"Everything you need to know about gold"
GOLD AFTER INFLATION
The closing price for spot gold in New York today is $1915. Forty-three years ago, in May 1980, gold was priced at $515.
Being somewhat generous, and since gold has been higher (above $2000) recently, we might say that the gold price has quadrupled over those forty-three years.
GOLD AND THE MONEY SUPPLY
A recent article (Credit Crunch: The Money Supply Has Shrunk For Eight Months In A Row) by Ryan McMaken of the Mises Institute explained clearly the historical significance of the contraction in the money supply that has occurred over the past eight months.
In this article, I will be talking about the possible effects of this ongoing contraction as they relate to the price of gold.
GOLD CONVERTIBILITY IS THE KEY
All the talk about BRICS countries possible issuance (not anytime soon) of a gold-backed currency, and most of the analysis, misses a key point.
The success of any fiat currency or real money substitute (in other words, anything other than gold itself as the medium of exchange) depends on its convertibility into gold – on demand.
GOLD IS PRICELESS
Over 5000 years of recorded history, gold has proven itself to be real money. Gold’s value is in its use as money. That value is unquestioned.
Whatever arguments are put forth against gold’s use as money are attempts by government to free itself from the restrictions that gold imposes. Gold, when used properly, limits the ability of government to inflate and debase its money.
PRICE OF GOLD IS NOT ABOUT GOLD
Attempts to analyze and value gold are superfluous. Gold’s value – its use as money – has already been established. That value is constant and unquestioned.
The price of gold does not tell us anything about gold or its value. The gold price tells us only how much purchasing power the U.S. dollar has lost – nothing else.
GOLD AT $4000?
For that to happen will require something almost unbelievable – if you expect gold to be at $4000 anytime soon, that is. The problem with most predictions for higher gold prices is that they fail to account for the financial and economic turmoil that would accompany those higher prices.
What is so unbelievable that would need to happen for gold to go to $4000 oz.?
PAYMENT FOR SERVICES RENDERED
The gold market has become a social gathering place for an odd combination of participants. Those participants range from the gullible and the disillusioned to those seeking the next big thing.
Permeating the atmosphere surrounding the commotion are false fundamentals and faulty logic. Fundamental analysis, or what passes for it, gets distorted and perverted beyond recognition.
GOLD’S DECEPTIVE NEW HIGHS (audio version)
The latest gold analyses have shifted to a more accommodative nature regarding the yellow metal’s failure to extend its gains after breaking above $2000 for the fourth consecutive year. Here is a chart (source) that depicts what most analysts and investors are seeing…
GOLD BULLS TOO PRICE-DEPENDENT?
Theoretically, a higher price can indicate an increase in value for a good, a service, a stock, etc. That does not mean that a higher price is always indicative of an increase in value.
On occasion, the higher price tells us something else. For example, most people are quite sensitive to the higher prices they pay for groceries and gasoline. Since the forced shutdown of the economy in response to Covid, prices for food and energy have risen along with most other goods and services.
SIGNIFICANCE OF 1980 GOLD PEAK
When President Nixon slammed shut the gold window for foreign holders of U.S. dollars, it was the final step in a planned exit from the gold standard. It was also tacit admission that the United States government, in conjunction with the Federal Reserve, had debased the world’s s reserve currency beyond a point that could no longer be ignored.