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Additional resources for earning interest in gold

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Why earn interest on gold and silver? If you’re short on time or simply prefer to watch instead
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6 responses to “Will Gold or Silver Pay the Higher Interest Rate?”

  1. I close my eyes, I imagine myself walking into a bank with my silver pieces. I look at the sign that gives me the interest rate of gold then I look at the silver interest rate. I notice gold is paying 1.5 percent more. I look down at my silver pieces. I think…I need to exchange these for a piece of gold since I plan on not using them for awhile.

  2. I wonder if silver will even be used as money in the future.

    In the past, people used it because they couldn’t buy small amounts of gold. But now that we have gold payment systems like GoldMoney, I don’t see how silver will ever catch on as a monetary metal again.

    50% of silver mining output each year goes into industrial uses. Most of the rest of it goes into jewelry. Only a very small amount is hoarded by investors in bullion form. And this lack of interest in silver investing seems to be caused by its high storage cost.

    With gold, we have a company now that will pay your storage cost for you if you have less than 1000 grams. It then recoups that loss by charging you a commission when you convert fiat to gold or gold to fiat.

    We could imagine a scenario where legal tender laws are repealed and even the commission is abolished, to be replaced by a company lending out your gold and profiting from the spread between the interest they charge vs. the interest they pay you. The company could handle transactions of extremely small amounts of gold. In such a case, the traditional advantages of silver over gold would not be present.

    It has to be remembered that credit cards were not ubiquitous when gold and silver were “demonitized”. So wage earners needed silver to perform transactions. Nowadays, they would only need silver if they wanted to keep it in their own houses because they distrusted the banks (even if they didn’t want to loan it out, they could use a 100% allocated gold reserve and still buy very small amounts of gold) or if the person they were paying didn’t accept (gold-backed) debit cards.

    So I don’t think silver is going to be used as the primary form of money in the future.

    I’d love to hear counter-arguments against this position though.

  3. Token ring was not overtaken by the internet protocol, but by ethernet. Both ethernet and token ring can be part of a tcp/ip (internet) network. Ethernet and token ring work at the level of sending data frames, and make sure that various nodes can access the channel without problems. The data link layer can use different type of physical signaling layers, and both can use UTP (unshielded twisted pair) cabling. IP works at a higher network (address) level, in which many different type of data link layers can participate. Token ring is also a topology because it is physically a star topology, but logically it is a single loop. Media access takes place on the basis of circulating frames with tokens, whereas ethernet works on the basis of multiple carrier collision sensing (send a jamming signal) and resending data frames on the basis of an exponential back off algorithm.
    By the way, Direct Current may make a big come back for long distance transmission (less transmission loss) if super-conducting cables at room temperature become a realtiy.

    1. Thank you for the correction, Spectator. It has been a while since I have been involved in computers and engineering and even longer since I have seen a token ring network. I should have spent more time thinking about (and researching) my analogies.

      As to DC, well, we shall see! :)

  4. Keith,

    Thank you for the clarity in thinking that you bring to the study of money. Your ability to cut through the haze and get to the heart of the issue is a phenomenal gift.

    I’m convinced that at some point gold will have to be brought back into the world’s monetary system, but just how it is done is problematical. But it has gotten me to thinking.

    For at least a couple of decades, China has undertaken a determined effort to acquire gold. Knowledgeable people estimate its holdings as high as nearly 20,000 tonnes, split between govt and private holdings.

    And it is my understanding that they have been refining and re-casting it into one-kilogram bars. The question I was thinking about is simply, what are they going to do with all this gold? The Chinese are noted for long term thinking and planning, so there must be some underlying plan afoot, especially since their govt has encouraged small fry private citizens to buy gold as well. How would that play to their advantage?

    For a long time there has been talk that China will back its currency with gold. There are noted problems with gold-backed currencies in the past, since every peg is eventually broken, but I was wondering what your view would be, instead, about gold-backed transactions? That is, currency transactions, above a certain large size, would be required to have a gold component, measured by weight of gold. Let me explain by way of an example.

    A kilogram of gold is currently valued at about US$40,000 so suppose a gold component threshold requirement is set at 1% for transactions above $4 million. So any large financial transaction would require that 1% of the transaction be in gold, by weight valued at spot. The gold could be the metal itself, or gold certificates issued against a gold exchange like Shanghai or Comex, but more likely a parallel bank account structure would quickly develop where your account would have two parts; for instance, account #456-F for holding the fiat component, and #456-G for holding the gold weight component, and the bank would automatically transfer the required portions against the check written. So you could actually (with confidence!) deposit gold into your bank account, and even the bank would buy gold in order to facilitate its customers’ transactions, automatically loaning or depositing gold if needed. Since the gold in the account is measured and tracked by weight instead of currency unit, it would have a natural offset to inflationary devaluation of the currency (which is still allowed to happen if the govt so chooses). And having a large size threshold would not burden the myriad small transactions that take place, only large transactions between companies or rich individuals buying expensive real estate, planes, yachts, etc., would be affected.

    Suppose a large economic player like China were to adopt this requirement? Chinese companies would trade gold among themselves of course, but also foreign companies would have to partly pay in gold. So if Walmart wanted to buy $10 million worth of widgets, it would have to pay $9.9 million fiat plus $100,000 worth of gold; no gold, no widgets. Pretty soon China would have all the world’s gold, so it is clear that all other countries would also have to quickly adopt this idea in order to keep gold flowing back to them as well. Since this creates a natural demand for gold, its price would tend to rise, thus benefiting holders of gold like China.

    Do you think this idea has any practical application?

  5. Great article.

    Do you have any sources for “Gold was selected by traders as the best money to carry large values, especially over long distances.”?

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