation.

* There are things you can hide, and things you can't... In US coinage, right now, pre1982 copper pennies cost more than 2cents in copper value compared to the 1cent face value.

Nickels (5c coins) are also very marginal as the metal costs 99% of the coin's face value. As it crosses over 100-110-120%, hoarding of nickels for melting, or as a way to counter inflation, will start to occur.

In Europe it's extremely "fascinating" that our 1c, 2c and 5c coins have a copper look, but in fact are made of dirt-cheap iron with a copper plating. You can't make this stuff up... copper is used for plating! They want to give people the impression of "value" and that nothing changed relative to the past (abundance of copper coins for small denominations in most european countries) because if people saw the iron they would immediately understand these are "cheap" coins... But they can't afford to go copper. The money's face value cannot afford to buy the metal it's minted on.

A few years ago a law was passed in the US making it illegal to melt down pennies and nickles. There is also a law against taking more than $5 worth of pennies out of the US. People still hoard copper pennies on the hope that the US will do away with pennies and they will be able to melt them.

Theoretically if you illegally melt a large amount of pennies, sell the copper, and use the copper to buy more pennies. You could make a nearly infinite amount of money.

That is, if you can get pure copper pennies for a penny....