This Has Never Been In a Bubble and Never Will Be
Most serious gold investors follow a basic principle which is that gold is stable in value. Changes in the "gold price" represent changes in the currency being compared to gold, while gold itself is essentially inert.
This is why gold was used as a monetary foundation for literally thousands of years. You want money to be stable in value. The simplest way to accomplish this was to link it to gold. Today, we summarize this quality by saying that "gold is money."
From this we can see immediately, that if gold doesn't change in value – at least not very much – then it can never be in a "bubble." There may be a time when many people are desperate to trade their paper money for gold, but that is because their paper money is collapsing in value. It has nothing to do with gold.
Let's take a look at some of the great gold bull markets of the last hundred years:
- From 1920 to 1923, the price of gold in German marks rose from 160/oz. to 48 trillion/oz.
- From 1945 to 1950, the price of gold in Japanese yen rose from 140/oz. to 12,600/oz.
- From 1948 to 1967, the price of gold in Brazilian cruzeiros went from 648/oz. to 94,500/oz.
- From 1970 to 1980, the price of gold in US dollars went from 35/oz. to 850/oz.
- From 1982 to 1990, the price of gold in Mexican pesos went from 8,000/oz. to 1,025,000/oz.
- From 1989 to 2000, the price of gold in Russian rubles went from 1,600/oz. to 8,120,000/oz.
Each of these situations was an episode of paper currency depreciation. Today (circa 2011) is no different. The rising dollar / gold price, or euro / gold price, or yen / gold price is simply a reflection of the Keynesian "easy money" policies popular around the world today.
We can also see that if gold remains stable in value then the supply/demand considerations that affect industrial commodities do not affect gold, which is a monetary commodity. This is why gold is used as money. If its value was affected by industrial supply/demand factors, we would not be able to use it as money.
Thus, "jewelry demand" or "peak gold," or any other such factor, has little meaningful effect on gold's value. Day-to-day money flows will affect the price at which currencies trade vs. gold, but this ultimately affects the currency in question, not gold.
None of these historical "gold bull markets" resulted from jewelry demand or mining supply.
Any attempt to attach a valuation to gold is mostly a waste of time. Concepts like the "inflation-adjusted gold price" or the "gold/oil ratio," or a ratio of outstanding debt or currency to a quantity of gold bullion, are a distraction. An item that doesn't change value is never cheap or dear. That is what "gold is money" means.
The "price of gold" may reach five thousand, ten thousand, a hundred thousand, a million, or a billion dollars per ounce. The gold bubble-callers will be frothing at the mouth until they finally have the realization that there was never a bubble in gold, but only a crash in paper money.
Gold is money. Always has been. And it probably always will be. This time it's different? I don't think so.
What to do? Obtain more financial education and learn how to protect yourself during these trying times of massive money printing, fiat currency, and runaway inflation. Purchase precious metals, including gold, to hedge or protect your net worth against the decreasing value of the US Dollar, which is just paper money.
I favor a quote from Steve Forbes … Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to being savvy with our money and using alternative wealth creating strategies; this will be they key to resolving our financial crisis.
To gain the necessary financial education, it is best to pursue association with, access to, and membership in, a wealth creation community. As a result, you will learn about alternative wealth creating strategies and consider investments in non-dollar denominated assets … perhaps emerging markets … perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, rare earths, water rights, oil, natural gas, potash mines, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
For those wanting protection of their purchasing power in gold, there are several ways that may be appropriate to obtain this protection. These include direct ownership in minted coins, use of gold exchange traded funds, gold mutual funds, and junior gold stocks. Many are investigating having part of their IRAs in gold, silver, precious metals, and non-dollar denominated currencies.
In addition, for those that truly believe default of sovereign debt is the greatest risk we all face, it is wise to learn how to implement a multiple flag strategy to diversify this risk or provide protection against higher taxes, capital controls, hyperinflation, civil unrest, erosion of personal liberty, and the rise of a police state. With a multiple flag system, you consider taking preparations like, but not limited to, establishing a foreign bank account, purchasing some real estate overseas, seeking alternate sources of income, dual citizenship, and carrying multiple passports.
