What will happen to the price of gold if Ron Paul wins?

[robfellner]

Hey guys,

Curious to see your opinion on what would happen to gold, if Ron Paul were to win. On the one hand I think the return to sound monetary policy in the US would lead to a stronger dollar, and thus cause the price of gold (in US dollars) to fall. On the other hand, repealing legal tender laws might result in more people flocking to gold for its monetary use, which could be beneficial for gold price. As you can see, I'm rather unsure as to what effect it will ultimately have. Any thoughts?

[zerosdontcount]

I would assume it would go up if the US started backing it's dollars in gold, it would set a worldwide wave.

[kah13176]

Decline. Gold price is a function of monetary expansion, which would likely halt and potentially reverse.

[fisharmor]

If Ron Paul wins, we will stop talking about the price of gold in dollars, and start talking about the price of dollars in gold.

[nayjevin]

At 11:32 P.M. on March 14th of 2013, 1 oz of gold will purchase 6,452 loaves of bread.

Give or take.

[Xenophage]

If it appeared that a gold backed currency was imminent, the price would likely skyrocket. However, that's not going to happen any time soon.

More likely people would see it as a sign that interest rates were about to rise, and the price of gold would drop accordingly.

[Zippyjuan]

The price of gold would depend on how the economy performs. If it does well, then the price of gold will probably decline. Even if Ron Paul is president, he still needs Congress to send him the legislation he wants in order to achieve his goals.

[danda]

Well, if Paul simply legalized competing currencies and removed taxes from gold, silver, etc, but continued accepting taxes in dollars, I believe the market would (slowly) move towards using precious metals due to Thier's law, unless the monetary authorities (fed, treasury) could stabilize the dollar supply such that the market maintains faith in it. It can also be argued that governments gives fiat money some value simply by requiring it for payment of taxes.

from http://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gresham.27s_Law_.28Thie rs.27_Law.29
Reverse of Gresham's Law (Thiers' Law)

In an influential theoretical article, Rolnick and Weber (1986) argued that bad money would drive good money to a premium rather than driving it out of circulation. However their research did not take into account the context in which Gresham made his observation. Rolnick and Weber ignored the influence of legal tender legislation which requires people to accept both good and bad money as if they were of equal value. They also focused mainly on the interaction between different metallic monies, comparing the relative "goodness" of silver to that of gold, which is not what Gresham was speaking of.

The experiences of dollarization in countries with weak economies and currencies (for example Israel in the 1980s, Eastern Europe and countries in the period immediately after the collapse of the Soviet bloc, or South American countries throughout the late 20th and early 21st century) may be seen as Gresham's Law operating in its reverse form (Guidotti & Rodriguez, 1992), since in general the dollar has not been legal tender in such situations, and in some cases its use has been illegal.

Adam Fergusson pointed out that in 1923 during the great Inflation in the Weimar Republic Gresham's Law began to work in reverse, since the official money became so worthless that virtually nobody would take it. This was particularly serious since farmers began to hoard food. Accordingly, any currencies backed by any sorts of value became the circulating mediums of exchange.[9] In 2009 Hyperinflation in Zimbabwe began to show similar characteristics.

These examples show that in the absence of effective legal tender laws, Gresham's Law works in reverse. If given the choice of what money to accept, people will transact with money they believe to be of highest long-term value. However, if not given the choice, and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their possession, and pass on the bad money to someone else. In short, in the absence of legal tender laws, the seller will not accept anything but money of certain value (good money), while the existence of legal tender laws will cause the buyer to offer only money with the lowest commodity value (bad money) as the creditor must accept such money at face value.[10]

The Nobel prize-winner Robert Mundell believes that Gresham's Law could be more accurately rendered, taking care of the reverse, if it were expressed as, "Bad money drives out good if they exchange for the same price."[11]

The reverse of Gresham's Law, that good money drives out bad money whenever the bad money becomes nearly worthless, has been named "Thiers' Law" by economist Peter Bernholz, in honor of French politician and historian Adolphe Thiers.[12] "Thiers' Law will only operate later [in the inflation] when the increase of the new flexible exchange rate and of the rate of inflation lower the real demand for the inflating money."[13]

[robfellner]

Thanks for the replies! Seems it will be hard to forecast (like always) what exactly will happen...

[Steven Douglas]

Rob, it really all depends on which sound monetary policies would actually be enacted - and I wouldn't pay too much attention to many of speculative ups or downs along the way (i.e., the very idea of Paul as President causes a shift in gold) all of which would adjust more or less on their own.

