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Old 27th April 2020, 16:49   #46
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Originally Posted by alpha1 View Post
Well, do you mean that an ideal currency system would be the one that doesn't lose its value over time, but actually should increase?

I for one believe all currencies should actually get devalued with time. Otherwise there is no balancing force to the hoarding effect. Gold has extremely limited usage besides hoarding; a Gold back currency would behave extremely similar. And what does this decrease in money velocity lead to?

The purpose of currency is to establish a medium of transacting goods and services. If you want appreciation of value, buy some asset like real estate, shares/stocks, debt/bonds etc that galvanize economic activity ... or well you can also buy gold .

I am also surprised how you have arrived at a fair valuation of $1700 per oz figure? It should actually fluctuate according to the expected returns from other appreciating assets. Actually a plot of gold price vs cost of capital may be more informative for predicting the price movements.
IMHO, an ideal currency system is the one which is either backed by Gold or Silver. In that case, there was no chance of inflation or deflation and price of the goods would be determined by supply and demand. This happened during the gold standard. The point of backing a currency with Gold (i.e. Gold Standard) is to keep politicians and central bankers from destroying the currency by overspending and overprinting.

There is also a counter argument that there is not enough Gold in the world. Thus, it will always be a case of too little money chasing too many goods. I think to balance that out the Gold must be priced correctly. If you launch a $ backed by Gold where Gold is redeemable for $20,000 Oz, it might just work.

On your point that all currencies get devalued over time. Yes it is true but only where Fiat currency is the legal tender.

I'm not sure where you have picked up $1700 an oz for fair valuation in my earlier post. I think you mean $20,000 Oz. I've explained that in an earlier post. $1700 is the current price of Gold which may have led to mix up.

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a plot of gold price vs cost of capital
I think it is best to compare it with House prices. Pricedingold.com already has a graph for it. Thought of sharing the same.

Quote:
When measured in Pounds Sterling, UK Houses are over 20 times more expensive than they were in 1973 (the index has risen from 20 to 430). But measured in gold, house prices are about the same today as in 1973 (gold index 90 then, 84 at year end 2019)
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Old 27th April 2020, 19:43   #47
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Originally Posted by fache89 View Post
IMHO, an ideal currency system is the one which is either backed by Gold or Silver. In that case, there was no chance of inflation or deflation and price of the goods would be determined by supply and demand. This happened during the gold standard. The point of backing a currency with Gold (i.e. Gold Standard) is to keep politicians and central bankers from destroying the currency by overspending and overprinting.

There is also a counter argument that there is not enough Gold in the world. Thus, it will always be a case of too little money chasing too many goods. I think to balance that out the Gold must be priced correctly. If you launch a $ backed by Gold where Gold is redeemable for $20,000 Oz, it might just work.
Okay, that's like pegging dollar to gold which is pegged to dollar.

In the best form, it becomes a system where every other currency is pegged to dollar, and dollar in itself is pegged to X amount of gold that US (20000 in your example) deems appropriate. Sort of like the Bretton woods standard, but it is just a broken down version of current fiat currency norm except that only US gets to be fiat.


Pegging currency to anything which is not directly controllable by the Government is basically putting a price on all economic activity in the country. That is bound to hit a rock sooner or later.


Also, the House vs Gold analogy just points that some assets are equally overpriced. Gold has inflated, so has real estate.

Last edited by ashokrajagopal : 27th April 2020 at 19:49.
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Old 28th April 2020, 15:55   #48
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

I have read in today's newspaper that consumption of fuels is about 60 to 70 % than the normal days. So we can say that consumption is not so less that it will tilt economies of scale to such a extent that overhead charges are more than the cost of raw fuel. As such being the cutting of wheat or rabi crops going on and it's transportation also taking place the government should definitely reduce prices of diesel and petrol and give relief to common man instead of benefitting these private fuel and refining companies.

This will also help in reducing prices of essential commodities a bit.Also as our country is majorly agriculture based and all other businesses are as such directly or indirectly linked to it. So giving some relief to farmers will also give boost to economy as diesel is needed in a big way in coming days for upcoming tilling ,sowing and nurturing needed for rice crop.
Please don't give this suggestion that government is using this money in its fight against Covid 19 because in the present scenario instead of govt. the major beneficiaries are oil companies.
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Old 29th April 2020, 03:32   #49
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

Somebody shared this image on Twitter.

Red dots represent fully loaded oil tanker ships "stranded" at sea due to no global demand for oil - approx cost per day per ship is $30,000/-


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Old 29th April 2020, 06:19   #50
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Originally Posted by Dry Ice View Post
Somebody shared this image on Twitter.

Red dots represent fully loaded oil tanker ships "stranded" at sea due to no global demand for oil - approx cost per day per ship is $30,000/-
A clarification posted on this Twitter Link

American crude prices have crashed 90%! Now trading at  - 3 per barrel-ewszdq5xqai7rqx.jpeg
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Old 29th April 2020, 14:44   #51
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Default Re: American crude prices have crashed 90%! Now trading at $2 - 3 per barrel

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Originally Posted by fache89 View Post
On your point that all currencies get devalued over time. Yes it is true but only where Fiat currency is the legal tender.
I didn't say that all currencies get devalued over time. I was clear in saying that I WANT them to get devalued over time so that people do not hoard it. Currency's first and foremost purpose it to promote exchange of goods and services. If the currency appreciates over time - it will become like bitcoin where people never use it for spending. And reduced spending = reduced economic activity over time.

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I'm not sure where you have picked up $1700 an oz for fair valuation in my earlier post. I think you mean $20,000 Oz. I've explained that in an earlier post. $1700 is the current price of Gold which may have led to mix up.
Took it from here:
Quote:
Originally Posted by fache89 View Post
IMHO, Gold is fairly well priced at $1700 an ounce relative to currency supply.
But even if I were to follow the logic of total dollars in supply divided by total gold in world - the fact of the matter is if I give you 100 dollars, you are not going to spend all of those 100 buying gold only. So a fair value of $20,000 appears to be a gross simplification of something that is rather much complicated.

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I think it is best to compare it with House prices. Pricedingold.com already has a graph for it. Thought of sharing the same.
I can't make that out from the graph, there appears to be a hump at 2005. What is that?
By the way thanks for introducing an interesting website.
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