If gold's price implodes then what goes up?
"Ok, I think what you're really asking is ""how can I benefit from a collapse in the price of gold?""  :-) And that's easy. (The hard part's making that kind of call with money on the line...) The ETF GLD is entirely physical gold sitting in a bank vault. In New York, I believe. You could simply sell it short.  Alternatively, you could buy a put option on it. Even more risky, you could sell a (naked) call option on it. i.e. you receive the option premium up front, and if it expires worthless you keep the money. Of course, if gold goes up, you're on the hook. (Don't do this.)   (the ""Don't do this"" was added by Chris W. Rea. I agree that selling naked options is best avoided, but I'm not going to tell you what to do. What I should have done was make clear that your potential losses are unlimited when selling naked calls. For example, if you sold a single GLD naked call, and gold went to shoot to $1,000,000/oz, you'd be on the hook for around $10,000,000. An unrealistic example, perhaps, but one that's worth pondering to grasp the risk you'd be exposing yourself to with selling naked calls. -- Patches) Alternative ETFs that work the same, holding physical gold, are IAU and SGOL. With those the gold is stored in London and Switzerland, respectively, if I remember right.  Gold peaked around $1900 and is now back down to the $1500s. So, is the run over, and it's all downhill from here? Or is it a simple retracement, gathering strength to push past $2000? I have no idea.  And I make no recommendations." "It's not clear that anything needs to go up if gold goes down. In a bubble, asset prices can just collapse, without some other asset increasing to compensate. Economies are not a zero-sum game. On the other hand, gold may fall when people decide they don't need to hoard some store of value that, to their minds, never changes. It could very well indicate that there is more confidence in the broader economy.  I am not a gold bug, so I don't much see the point in ""investing"" in something that is non-productive and also inedible, but to each his own." "Nothing necessarily has to ""benefit."" Right now, what primarily drives demand for gold is its perceived use as a hedge against the inflation of fiat currency. I.e. when inflation strikes, the price of gold goes up rapidly. Thus, for a given currency, gold decreasing in price is almost always a signal that the currency is increasing in value. However, it may be that at some point in time people everywhere just decide that gold is no longer worth using as an inflation hedge, and thus the price collapses simply because demand collapsed. No corresponding ""benefit""." It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment.   To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold.  I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant.  The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant.  When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant.  When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold.  This result was not statistically significant, either.
They wont let it collapse, they will devalue it over time to some effect via bailouts and borrowing.  Invest in commodities so your cash retains its value, physical gold is always strong.  Other currencies are an option but this is more of a gamble. Redditors! Buy gold and demand that the financial institution who sold it deliver it. When they try to buy enough gold to cover their short the price will explode, free money.  Disclaimer: you all have to do it or it won't work No.  If you have to ignore a price spike, obviously its value is not constant.  Gold is a commodity, just like every other commodity. No. The value of the dollar will continue to decline, in turn adding to the value of gold. The current prices are not high for metals, although not rock bottom prices. Especially given what central banks are going to do. (QE).  We are nowhere near a gold bubble. "In my opinion, you're in a precious metals ""bubble"" when rising prices are driven by the people's desire the own the commodity without a reason other than ""the market is going up"". Usually ""bubble"" markets are fueled by lots of debt. IMO, this isn't a bubble. I don't think that silver and gold values are shooting up like a rocket due to some orgy of speculation.  In my opinion, citizens are losing faith in the government and in the value of money itself. If you have money to save, most banks pay less than 1%. The government claims that inflation is nonexistant -- the inflation rate on a US Series I Savings Bond was 0.37% in November 2010. Yet most people are noticing escalations in price in things that dominate their budget -- fuel, healthcare, local taxes and food. I bought a pound of store-brand butter for $3.99 yesterday... that was $0.99 4-5 years ago.  