I seriously doubt that the U.S. government will adopt sound monetary or fiscal policies any time soon. That really is an internationally tangled web that extends far beyond the so-called "American" currency, created by the waving of credit wands, including international monetization of the dollar.

What I hope for, which can most definitely happen under Ron Paul is not necessarily a full-on disbanding of the Fed (unless everything really did crash in a big way), but rather the liberation of Americans who are economically imprisoned by the legal tender laws which enforce the Fed's monopoly on fiat currency issuance.

A repeal of legal tender laws, along with prohibition of taxation on gold and silver as legal money would at least provide a means by which Americans could convert their floating currency into an actual store of wealth. In the absence of the legal tender laws that now force-tie our lives and fortunes to the fate of the dollar, those who opt out of the dollar could effectively decouple from its ever-expanding supply, and consequent ever free-falling value. The fiat dollar was never, and could never have been, designed to remain in a stable orbit forever, and whether it ultimately comes crashing down to Earth under its own weight, or spirals out of orbit with escape velocity (depending on how you look at it), it will ultimately and effectively be dead to the economy, both global and American.

The dollar/gold exchange gap would continue to widen, as it always would have anyway under any regime, but the rate of expansion of that gap would accelerate by however much dollar selling for gold/silver occurred. That rate of acceleration is anyone's guess, given the size of the ever-expanding dollar pool, and because other, equally artificial market forces would be at work. But all efforts to prop up the dollar, or suppress the price of gold or silver against the dollar in an effort to manipulate the value of either - would only delay what was already inevitable. So the timing is, in many real ways, irrelevant.

We may never see an end to other unsound money principles in effect in the U.S. and elsewhere, like deficit financing of wars and welfare states, and fractional reserve financing of commercial capital from a collectivized, socialized, privatized money pool. However, just the ability, the right, for individuals to opt out of this thoroughly debauched currency system to whatever extent they may is at least an enormous step in the right direction. At the very least it gives many of the passengers on the U.S./Globalized Fedtanic the ability to create their own lifeboats - despite all assurances that these are somehow not necessary we will receive from politicians, financiers, ideologues and other "all-in-it-together" scoundrels, left and right, notwithstanding.

[Razare]

I was watching some videos about investing in gold, and from their point of view they stopped discussing dollars/gold but rather were looking at gold in things like real estate, or gold in stocks... such as the Dow / Gold ratio. As long as the currency is fiat, you have to wonder which asset to hold relative to another... whether it be stocks, real estate, treasuries, or commodities.

If RP wins, it still depends how much resistance there is to his policy, whether inflation will subside.

Will he do as Kennedy did and issue an executive order to allow the Treasury to issue gold & silver backed currency?

Probably.

I would still own gold if he was elected. I would not sell until he survives the assassination attempt from the people behind the world banks... or until a complete collapse happens and the precious metals skyrocket and you can repurchase stocks & real estate with the soaring gold and silver prices.

Some of the indicators the gold guys look at is when the Dow/Gold ratio reaches 2 or lower.

The real estate / rent ratio needs to drop below it's historical average to work-out the housing imbalance. The economy can't really recover until this imbalance returns to more normal levels. Right now the Federal Reserve is propping up the collapse of the bubble by interfering in the mortgage market.... Fannie and Freddy are fully backed by the government now. BUBBLE. It hasn't collapsed yet. It's just gone the first leg down.

When these fiat currency crises occur, silver usually jumps to the 16 to 1 ratio with gold. That also seems to happen near the top of the commodity cycle, so it also indicates a possible good time to sell.

[Steven Douglas]

I was watching some videos about investing in gold, and from their point of view they stopped discussing dollars/gold but rather were looking at gold in things like real estate, or gold in stocks... such as the Dow / Gold ratio. As long as the currency is fiat, you have to wonder which asset to hold relative to another... whether it be stocks, real estate, treasuries, or commodities.

If RP wins, it still depends how much resistance there is to his policy, whether inflation will subside.

Yes, and the one thing about inflation - when defined in terms of "inflated money supply", rather than the massively obfuscating "rising prices" definition most commonly used as a refuge from accountability - is that it will never, ever subside. Even so-called "deflation" is reckoned in terms of a baseline of inflation, where a certain amount is "zeroed" as "normal" (i.e., absorbed and financed by a treadmill that siphons productivity and growth).

