Australian Money Forum

[wulfgar]

In Australia there is no up front sales tax on pure gold. The only legal tax is CGT. History dictates that enforcing taxes on gold is extremely difficult. So effectively CGT is unenforciable on low volume trades in gold.
However it wouldn't do the government much good to enforce greater tax on gold. This is because gold trading is so brain dead simple. It would soon go underground.
You'd make your way past the drug dealers in the back alley to the gold dealer. If you had excess fiat currency, you'd trade for gold to retain as savings. If you required currency for purchase, then you'd trade your gold gold for currency. The gold dealer would be simply be the broker between the two parties. The incoming gold would tend to match the outgoing gold, making it lucrative for the broker. As such and with very low overheads, the brokerage fee would be no more than 3%.
Hence the system of money exchange would bypass the banks and the government. Eventually every man and his dog would be involved. Soon the public would realise they didn't need government scrip for exchanges and simply use the gold as currency itself.
Nothing can stop this process while the mass of gold is freely circulating in the market.


This is why with the institution of iredeemable fiat currency. The Central Bank issuing that currency had to corner the market on gold. It literally has to take it off the streets! This is the far more effective method than sending government thugs out to beat up gold dealers. Which in the long run, would become a losing battle.
On the simple level the Central Bank offers any amount of printed cash to get the gold and then burys it!
The US treasury and the Fed cornered the gold market in the 30's. When the US produced 2/3's worlds oil and the greenback was the currency that bought this oil. They offered a price in greenbacks way above the market value of gold. Essentially fixing the price of gold at $35usd from 1934 until the late 60's. At this point it is useless to use gold as savings against the greenback. By 1945 the US treasury had emassed almost half the world's above ground gold in Fort Knox.

It is not the quantity of gold that is itelf so important. But the velocity of it used as money, Money circulates and the government and the banks take a pound of flesh every time "it passes go!"

This is why I say, the speculative angle on gold is something else! If the Euro wishes to be the world reserve, then it must hoard 50,000 tons of gold at the very least. It will do so, by paying top dollar for gold (which after all costs the Central Bank, essentially nothing).

The same game was played in the 70's and 80's when the US treasury ran out of gold, defending the value of the greenback. The Creditor nations (Gernany and Japan, ect.) paid top dollar for gold and hoarded it in the NY Fed Basement. This saved the greenback from collapse in 1979!
From the mid 90's onwards, the greenback was defended by using the gold hoard. But alas, that gold hoard is gone. And there is little way of controlling the price of gold!