Posted on 12/01/2005 10:40:52 AM PST by .cnI redruM
NOTHING swells the breast so much as the thought that you have been proved right at last. After riding high at the start of the 1980s, gold bugs had a miserable couple of decades. The price declined relentlessly, mocking their credo that the security of the financial system ultimately depends upon the yellow metal. Lately, though, the faithful have enjoyed their reward. In the past five years the price of gold has doubled. This week in Asian trading it briefly surpassed $500 a troy ouncea level last breached in 1987. You can almost feel the bugs' excitement as the message sinks in: gold is back.
This being gold, the resurgence has brought forth all manner of alarming prophecies. The price is an omen of rampant inflation; bonds are doomed; the dollar is about to fall prey to the United States' reckless deficits; the euro will shortly be revealed as a worthless creation of bureaucrats.
The world is an unpredictable place. But, with the possible exception of a fall in the dollar, not much of the above catalogue of doom looks likely; and none of it has much to do with gold's good run. The dull truth is much less bullish for gold. Investors have put money into a wide range of metals, and precious metals' prices, including gold's, have risen with the base. Meanwhile, gold remains fundamentally unattractive. It yields nothing and central banks are sitting on vaultfuls of the stuff that they want eventually to sell. Gold bugs hope that $500 is the threshold at which mainstream investors will start once again to take an interest in the metal. Caveat emptor.
Advertisement The fascination of gold lies in its being not only a commodity but also a store of value and means of exchange. The glamour and the mystique lie in the latter, monetary part. This is what draws gold bugs, but their story doesn't quite add up. The unbalanced world economy still faces risks. But the most recent rises in the gold price have come against a strong dollar, which is normally a sign of weaker gold and continues to confound warnings of a collapse in the greenback. Oil prices are plainly far higher than they were, but they have come off their peaks. Moreover, there have been few signs so far that oil prices are feeding through to a 1970s-style stagflation. Nothing in either bond or stockmarkets suggests that investors see much danger of such a thing happening.
Bear on bullion Gold's renewed shine is best explained by thinking of the metal not as money but as a commodity dug out of the ground. In the past few years the price has climbed because mining companies stopped locking in prices by selling gold in advancein effect, withdrawing a huge source of supply. Even then, gold has captured only 40% of the gains of other metals in The Economist's metals index, which has almost doubled since the start of 2003 thanks partly to fundamental demand from emerging markets and partly to investors in search of better returns than those from other assets. Gold would have done better had Chinese demand risen as fast as some expected; in fact, figures from GFMS, a consultancy, suggest it has been flat, even falling, over the past 20 years. Chinese investors now have other places to put their money.
Gold is still cheap compared with its peak of $850 in 1980. Today, adjusting for changes in American consumer prices, it is worth only a quarter as much. Gold bugs might see that as a chance to buy; others as a reminder of gold's enduring capacity to disappoint.
Does gold as a monetary standard terrify so-called "economists" so much because it provides a currency whose value cannot be manipulated for political ends?
Is that the real reason?
So....time to buy puts with a $450 strike?
"You make a good point but there still is no reason why our money should not be backed with hard assets, is there?"
If the economy ever gets so bad that gold ever becomes a real investment, as opposed to a nice decoration or hobby, skip gold and go straight to the hard assets of canned goods, bottled water, and shotgun shells --- they'll be far more valuable.
Does anyone know WHY gold should or might be considered a "barbarous relic"?
Possible reasons: (1) The source for the article is a periodical called "The Economist." Economics deals in abstractions. People who deal in abstractions are embarrassed by the existence of actual physical things upon which worth is based, just as most political science professors appear to be embarrassed by the inconvenient exitence of actual human beings who make nonsense of their theories. Gold is a "wild" thing whose worth fluctuates depending upon the unpredictable wants and desires of human beings for it. It is therefore unstable. It is therefore "barbarous." (2) The idiot writing the article has become so accustomed to thinking of worth in terms of money that he cannot see that gold is in itself a desirable and beautiful thing. What cannot be numerically expressed, but exists as its own concrete reality is, therefore, barbarous. (3) Gold may have been the base for monetary systems at one time in the deep dark distant past, before our monetary system began to be based on whatever the hell it's based on now. It is therefore not only barbarous, but a relic.
Or there could be some other reason entirely.
Common misconception. They are not only selling it, they OWN it. LOTS of it. The greater the demand, the greater the value of THEIR gold.
Gold is the 19th rarest element on Earth. It is beautiful. It is durable. It is the best electical conductor known to man. It does not easily corrode, is easily identifiable, and it cannot be manufactured or counterfeited.
No one else can tell you what gold is worth, it is entirely up to you, the seller, and the buyer. So it is not up to bankers or con men or promises.
Anyone who calls gold a "barbarous relic" isn't likely to have much command of the concept of "inflation", either. ;)
legal services, and entertainment.
The economist Keynes coined the term in the 30s. He hated the stuff, and wanted governments to have a monopoly on creating fiat money.
All the more proof that now IS the time to buy gold.
That's far too subject to hyperdeflation as your currency either dies of old age or reverts back to the more common Democrat.
I propose a monetary standard based on cheap Italian cars.
Gold topped at $898 on Jan 1, 1981.
I've seen this before, somewhere...
No.
Because over the long run, it is a stupid investment.
I do not advocate a gold standard but is interesting to note that under a gold standard prices slowly decrease over time while under a fiat money scheme prices slowly (most of the time) rise over time. The public gets used to a "little" inflation. However, it produces great revenue for the government without directly raising taxes which gives them more money to spend on the people who elect them. Whatever else you can say about FDR, he wasn't a complete idiot when it came to expanding the government.
> Gold lacks in industry application utility, except that it's a metal that does not rust and sometimes used in computers and small medical prostesis.
It also has useful thermal properties (both reflection and conduction), and finds numerous space applications as a result.
[snort coffee] But it has to be something *real*, not just mythical. :-)
There are some other uses, especially in electronics. (Go look at the teeth on any given card in your PC, for example.)
To go to the other extreme, my lighting rods and grounding polls are plated in it actually. Cost $200 extra, but you never have to dig out the corroded rod --- which probably costs $200 to dig out a six-foot long poll.
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