Let's visualize a scenario when paper gold default is approaching.

Say, inflation starts to pick up pace due to further quantitative easing measures. Then common people start to pick up pace converting their fiat money into precious metals, some goes to paper gold, some goes to physical gold. And that result in gold price being pushed higher. That will encourage more and more people converting fiat into gold. And when inflation "growth" slope becomes steeper, more fearful people will chase gold like crazy and they totally lose confidence in fiat money.

Then sellers prefer to receive gold rather than fiat (unless they charge a high premium on fiat), the physical people can start buying stuff with their metal. The paper guys can try to convert their paper gold into physical and start buying things. Now, here's when paper problem comes. During this time, can you imagine how immense shortage of gold are we experiencing? Coupled with the huge amount of paper wanting to be converted to physical gold, don't you think a default will be inevitable?

This post has been edited by cruzzie73: Dec 20 2011, 02:20 PM

1. I prefer SD provider as I get access to it 7 days a week. Bank can declare bank holidays when there is a bank rush. SD cannot, and will not, because there is no rush fear.

2. Ceasure of full backing with physical gold is the same trick as abolishment of gold standards (yr 1971), and bank's fractional reserve. Two tricks combined into one, the advanced version.

Try Zimbabwe, no sign of deflation after hyperinflation up till today. Try Argentina, no sign of deflation after hyperinflation. Try Russia, no sign of deflation after inflation. Don't get me wrong, not trying to discredit your view. Just want to create awareness that economic collapse does not necessarily mean recession + deflation.

Also, correction: paper/coin money system may be more than 100-year old. But fiat money (without gold backing) is only 40-year old. Read up on "gold standard" and you'll understand why QE is possible, and why hyperinflation is a real risk now. And why many people and central banks start buying gold.

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Added on December 20, 2011, 3:00 pmYes it is very wise for the banks not to store physical. Just ask people to part money with them as a hedge with gold when there is no gold. There is really no physical backing to hedge against. And yes, if only 10% of the account holders demand a withdrawal, it would create a bank rush. Just like if 10% of people want to withdraw their money, bank would have to announce a bank holiday. Why? Because there is no such money to give them. Similarly, there is no such gold to give them. When the accounts become so big, when people demand conversion into physical, wonder where can they get such amount of gold from the market, at such short period of time, at such low premium over spot.

This post has been edited by cruzzie73: Dec 20 2011, 03:00 PM

You're right, most countries did not have gold standard. But as backing they have foreign reserves mostly in the form of USD. And since USD was backed by gold pre-1971, they effectively can use their foreign reservce to exchange for gold.

By the way, if you read back, I was not discussing gold vs fiat. The inflation story was used only to illustrate a scenario to show how risky is paper gold. What the banks and financial institutions are doing with these paper gold is the same trick they used to play with fiat money. No physical backing vs no physical backing, over-selling vs fractional reserve.

GoldChan, honesty speaking, i'm not sure if i'm interested in convincing cherroy to convert his paper gold into physical gold. I get no benefit out of doing that, and it's kinda tiring. You and I are here to try to create awareness about the need for converting fiat (or any paper assets including paper gold) into physical gold/silver, but it is up to the readers to try to understand, digest, and make an informed decision on how they want to protect their future. If the reader is not willing to even TRY to understand the message, we cannot do anything. What we write in a forum is our opinion generated from our own knowledge, experience, logic, and hopefully unbiased and honest thought, which anyone else has all the right to agree, ignore, or counter our opinion. The thing is, if what you and I think is coming really comes one day, those readers who are well prepared will have much higher chance to survive, those who are not will find themselves in desperate situation. And if what we think about does not come true, then we end up being wrong, causing us holding a bunch of heavy physical gold, well hidden in shoe boxes (no offense intended kakiayam, i'm smart enough to understand the shoe box), and worth millions of Dollars.

Personally I do not care if someone can prove my point wrong about keeping physical gold. In fact, I hope I am wrong. And I hope you and I are wrong about the coming events. But looking at how things go, it looks like the economic and social calamity is inevitable. And it looks like we may not have to wait for 40 years for that to happen, it may come next decade, or even next year. And it looks like keeping physical gold/silver is the best protection.

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Added on December 23, 2011, 12:23 am1. I buy to keep the value of my asset. I also trade to make some quick money. About buying to invest/price appreciation, try to look at it from another angle. 30 years ago, 100oz of gold could buy a house. Today, that same 100oz of gold can also approximately buy a house. Although we see gold price appreciate, it actually just kept its value against other physical items. Price increase is just an idea, it is actually the decrease in the value of paper money, which is what the bankers called "inflation".

2. Gold does not earn you interest. If someone asks you to put money in a certain gold investment product and get paid with interest, think harder. Or come back to the forum to ask if anybody can help you explain how that gold investment product works, and whether it is better than your own gold plan.

This post has been edited by cruzzie73: Dec 23 2011, 11:06 AM

1. They are not the same. Physical gold is gold. Paper gold is something created by human and it can exist in various forms, from gold certificates to derivatives, to pseudo-investment accounts, to ponzi schemes. Many of which are at risk of default except those that are fully backed by actual gold. Even those papers that give you the right to claim gold, when there is no gold backing in full, you only get the right, but you may never get the gold. While the risks to physical gold is theft and purity of gold.

2. Yes you should be thinking about how to reduce the risks if you are thinking about keeping physical gold. But there are safe ways to keep physical gold, which is under your control. Unlike paper gold, you do not really have control over the risks of default. Yes, both physical and paper have same value in paper money terms. But they have different real values.... physical has gold value, paper has paper value (unless it is fully backed by physical gold, eg. allocated gold accounts)

3. Better to check gold chart to see previous years' price movement, and compare that returns to what ASB is giving. For me, i'd go for gold.

Btw, your english is fine.

This post has been edited by cruzzie73: Dec 24 2011, 03:31 AM

To other readers, please go read up more articles on gold by the experts.

This post has been edited by cruzzie73: Jan 5 2012, 02:42 PM

Take a look at silver. There is a forum in LYN discussing about silver here Silver as investment v2
There are lots of pretty good discussion not only on silver, but on overall precious metal scenario. The recent discussions were especially good.

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Added on January 4, 2012, 7:08 pmYup. Disregard the short term fluctuation. Just continue to convert fiat money into gold when you have spare cash. The thing is, many people buying gold using the same psychology of trading in share market.

This post has been edited by cruzzie73: Jan 4 2012, 07:08 PM

what's your objective in buying gold?