The "Standard" of The Price of Gold is This Century’s DeBoers
I’m writing a few long posts—you’ve been warned—but that machine doesn’t have Internet access right now.* So I’m just going to point to Kash, who writes about something else:
In looking at the data I was struck by how small (relatively) the worldwide market for gold really is. That means that relatively small inflows of funds into the market for gold could potentially have very large effects on the price of gold. And that in turn means that the price of gold could be very sensitive to a number of factors that have nothing to do with economic conditions or inflation….
[M]oving just 0.1% of the financial wealth of US households into gold could be enough to have a dramatic impact on the price of gold. Note that the same can not be said of other asset prices that we care about; it would be difficult to discern any price effects whatsoever of a move of an additional $50 billion more or less per year into the stock market (valued at over $50 trillion around the world), the bond market (also with a total value in the tens of trillions of dollars), or real estate.
[A] good advertising campaign by gold producers could be enough to move the price of gold. Imagine that an effective, sustained advertising campaign, targeted at wealthy, conservative individuals in the US, is able to persuade 25,000 of them per month to switch a portion of their financial assets into gold….Such an advertising campaign would have the effect of pushing $15 billion per year into the market for investment gold — very possibly enough to have a significant impact on the price of gold, given how small the overall market for gold is. In case you plan to start making your own gold reserve, check this post on the Best gold ira custodians of 2022 – comparison fees, reviews.
[A] very similar thing happened to the market for diamonds in the middle of the 20th century. The DeBeers diamond cartel used an incredibly successful advertising campaign in the 1950s to cement the idea of the diamond as the premier gemstone, and in so doing permanently changed the value of diamonds.
Whether or not you like that analogy, the central point here is a very simple one. Since the market for gold is so small, its price may be strongly affected by things that have nothing to do with the state of the economy.
Kash’s analysis—read the whole thing—should drive the final stake through the heart of the idea that, in the current economy, gold is anything more than what I quoted Warren Buffett as saying it is more than a year and one-half ago.
*In this context, does anyone know how to add the Windows Live Writer app to a Droid X?
The ironic thing is that I read this with the SPIDR “why you should buy gold” banner ad at the top of the page. Point made?
So let’s think about this…would you rather have your savings in an Irish bank where it will soon become whatever amount of New Punts the gov’t likes, or would you rather have gold? Care for some freshly minted New Drachma? Some Escudos Nuevos?
There’s a reason people are interested in the price of gold.
What we really need is a fiat currency that cannot be devalued by any government. The US will soon have to choose between repaying debt and monetizing/inflating it away. If we choose inflation, we will undermine the world’s confidence in the USD, which is one of the biggest advantages we have left.
Unfortunately gold cannot take the place of the major currencies, no matter how worthless they become. The economy is simply too large. A modern economy must be built on trust; there is no substitute.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value… Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
– Alan Greenspan, 1966
Don’t buy gold…more for the rest of us.
Keep in mind that gold has no more inherent value than that which is determined by the numbers of buyers for the metal. “…more for the rest of us.” is meaningless if the rest of you have all the gold that you can afford and there’s no else that needs or wants it.
The reason I moved my IRA from Treasuries to GLD in 2008 still holds for me. As someone on SS disability with a small IRA I assuredly do not want to be in US dollars for the long run. Until a new Reserve Currency emerges or the magic fairy educates the populace about fiat currencies and who owns the Fed I will keep my IRA in GLD.
It is what I rather not have that matters.
I would rather not hold bonds of the Euro banks, any of them.
Gold being a bubble and seeing how the silver market went I would not have gold now.
Monetizing has been the scam since Reagan, and Milton and Ayn.
Clinton threatened the monetizing scam with paying US bills down.
A Russian emigre named Rand……………………..
Only for LBJ and the Dems.
Then he went to work for the inflators…………………..
Randian, self interest.
People don’t change what they do for power and money change.
Jack – “…more for the rest of us.” There is a finite supply of gold in this world. There is an infinite supply of Fed printed funny money.
My point in “more for the rest of us” is I will have a chair, owning physical, when the music stops and the world wakes up to the grand theft by central banks that they are condoning. I wouldnt want to be late to this one.
You keep on believing in Bernanke. Good luck!
You miss my point. We may all be suffering from funny money depreciation before too long. Gold may or may not be the safe haven for wealth and its value is subject to the emotional prognostications of a smaller population of investors. If you’re gambling on the value of an intangible characteristic of a product like precious metal the wisdom is in knowing when to get out once the price breaks into the stratosphere.
interesting fact….long before anyone on this blog existed…the ancient Mayans not only used Gold as a currency but also worshipped. Around the same time that the Mayans were doing this in Central America…on the opposite side of the world in ancient China…the Chinese were also using gold as a currency. The funny thing is neither civilization has ever had ANY interaction
I find that amazing. Maybe its just me. I’ll side with thousands of years of human history and behavioral finance on this…the dollar as we know it today is 40 years old.