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

-- John Daniels (jjdaniels@usa.net), 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"

-- "John Smith" (pobox42@hotmail.com), April 26, 1998.

I believe the price of Gold will go up. If we really get into serious problems, the government also has the right to recall all your Gold in your possession. There are already stories of: 1. A person selling their house and all major assets and converting to Gold.

2. An elderly woman widthdrew $200,000 from her bank in cash and when the bank manager asked her why she said "My daughter is working on your bank's Y2k problem, and she told me to take all my money out in cash.

3. Food Storage companies are booming.

-- Del Ball (dball@sales-tools.com), April 29, 1998.

The government has the power to confiscate gold or silver, but it certainly does not have the right. You have rights, goverment employees have rights, but the government itself does not. It has powers. When FDR confiscated bullion during the great depression, people generally had a good opinion of government and most complied. In today's environment, I suspect there would be significantly lesss public support or compliance. I think we're going to get a very clear picture of the intentions of our current government as the Y2K crisis unfolds. It's quite possible the order might be issued but I hope the field agents would refuse to comply with such a heinous act. Btw, the constitution clearly states that only gold or silver coin is money. The founding fathers had firsthand experience with the perils of paper money and the hyperinflation that always accompanies it's demise.

-- anon (anon@anon.com), May 01, 1998.