[GOLD] Interesting relation between y2k and the POG
'Will Y2K drive gold price UP? When?
asked in the TimeBomb 2000 (Y2000) Q&A Forum
Does anyone think Y2K will drive up the price of gold? If yes, when do
you see this occurring? I read an article where the CEO of one of the
largest software companies in the world predicted gold would begin to
rise in May 1998. If you believe the price will rise, how high do you
predict by the end of 1998? Currently, gold is $314/ounce.
Thanks, John
Asked by John Daniels (jjdaniels@usa.net) on April 25, 1998.
Answers
I think it's probably less an issue of the price of gold than the value of the
dollar.
People traditionally tend to get this confused. You see, gold (or silver, or
any precious metal) is a non-inflatable currency. It has intrinsic value in
human society because it is scarce. The supply is nearly fixed, with new
amount being introduced into circulation in such tiny amounts as to be
negligible.
Gold is, therefore, a much better indicator of wealth than anything else.
Paper money, as is evidenced by any society which has ever used it, is
highly inflatable. All you have to do to devalue it is print more of it.
When you devalue your paper money, your find that it takes more of it to
buy everything, including gold. If you're approaching the issue from the
wrong perspective, it looks as though gold is "worth more", when in fact,
your paper money is simply "worth less."
The question for me is: will we see a period of inflation as a result of
Y2K?
The answer is: it depends on the power grid.
The reason is this: at this point in time, most Federal agencies (including
the Department of Treasury, the "accounts payable" wing of the
government) show no indication that they'll be compliant. In fact, they
show every sign that they'll be woefully non-compliant.
The Federal government operates in a state of insolvency and has done
so for most of my life. This state is masked primarily by investor faith:
the holders of government bonds, treasury bills, and securities (the
method through which the Public Debt is financed) believe that the
Federal government will always be able to pay them off.
Y2K will make it impossible to pay off investors. The information
necessary to do so and the method by which to cut checks are controlled
by computers. If you remove the computers, the Department of Treasury
will be unable to pay bond and t-bill holders.
When they realize this, the Federal government will probably attempt to
monetize the debt by paying investors in cash and by introducing more
money into circulation. This has the effect of producting inflation --
possible hyper-inflation, depending on how much money gets printed.
Now, it possible that the Federal government will be unable to print
money. The Treasury Department's mint control systems may be
non-compliant.
It's also possible that the mints won't have electrical power: the power
grid nationally is non-compliant, one-third of all power companies haven't
started working on Y2K and another third consider themselves "behind".
In summary: if the government can print paper money, they almost
certainly will. The result will be inflation and/or hyper-inflation, and the
price of gold will skyrocket.
If the Federal government can't print money, the value of the dollar
probably becomes zero. The scenario under which they can't print money
is so catestrophic that people will probably prefer to barter in
consumables rather than waste time with paper money.
My recommendation:
1.Beginning in 1999, take more than the maximum deductions on
your W-4 form. This will have the effect of reducing the amount
your employer is deducting for income tax to nothing or nearly so.
2.Compare the resultant paycheck with you previous one. Take the
difference and go buy precious metals (gold and silver, primarily,
though platinum and galladium are possibilities).
3.Put your precious metals somewhere relatively safe: a safe in your
basement, not in a safe deposit box. In the event of bank runs, you
may not be able to get access to your safe deposit box. You may
also find youself crossing the lines of angry depositors as well, and
walking through a crowd of penniless people with a lot of gold and
silver might be unsafe.
In the event that paper money is hyper-inflated, you have protected some
of your wealth. You can always turn gold into any currency you like.
In the event the dollar becomes worthless, you have some currency that
will almost certainly be acceptable everywhere.
In the event that IRS is still capable of collecting taxes in 2000, you can
convert the metal to cash and pay it. I contend that unless something
changes radically, there is almost no chance that IRS (or any other
agency of the Federal government) will be functioning correctly after
1-1-00.
"John Smith"
Answered by "John Smith" (pobox42@hotmail.com) on April 26, 1998.
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