What do Rising Gold Prices Mean?

http://www.house.gov/paul/\ ^ | 12/05/05 | Rep. Ron Paul

[Capitalism2003]

December 5, 2005

The market price for an ounce of gold rose to over $500 last week, a significant milestone for economists watching precious metals and commodities markets. The last time gold topped $500 was December 1987, in the wake of the “Black Monday” stock market collapse earlier that fall.

Gold prices historically rise when faith in paper currencies erodes, as investors seek the intrinsic value of gold to protect themselves from inflation. It’s interesting to note that while the U.S. dollar has regained some of its value relative to other paper currencies like the Euro, it continues to lose value relative to gold and other hard assets. This shows the folly of using one fiat currency to value another.

Gold is history’s oldest and most stable currency. Central bankers and politicians don’t want a gold-backed currency system, because it denies them the power to create money out of thin air. Governments by their very nature want to expand, whether to finance military intervention abroad or a welfare state at home. Expansion costs money, and politicians don’t want spending limited to the amounts they can tax or borrow. This is precisely why central banks now manage all of the world’s major currencies.

Yet while politicians favor central bank control of money, history and the laws of economics are on the side of gold. Even though central banks try to mask their inflationary policies and suppress the price of gold by surreptitiously selling it, the gold markets always cut through the smokescreen eventually. Rising gold prices like we see today historically signify trouble for paper currencies, and the dollar is no exception.

President Nixon finally severed the last tenuous links between the dollar and gold in 1971. Since 1971, the Federal Reserve and U.S. Treasury have employed a pure fiat money system, meaning government can create money whenever it decrees simply by printing more dollars. The "value" of each newly minted dollar is determined by the faith of the public, the money supply, and the financial markets. In other words, fiat dollars have no intrinsic value.

What does this mean for you and your family? Since your dollars have no intrinsic value, they are subject to currency market fluctuations and ruinous government policies, especially Fed inflationary policies. Every time new dollars are printed and the money supply increases, your income and savings are worth less. Even as you save for retirement, the Fed is working against you. Inflation is nothing more than government counterfeiting by the Fed printing presses.

[Eagles Talon IV]

I agree. The increase in gold is nothing but a momentum move and is being fed by speculators driving the market up. What will happen here is what always happens. T he novices who believe there is no ceiling will pour their money in and the pros will sit back and when the time is right will begin selling into the fever. When they have taken their profits the short sellers come in, spread a rumor or two and once the price breaks lower the newbies will panic and a blood bath will ensue.

I predict gold at between $275-325 oz. within 1 year

[Lazamataz]

What do Rising Gold Prices Mean?

TEOTWAWKI

[Moonman62]

Prices are rising - because of competition. Simple as that.

The current price spike is because the Russian government recently announced that it will be stockpiling its country's gold production for the next three years. The dollar's been strengthening for a year, but gold (and oil) got to its lofty level because of GWB's attempt to get something for nothing (weak dollar policy).

[Senator Bedfellow]

But I feel fine...

[simon says what]

Most of the S&P stocks pay a dividend much of the the time. What kind of dividends does gold pay?

We were comparing price performance. If you would like to compare Apples to Apples I will gladly compare Gold Stock performance to S&P 500 stock performance to include dividends. Some of the Gold stocks themselves have dividends. The dividend yield on the S&P 500 is 1.7%. This yield is closer to historical lows than historical highs for dividend yield and is another item pointing to the S&P 500 being over valued.

Apples to Apples - GOLD Index HUI to Large Cap Index S&P 500 Gold Stocks have outperformed the S&P 500 by 67%. The S&P 500 has been heading up for almost 3 years now and still underperformed gold stocks by 67%. This does not include dividends from either index but a 1.7% yield doesn't make up much ground.

HUI Gold Stock Index = Green         S&P 500 Index = Blue

[T. Jefferson]

If you had bought gold at its low in the 1990s, you'd have doubled your money. If you bought a basket of Nazdog stocks at the same time, you'd still be out money.

I think your charts are upside down. The Nasdaq was around 350 in early 1990's, it's up 700+% since then. As for individual stocks, I remember that well. I went long Dell in 1993 at a split adjust 33 cents. It's now 31. Microsoft and Intel and Cisco were the only other big Nas stocks people bought back then. Each have split 8 times.

[simon says what]

sergeantdave: If you had bought gold at its low in the 1990s, you'd have doubled your money.

T. Jefferson: I think your charts are upside down.

Gold's low was in 1999. It has outperformed the Nasdaq by 73% since then... sergeantdave's post was accurate.

Gold = Green         NASDAQ = Blue

[Tennessee_Bob]

What do Rising Gold Prices Mean?

It means that gold is getting more expensive.

[Petronski]

Investing in gold stocks is not investing in gold, is it?

Does an investment in gold pay a dividend?

[Roberts]

I never said Ron Paul was my "hero", but he is correct about fiat currencies and gold's relationship to them.

Laugh all you like, but God help anyone to whom you give financial or economic advice.

[Roberts]

True, the government has more assets, but the amount of the government's liabilities is staggering.

[Roberts]

Thanks for the book rec. I'll check it out.

[T. Jefferson]

His post was comparing the 1990's low of gold vs. Nasdaq to today. Nas is up 700 percent vs. 200 percent for gold. Your chart starts at 1999.

[bert]

.....Prices are rising - because of competition. Simple as that.....

You are correct. Beyond our borders is a big world. To internalize the price of gold is naive.

[tertiary01]

Best hobby in the world. Great outdoor living, exercise that rivals a gym and if you are smart and or lucky you will end up paid for your effort.

[bert]

You left out the part about the trashing of Paris by rioting mobs.

The destruction of a major European capital is worthy of note to those who worry about the future.

[simon says what]

His post was comparing the 1990's low of gold vs. Nasdaq to today. Nas is up 700 percent vs. 200 percent for gold. Your chart starts at 1999.

When was the low in Gold? 1999!

Since the low in Gold in 1999 it has outperformed the Nas by 73%.

[<1/1,000,000th%]

It means the Russians aren't selling into rising markets for a change.

[Marxbites]

And only idiots with zip for brains are pooh-poohing this article as well as rendering the Founder's visions as folly.

I think they already knew the propensity of Govt's to play games with currencies to their own advantage,

Gold back currency denies them this trick.

It's why a whopper, fries and a coke no longer can be bought for less than a dollar.

Ron Paul is a TRUE patriot in the mold of the Founders. One of the few who would like a return to a pre-FDR constitution since corrupted by socialists.

[simon says what]

Gold is a commodity, it does not pay dividends. The S&P 500 is a stock index, it does not pay dividends either.