Gold is a physical good, relatively fixed in supply. It has all the characteristics of good money. That is why it was money before government set out to exploit its citizens with central banking and finally fiat money.
The demand for gold is increasing partly as an inflation hedge (what, you say, there is no inflation? There is, of course, but it doesn’t show up in the CPI index.) Primarily the demand for gold is increasing, and hence its price, because it is perceived to be a “safe” asset. It was and still is a currency.
As the paper counterfeiters (sovereign governments) run out of room to swindle, all currencies are losing value. Gold is not rising, it is actually staying the same in terms of purchasing power. All paper currencies are deteriorating rapidly.
From Jesse’s Cafe Americain comes this article:
Performance of Several Key Currencies Since January 2007
This chart shows the comparative performance of several currencies in their dollar crosses since January 2007, or shortly before the most recent financial crisis took hold. For the US dollar itself we are using the DX index.
Gold did sell off hard in the market plunge in October of 2008 reaching an intraday low of $680, a buying opportunity of the first order. Many who said they were waiting to buy a dip never bought, because like most speculators they keep waiting for ‘THE’ bottom, and keep lowering their target buy price, and never really take a position. Then watch it run away from them, and wait for a pullback, but again never buy back in. Oh they will point to certain stocks that performed fabulously off the bottom, but they did not buy and hold them either, except in their fantasies and trash talk.
This is a flip side to those bulls who were long the tech bubble, and kept waiting for a higher price to sell their positions, just a few dollars more, and ended up taking a ride on a death spiral.
If you did not buy in then, what makes you think you can muster the conviction to buy on any other dip in a new major selloff? What makes you think the market will give you a second chance?
Gold never broke in the Crash of 1987, and offered quite a safe haven until Greenspan and the central banks started selling into it in 1988 to discourage the competition. Think they can do that again? With what?
And as for the theory about debt destruction making a currency more valuable, it could work, but don’t hold your breath for the euro to strengthen as the sovereign debt of the PIGS starts swirling the bowl. And where they go, so will the UK and then the US go as well.
And before you complacently snicker at the problems in the eurozone, keep in mind that as a percent of GDP, the US debt is fast approaching the same level as Portugal, and climbing.
POSTED BY JESSE AT 8:18 PM
Living Through Economic Collapse
Inflation: The Last Gasp of the Obama Economic Crisis
Depression Unavoidable
It Looks Like Inflation or Hyperinflation Ahead
Forbes on Inflation
Recent Comments