There is no limit to the amount of gold that I, a USA citizen, can own except for those limits imposed by my own budget and common sense.

I don’t know what this means for those trying to hedge agains short term fluctuations in any specific currency; but i do understand why gold is perceived to be a safe bet when there is no faith in other currencies. If as a US citizen you have faith in the US, it’s poeple and it’s government, i see no reason why you would prefer gold over dollars.

What’s more, if i’m not mistaken, it is forbidden for US citizens to hold large ammounts of gold as a means to preserve capital. I mean the metal not some contract.

just my 2 euro cts

Alan’s points are extremely valid and spot on in the ordinary course of economics. If everything goes to hell in your home country and you are looking to make a move out of there, gold can act as a hedge and can be converted into another currency — in your new country that isn’t subject to hyperinflation. (Or, you can skip the gold and simply invest in that country’s currency.)

The point I was making in this article assumes that 300 million Americans are not going to pack up and leave the country if everything goes to hell in a hand basket. Most would stay in the US because:

1. their lives and families are in the US;
2. no country would accept the 300 million refugees;
3. they don’t have the means to move, especially if they can’t sell their house or get any cash out of the bank (the case in a total collapse); and,
4. history has proven this.

On point 4 — there have been times throughout US history when it would have been better — from a financial standpoint, at least — to live outside the US. And yet, most Americans (I’d say more than 99.5%) stayed and “dealt with it.”

So…here’s my point: If everything goes to hell in a hand basket in the US, most people would be financially destroyed regardless of whether or not they held stocks, bonds, gold, or potatos because they would not move to another country.

Some people with the means and desire to do so would move out of the US. Others — like those in Zimbabwe — will deal with it and try to make the best of it, even if that means rolling up your sleeves and getting dirty.

Is gold a safe haven against inflation? Yes — if we don’t have global hyperinflation and you are one of the few that would leave your home country. But for regular people who stay in their home country — regardless of how smart or sophisticated they are or aren’t — even gold won’t protect them in a total and complete financial meltdown.

Me? I’d stay. So, I have to focus on buying underpriced assets. Instead of gambling on the price of gold, I feel like the odds are more in my favor if I bet on the future of the US economy five- and ten-years from now.

The other disturbing fact is that approximately 30% to 40% (and a growing percentage) of so called tax payers (filers) do not pay any federal income tax. As a mater of fact they, in many cases, receive more back than they pay in (via unearned income credit). It seems to me that the rich and upper middle class will be stuck with lion’s share of the price tag. Mike

Mr. Z wisely invested 1 year ago in gold, buying 582 oz of the stuff. Today, in US dollars, he has a profit, with a net worth in gold of $462,000 dollars. The distance between the capital of Zimbabwe and Cape Town South Africa is the same as the distance between Des Moines and Orlando. It costs about $12,000 round trip to charter a business jet between those two cities. It shouldn’t be too much different there.

He has a profit (in USdollars) of about $67,000 in one year. He spends 12 of those on a round trip charter jet to Cape Town. He now has $450,000 in US dollars in Zimbabwe. I’d be surprised if he couldn’t buy stuff with the USD— merchants would probably want them instead of the home currency and may even give him discounts for using them, since they won’t depreciate on the way to the bank.

Just to be complete, there is friction in the transactions. With this volume of a sale, the rand refinery will charge 5% commission. For the round trip buy/sell, it will cost him approximately $40,000. After all expenses, he is still ahead. The per capita income for Zimbabwe is a bit over $2000 a year, so he could live well in Zimbabwe using his USdollars for over 100 years.

If he chooses to stay in South Africa, the per capita there is a bit over $10,000/year. He could live twice as nice as the average South African for 20 years.

Why do people assume Mr. Z is not going to know to do this? He was smart enough to accumulate a very nice fortune in Zimbabwe dollars and was smart enough to convert a hyperinflated currency to gold. To assume he will reconvert his gold into Zimbabwe dollars and lose it all to hyperinflation in 3 days would indicate he suddenly became very stupid, because he wasn’t stupid one year ago. I contend you are wrong when you say he will lose it all, because the man in Joe’s example is not stupid initially and there is no reason to assume he acquires that trait in one year.

I don’t think Joe was making an argument against buying gold, but an argument FOR investing in great businesses instead of panicking and running to gold. If the price of gold goes up 10% this year and inflation in the US is 6%, you’ve made just 4%. The same is true for stocks except that you can put a value on stocks/businesses whereas, like Gold Standard said, there is no “value” in gold because it is not used to back currencies so it is impossible to know whether or not you are getting a good deal at $800 an ounce. Just ask the people and funds buying it at $1,000 earlier this year.

Putting Joe’s argument aside (sorry Joe!), Buffett was asked the same question and he never mentioned gold. I think it’s for the same reasons – no “value” versus price, and Mr. Zimbabwe (or Mr. America) can’t jetset to Zurich so we’re stuck with our home countries and home currencies.

In Joe’s example, Mr. Zimbabwe converted 100 million of Zimbabwe dollars into gold. In his explanation, he reveals this would be 582 oz of gold. At the close of trading on 9/4/07 (using the date in his explanation) the London gold fix was 680.90 US dollars/ounce. 582 multiplied by 680.90 tells us that Mr. Zimbabwe gold was worth 396,284 US dollars when he sold his Zimbabwe dollars and took possession of his gold. So it is obvious we are not talking about a billionaire or probably even a millionaire in the example.

Then, Mr. Zimbabwe, again using Joe’s timing in his explanation, takes one year to convert his gold to a currency. On 9/4/08, the London gold fix at the end of trading was 795.40 US dollars. (http://66.38.218.33/chart…) So on 9/4/08 his gold is worth 462,923 US dollars.

He has profited (almost 17%) from buying gold and then selling it for a relatively stable currency one year later. The argument that he would be stuck having to use Zimbabwe dollars doesn’t wash, in my opinion. If I had $400,000 in gold I could find a way to sell it for some other currency if I wanted. Anyone with that much could also barter for a trip to a stable country or to a financial center where he could liquidate the rest. Transporting the gold would be no problem (ignoring the security concerns) because we are only talking about 18.1 kg of gold.

Mr Zimbabwe has a choice, and it is a real one: Does he sell his gold for a relatively stable currency such as the USdollar or does he sell it for a currency suffering from hyperinflation. Joe’s explanation reveals that to convert gold to a currency in hyperinflation is stupid and he could lose it all. However, to convert to another currency that is stable would be profitable and more importantly to Mr. Zimbabwe, would be SAFE. In my opinion, Joe’s example shows that gold is a good store of value if one’s home currency is undergoing hyperinflation. Just don’t be stupid and convert the gold back into a currency undergoing hyperinflation.