Quote from: cypherdoc on June 28, 2012, 03:26:50 AM

Quote from: miscreanity on June 28, 2012, 03:09:18 AM

If I were to take a loan, I would buy at the best bargain I could obtain. You aren't offering that.

i'm not offering a bargain price? why not? i thought you said gold was going to the moon or a fully fiat valued $35,000? $2800 is clearly a bargain given that metric. or perhaps you really don't believe what you're saying do you?

if not $2800, then what IS a bargain price? might it be......wait for it........$1575? will you buy from me at that price? but, but that's the PAPER price! i'll be damned. that's what i can buy it for down at the local coin shop. i'll bet you won't even buy from me at that price.

Pay attention to the bolded sections. Keep your 24 ounces. You'll thank me later.

Quote from: cypherdoc on June 28, 2012, 03:26:50 AM

and if you think that's a bargain price then why wouldn't every other rational actor in the market place agree with you? or perhaps they do? but then that's a problem too b/c then what does that do to your theory?

answer: the theory is BS.

So you say.

'Rational' does not guarantee 'informed'. If someone were to start trading today without understanding how the financial system works at all, what is rational for that person would likely be naively irrational to an experienced trader. It's the same concern with insider information, wherein the rational decision made by those with said information is different from actions pursued by those without the information.

What's different here is that the insider information has been played on for so long that clues about it have 'leaked' out over the years, allowing for extensive investigation to reproduce the framework of that information. Filling in the details is a simple matter from that point.

I hope this visual helps with further explanation below.

The relational values are my educated guess as to how each of several different types of value apply to each of the assets presented. Subjective is obviously from the subjective theory of value, just as intrinsic infers the intrinsic theory of value. Production value is the input cost, or the labor theory of value.

Producing a dollar requires almost no effort, and the more produced, the lower the overall cost. This is especially true when considering what it is used for. Its intrinsic value is negligible at best, being mere fabric and ink. The value is almost entirely subjective.

Gold has a much greater production cost, making its initial market price alone much higher. If its minor intrinsic value for use in industry and research were the only determinant, the total value would be much less. Speculation rests mostly in the subjective value region (also when ratio shifts occur), which is not very big in comparison to the sheer cost to produce it. This is why large price swings can't do much to keep the exchange value low. It is also why, no matter how much naked shorting pressure is exerted, it will always have value. This is particularly important as gold regains a greater monetary role.

* Paper gold is equivalent to the dollar: negligible production cost and intrinsic value resulting in purely subjective value, easily dominated by speculation. It is not gold.

Bitcoin is interesting, because any of its purely abstract, mathematical units basically has zero intrinsic value. The production cost includes the hardware and energy required to secure the blockchain, and that maybe amounts to half of the current market rate if considering GPUs only. That probably drops to as little as 10-20% when including FPGAs. All that's really left after hardware and energy input is subjective, involving speculation and practical usage demand.

None of these valuations take into account supporting infrastructure outside of creating the initial availability for each unit. That would change the ratios, in some situations drastically. For instance, the USD requires expansive and pervasive infrastructure both to secure and manage its units. Gold doesn't need much infrastructure at all, since each unit of gold can generally be judged by appearances. Bitcoin infrastructure lies somewhere in between, needing more active components than gold, but being much less expensive than that necessary for the USD.

The absolute values in terms of different units (XAU, USD, BTC) shows a different picture, one that is incapable of delineating the separation between the above types of value.

When calculating 'price', the denominational unit simply acts as the proxy between whatever items are being exchanged. Therefore, a medium of exchange is virtually inconsequential except to provide a reference point. I could compare the price of dollars to the price of gold in terms of bitcoins, or the price of corn to the price of bonds in terms of gold. The absolute value cannot break down the types of value combined within an item.

Some traders and investors seem to have an instinctual understanding of these concepts, but I have yet to come across any texts which explicitly outline the interplay between different types of value.