People are seeing precious metals as a way to hedge against that. They're rational about it -- trying to protect assets is different than speculation. I think the question to ask is: ""Is the US Dollar's value a bubble?""" "I've mostly seen this term peddled by those with large portfolios in gold/commodities. The incentive for these guys, who for example may have a large portfolio in gold, is to drive demand for gold up - which in turn drives the value of the gold they're holding up and makes their assets more valuable. The easiest way to get a large amount of people to invest in gold is to scare them into thinking the whole market is going to fall apart and that gold is their best/only option.  I personally think that the path we're on is not particularly sustainable and that we're heading for a large correction/recession anyways - but for other reasons.  **Example:**  [Peter Shiff YouTube Channel called ""The Economist"" with conspiracy videos](https://www.youtube.com/user/PeterSchiffChannel/videos)  [Actual ""The Economist"" magazine researching the market](https://www.youtube.com/user/EconomistMagazine/videos)  (edit: formatting)" "If there is a very sudden and large collapse in the exchange rate then because algorithmic trades will operate very fast it is possible to determine “x” immediately after the change in exchange rate. All you need to know is the order book. You also need to assume that the algorithmic bot operates faster than all other market participants so that the order book doesn’t change except for those trades executed by the bot. The temporarily cheaper price in the weakened currency market will rise and the temporarily dearer price in the strengthened currency market will fall until the prices are related by the new exchange rate. This price is determined by the condition that the total volume of buys in the cheaper market is equal to the total volume of sells in the dearer market.   Suppose initially gold is worth $1200 on NYSE or £720 on LSE. Then suppose the exchange rate falls from r=0.6 £/$ to s=0.4 £/$.  To illustrate the answer lets assume that before the currency collapse the order book for gold on the LSE and NYSE looks like: GOLD-NYSE   Sell (100 @ $1310) Sell (100 @ $1300) <——— Sell (100 @ $1280) Sell (200 @ $1260) Sell (300 @ $1220) Sell (100 @ $1200) ————————— buy (100 @ $1190) buy (100 @ $1180)   GOLD-LSE Sell (100 @ £750) Sell (100 @ £740) ————————— buy (200 @ £720) buy (200 @ £700) buy (100 @ £600) buy (100 @ £550) buy (100 @ £530) buy (100 @ £520) <——— buy (100 @ £500)   From this hypothetical example, the automatic traders will buy up the NYSE gold and sell the LSE gold in equal volume until the price ratio ""s"" is attained. By summing up the sell volumes on the NYSE and the buy volumes on the LSE, we see that the conditions are met when the price is $1300 and £520. Note 800 units were bought and sold.   So “x” depends on the available orders in the order book. Immediately after this, however, the price of the asset will be subject to the new changes of preference by the market participants. However, the price calculated above must be the initial price, since otherwise an arbitrage opportunity would exist." Your question asks about the mechanism of money inflation - not price inflation.  Money inflation occurs when new money is introduced into an economy.  The value of money is subject to supply and demand like other items in the economy.  The effects of new money can be difficult to predict.  One of the results of additional money can be rising prices.  These rising prices can be concentrated in one particular area - stocks, homes, food - or they can be spread out over many items.  This is true regardless of the form of money being inflated - gold, silver, or paper money.  There were times in history when large discoveries of gold and silver were found that caused prices to rise as a result.  Of course, the large discoveries of gold and silver pale in comparison to the gigantic discoveries by central banks of new fiat currency. Approximately 5.3 billion ounces have been mined. This puts the total value of all gold in the world at about $9.5 trillion, based on $1800/oz. Total world net worth was $125T in 2006. There's an odd thing that happens when one asset's value is suddenly such a large percent of all assets. (This reminds me of how and why the tech bubble burst. Cisco and EMC would have been worth more than all other stocks combined if they grew in the 00's like they did in the 90's.) Production (in 2005/6) ran about 80 million oz/yr. Just over 1.5% impact to total supply, so you are right in that observation.  On the other hand, the limited amount out here, means that if everyone decided to put their wealth in gold, it would be done by driving the price to bubblicious levels.  One can study this all day, and parse out how much is in investment form (as compared to jewelry, etc) and realize that a few trillion dollars in value pales in comparison to the wealth of the US alone, let alone the world. Half the world can't buy two oz if they tried.  