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Hypothetically speaking, what would happen if the USD collapses?

Discussion in 'Commodities' started by damien275x, Jan 16, 2011.

  1. damien275x

    damien275x

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    Hypothetically speaking, (not getting into a debate as to whether or not this will happen) .. what would happen if I, a resident in Australia, held GOLD, SILVER, COPPER ETF's that are backed by physical metals in this country, and the USD collapses/becomes worth close to $0. Would my investments be worthless? Would they be re-valued/pegged against another foreign currenct (Euro? ) Would there be any protection, and is Australia closely linked to the US economy wise?

    I have searched this and have not been able to find any answers, apologies if this has already been discussed. Could anyone point me into the right direction to do some more reading? Cheers.
     
  2. ParleVouFrancois

    ParleVouFrancois

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    Re: Hypthetically Speaking, What Would happen if USD collapses

    RE: METALS WITH VALUE OF ZERO - Well, if the USD collapses there still are other currencies that the gold, silver and copper ETF's could be redeemed in. There is "inherant" value in a tonne of gold, as opposed to a million USD. A tonne of gold can be sold for EUR, AUS, GBP, any currency, so as long as there is at least ONE currency left (LOL), I doubt the value would go to zero. However you'd have to check that the ETF's you've bought into actually hold the physical metal, and how they go about this, and other important details like that. In general however, metals prices are inverse of currency value, so as a currency depreciates, the prices of metals shoot up, and as currencies stabilize or go up, metals prices stagnate or go down. So if the USD tomorrow was worth 1 AUS cent, then the prices of metals in USD would presumably shoot up to about 100 to 1 of what it is today, all things being equal.

    RE: Australian & American trade - Obviously it be a bad thing for all countries around the world if America's currency collapses, for one thing the country itself effects the world economy to a large degree simply by existing, it's capital and consumption markets are so large that any change in them inevitably will cause flow on effects around the world. Australia has particularly close links with America, however with the onset of the GFC and the rise of Chinese economic influence in the Oceanic-Asian region of the world, we are becoming closer and closer linked with China.

    PVF.
     
  3. damien275x

    damien275x

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    Re: Hypthetically Speaking, What Would happen if USD collapses

    So basically, even if prices shot through the roof as many predict, I would be no better off after converting back into AUD, as the prices are valued in USD. I guess all these 'buy gold and silver' people are advising the American people to do so as a way to protect the purchasing power they have now, rather than make a profit?

    Are there any other places that "smart" US money will start moving towards before such an event took place? I'm new to this game, just reading as much as I can for now. America is in a lot of trouble, in my opinon. Just trying to work out my best options as an Australian to profit from this if it happens
     
  4. pixel

    pixel DIY Trader

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    Re: Hypthetically Speaking, What Would happen if USD collapses

    Look at a chart of the AUD compared to the USD:
    As the USD loses strength, the AUD rises. Some goods and materials may change relative to the AUD, but by no means with as much volatility as they do wrt USD.

    Compare the two charts below. The first one charts the price of 1/10th of an oz in AUD; the second has the 1oz price in USD over the same period. Look at the relative directions...

    Gold in AUD w 15-01-11.gif

    Gold in USD w 15-01-11.gif
     
  5. RandR

    RandR

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    Re: Hypthetically Speaking, What Would happen if USD collapses


    I think you'll find your correct in that gold/silver are not just pegged to the USD, it doesnt matter what currency you have to purchase these metals, the relative price you pay is pretty much they same.

    Myself personally i think you should stay well clear of any ETF that trades in gold or silver, unless you have heavily researched them and are comfortable with the holding. My feeling is if your going to actually invest in these, you should buy the real physical thing .... but thats me.

    In terms of trying to find an angle to profit on any american trouble ........ mmm. don't know, think your better off forgetting about it and instead trying to profit on another part of the world. (asia !)

    Warren Buffet owns no stock whatsoever in any american automobile company ... yet owns a significant position in BYD - a Chinese electric automobile and battery manufacturer which is quickly growing into one of the largest emerging car companies in the world.
     
  6. tothemax6

    tothemax6

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    Re: Hypthetically Speaking, What Would happen if USD collapses

    Typically:
    Bond holders get nuked.
    Stocks rise in sync with the inflation. Of course, in real terms you will still loose money, but much less than holding cash. This is because the 'stock of companies' remains the same (whilst the money stock balloons), but looses value due to the deteriorating economy.
    Commodities (including the ever so popular precious metals) rise in sync with the inflation + extra, and you actually make money. This is because the deteriorating economy reduces the productive capacity of companies, thus increasing the value of commodities now versus commodities in the future.

    Regarding the ETF, if the ETF shares are legitimately "you own a piece of gold that we hold in our vault", the value of the shares does not go to zero. Instead, what you will find is that the bids for the shares simply go unanswered (no sellers), since the sellers will not accept USD for the shares. The gold will still be there. The ETF is then simply a bank, and your shares are claims for gold. They would probably then ask their share holders if they wanted to take delivery of the gold, for use in coinage or whatever.
    The value of the shares will not go to zero, rather they will effectively do the opposite - they will go to infinity in terms of USD.

    In reality, I think you will find that a gold ETF effectively works as a fractional reserve bank. Since shareholders rarely actually want to collect their shares of the gold, the ETF is free to issue claims well in excess of the gold they actually have.

    Indeed, for all you know they maybe have 1 gold bar in their vault, just so they can laugh at it. :D
     
  7. RandR

    RandR

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    Re: Hypthetically Speaking, What Would happen if USD collapses

    A sentiment I find quite plausible. Which is why im rather weary of ETF's dealing with commodities ...

    Here's a suggestion ... if you are thinking about investing in gold. The Perth Mint has a deposit scheme where you can purchase bullion (if thats what you want to do) and they hold all bars that are registered in your name. So its possible just to leave it with them in there care, they have quite a safehouse ! (and then sell it back to them) or its easy enough to arrange to receive or have it delivered from there.

    I tend to think a gold ETF really just makes the value of the metal itself open to a lot of volatitility.

    But back to the discussion about the USD collapsing. Do you think it could be an inevitable play by the US government/federal reserve to easily wipe out there incredible levels of debt through mass and incredible levels of inflation in the USD ? I think its a better way to wipe out debt then declaring national bankruptcy ...
     
  8. tothemax6

    tothemax6

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    Re: Hypthetically Speaking, What Would happen if USD collapses

    Most likely. Mind you Japan still takes the cake in the 'epic debt' competition. Really, it is an incredibly difficult situation to predict. It is possible that the republicans could rein in the spending, and start phasing out social programs, but research of the politics only shows America following Europe and drifting ever left-ward.
    Very likely some Americans will be burning dollar bills in the Winter to keep warm.
     
  9. explod

    explod explod

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