Lastly - the one thing about real estate that can not necessarily be said about gold and silver: We know where all the real estate on Earth is, and who so-called "owns" it. I am a big believer in allodial title of homesteaded land for individuals, wherein individuals may actually own their land, rather than effectively renting it from the government. The power to tax is the power to destroy, and that includes the destruction of property rights, which gives the government the power to evict someone from their own otherwise unencumbered land for the crime of being poor. Until that is addressed, the right to possess and freely trade in gold and silver is something I value even above land (non)ownership.

[Nate-ForLiberty]

Ron Paul himself has said it is simply a matter of time now before the dollar hyperinflates. In other words, even if Ron Paul became president the dollar is going to crash and the price of gold in dollars will go completely off the charts. His strategy to counter this is not to try and save the dollar, but to allow competing currencies.

So the answer to your question, "What will happen to the price of gold if Ron Paul gets elected?" is simply, the same thing that will happen if he doesn't. The only thing that will change is if the people are allowed to use a different currency or not.

[Steven Douglas]

Ron Paul himself has said it is simply a matter of time now before the dollar hyperinflates. In other words, even if Ron Paul became president the dollar is going to crash and the price of gold in dollars will go completely off the charts. His strategy to counter this is not to try and save the dollar, but to allow competing currencies.

So the answer to your question, "What will happen to the price of gold if Ron Paul gets elected?" is simply, the same thing that will happen if he doesn't. The only thing that will change is if the people are allowed to use a different currency or not.

A much better, far more succinct way of saying it. Could not agree more.

[The Gold Standard]

The price of gold in dollars would crash if he named Jim Grant Fed Chairman.

[georgiaboy]

Related to this, Ron has also stated that he has investments in mining stocks, and he's stated that strangely enough, if his competing currencies policies were to be enacted, it would effectively hurt these investments. Why?

[Steven Douglas]

Related to this, Ron has also stated that he has investments in mining stocks, and he's stated that strangely enough, if his competing currencies policies were to be enacted, it would effectively hurt these investments. Why?

Ron Paul could be saying that competing currencies will put pressure on the Fed to do whatever it takes strengthen the dollar (against those currencies). Gold mines and stocks are inherently leveraged, which means that any downward swings in the value of gold against the dollar will have amplified effects.

The real question, however, is whether the Fed can even do that at this point, because here's the really interesting part: it has been a very long time since gold has been in circulation, and there would be two heavily competing forces in the short term:

1) The amount of gold introduced into circulation, which drives its value down (as it's being pumped into circulation)

VS.

2) The amount of paper derivatives that dry up as physical gold is demanded, delivered and taken out of circulation, which drives the value way up.

In the short run, that's a no-brainer. More physical gold will be taken out of circulation than is put into circulation. In the short run, that can send gold's value skyrocketing (on the fairly safe assumption that all those paper claims to gold really are just floating paper bluffs that can't be backed up).

After all the dust from the paper annihilation settles, there is an adjustment period, once the actual physical floor of the gold trampoline is felt. As more gold is (safely) added into circulation its value will eventually adjust back downward until it finally stabilizes and settles into something approximating its true scarcity at that time. That's also when gold mines can get hurt.

So Ron Paul is correct - gold mines do stand to get hurt; in the short run if the Fed manages to compete with gold, and also in the long run, long after gold has been crowned the inevitable champion that drives the fiat dollar completely out of circulation (Thiers law).

Does that sound about right?

[eric_cartman]

i think the price of gold would rise because Ron Paul would legalize competing currencies... so i think a lot of people would start using gold as money since there would be no capital gains taxes or anything like that.

[Seraphim]

The price of gold will continue to go up irrespective of what the USA does.

If Paul is President during this longwave commodities bull market, gold will continue to rise in tandem with the USD until the bull is done bucking. It may take an intermediate hit once fiscal sanity begins to appear in the USA, though.

But in reality...the Chinese, Indians, Russians etc don't give two shits who's in the White House...They will continue to buy gold en masse until a new world currency is established.

[goRPaul]

Hey guys,

Curious to see your opinion on what would happen to gold, if Ron Paul were to win. On the one hand I think the return to sound monetary policy in the US would lead to a stronger dollar, and thus cause the price of gold (in US dollars) to fall. On the other hand, repealing legal tender laws might result in more people flocking to gold for its monetary use, which could be beneficial for gold price. As you can see, I'm rather unsure as to what effect it will ultimately have. Any thoughts?

I don't know. Let's elect him and find out :P