Of course there's pressure to reopen mines that had costs pushing $800/oz. Understand that the supply of $300 gold is long gone. As the easy gold has been mined, and cost goes up, there's a point where mines close. But as the price of gold trades at these levels, the mines that couldn't produce at $600 are now opening. Gold isn't constant in value. If you look at the high price of $800 in January of 1980 and the low of $291 in 2001, you lost a lot of purchasing power, especially since money in 2001 was worth less than in 1980. People claim gold is a stable store of value but it isn't. "Gold may have some ""intrinsic value"" but it cannot be accurately determined by investors by any known valuation techniques. In fact, if you were to apply the dividend discount model of John Burr Williams - a variation of which is the basis of Discounted Cash Flow (DCF) analysis and the basis of most valuation techniques - gold would have zero intrinsic value because it produces no cash flow. Legendary focus investor Warren Buffett argues that investing in gold is pure speculation because of the reason mentioned above. As others have mentioned, gold prices are affected by supply and demand, but the bigger influence on the price of gold is how the economy is. Gold is seen as a store of value because, according to some, it does not ""lose value"" unlike paper currency during inflation. In inflationary times, demand increases so gold prices do go up, which is why gold behaves similar to a commodity but has far less uses.  It is difficult to argue whether or not gold gains or loses value because we can't determine the intrinsic value of gold, and anyone who attempts to justify any given price is pulling blinders over your eyes. It is indisputable that, over history, gold represents wealth and that in the past century and the last decade, gold prices rise in inflationary conditions as people dump dollars for gold, and it has fallen when the purchasing power of currency increases. Many investors have talked about a ""gold bubble"" by arguing that gold prices are inflated because of inflation and the Fed's money policy and that once interest rates rise, the money supply will contract and gold will fall, but again, nobody can say with any reasonable accuracy what the fair value of gold at any given point is.  This article on seeking alpha: http://seekingalpha.com/article/112794-the-intrinsic-value-of-gold gives a quick overview, but it is also vague because gold can't be accurately priced.  I wouldn't say that gold has zero intrinsic value because gold is not a business so traditional models are inappropriate, but I would say that gold *certainly * doesn't have a value of $1,500 and it's propped so high only because of investor expectation.  In conclusion, I do not believe you can accurately state whether gold is undervalued or overvalued - you must make judgments based on what you think about the future of the market and of monetary policy, but there are too many variables to be accurate consistently." "Bitcoin will never come back down; it's a *limited commodity* that is tradable like a currency. Since it's a commodity, it will always have value and since it's a limited commodity, that value will always go up.  Disclaimer: by ""come back down"" I meant back down to the $3 a coin it was at when it hit it's first spike *without* being obsoleted. Not the current $5000 shenanigans; this is just part of it's market cycle." If the US economy crashes at all suddenly, the global economy goes with it. In that case, yes, the postapocalyptic scenarios may be the best answer. But that's got so low a probability of happening that you'd be a fool to invest in it. If you really feel the need, consider investing in the companies which supply those activities. The big winners in the California gold rush were the general stores that sold supplies to the speculators. Technically, you could improve your odds in this hypothetical pre-apocolyptic economy by diversifying your digital and tangible precious-metal-commodity portfolio by going in with gold, silver, platinum, palladium, and others.   That being said I'm not sure if one can access tangible stores of all these metals... Somebody will have to file all the required paperwork and fees with the local government, state government and even the federal government. This paperwork is used by these governments to record who owns the property and how it is owned.  Prior to the settlement date they also will need to verify how the property is described and owned so that you are sure that you are being sold the exact property you expect, and that it is delivered to you free and clear of all other debts. If this is done wrong you might discover years later that you paid money for something that you don't really own. In some jurisdictions this has to be done via a law office, in others there is no requirement for a lawyer. Because a mortgage company, bank, or credit union is giving you money for the loan, they may require you to use a settlement attorney. They don't want to discover in 5 years that a simple mistake will cost them hundreds of thousands to fix. The mortgage company is required to give you a more detailed estimate of all the closing costs before you are committed to the loan. The quoted paragraph is not good enough. Even if you can avoid the use of a lawyer these functions still need to be done by somebody, and that will still cost money.