I will continue to provide examples of things we need to learn, the secrets of the insiders, as part of being savvy with our money, and introduce alternative wealth creating strategies, in future articles and updates at my blog over the next few weeks.
Finally, I want to thank Nathan Lewis, author of the book "Gold: The Once and Future Money" as he was the source of some of the material mentioned in this post.
This is why gold was used as a monetary foundation for literally thousands of years. You want money to be stable in value. The simplest way to accomplish this was to link it to gold. Today, we summarize this quality by saying that "gold is money."
From this we can see immediately, that if gold doesn't change in value – at least not very much – then it can never be in a "bubble." There may be a time when many people are desperate to trade their paper money for gold, but that is because their paper money is collapsing in value. It has nothing to do with gold.
Let's take a look at some of the great gold bull markets of the last hundred years:
- From 1920 to 1923, the price of gold in German marks rose from 160/oz. to 48 trillion/oz.
- From 1945 to 1950, the price of gold in Japanese yen rose from 140/oz. to 12,600/oz.
- From 1948 to 1967, the price of gold in Brazilian cruzeiros went from 648/oz. to 94,500/oz.
- From 1970 to 1980, the price of gold in US dollars went from 35/oz. to 850/oz.
- From 1982 to 1990, the price of gold in Mexican pesos went from 8,000/oz. to 1,025,000/oz.
- From 1989 to 2000, the price of gold in Russian rubles went from 1,600/oz. to 8,120,000/oz.
Each of these situations was an episode of paper currency depreciation. Today (circa 2011) is no different. The rising dollar / gold price, or euro / gold price, or yen / gold price is simply a reflection of the Keynesian "easy money" policies popular around the world today.
We can also see that if gold remains stable in value then the supply/demand considerations that affect industrial commodities do not affect gold, which is a monetary commodity. This is why gold is used as money. If its value was affected by industrial supply/demand factors, we would not be able to use it as money.
Thus, "jewelry demand" or "peak gold," or any other such factor, has little meaningful effect on gold's value. Day-to-day money flows will affect the price at which currencies trade vs. gold, but this ultimately affects the currency in question, not gold.
None of these historical "gold bull markets" resulted from jewelry demand or mining supply.
Any attempt to attach a valuation to gold is mostly a waste of time. Concepts like the "inflation-adjusted gold price" or the "gold/oil ratio," or a ratio of outstanding debt or currency to a quantity of gold bullion, are a distraction. An item that doesn't change value is never cheap or dear. That is what "gold is money" means.
The "price of gold" may reach five thousand, ten thousand, a hundred thousand, a million, or a billion dollars per ounce. The gold bubble-callers will be frothing at the mouth until they finally have the realization that there was never a bubble in gold, but only a crash in paper money.
Gold is money. Always has been. And it probably always will be. This time it's different? I don't think so.
What to do? Obtain more financial education and learn how to protect yourself during these trying times of massive money printing, fiat currency, and runaway inflation. Purchase precious metals, including gold, to hedge or protect your net worth against the decreasing value of the US Dollar, which is just paper money.
I favor a quote from Steve Forbes … Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to being savvy with our money and using alternative wealth creating strategies; this will be they key to resolving our financial crisis.
To gain the necessary financial education, it is best to pursue association with, access to, and membership in, a wealth creation community. As a result, you will learn about alternative wealth creating strategies and consider investments in non-dollar denominated assets … perhaps emerging markets … perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, rare earths, water rights, oil, natural gas, potash mines, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
For those wanting protection of their purchasing power in gold, there are several ways that may be appropriate to obtain this protection. These include direct ownership in minted coins, use of gold exchange traded funds, gold mutual funds, and junior gold stocks. Many are investigating having part of their IRAs in gold, silver, precious metals, and non-dollar denominated currencies.
In addition, for those that truly believe default of sovereign debt is the greatest risk we all face, it is wise to learn how to implement a multiple flag strategy to diversify this risk or provide protection against higher taxes, capital controls, hyperinflation, civil unrest, erosion of personal liberty, and the rise of a police state. With a multiple flag system, you consider taking preparations like, but not limited to, establishing a foreign bank account, purchasing some real estate overseas, seeking alternate sources of income, dual citizenship, and carrying multiple passports.
I will continue to provide examples of things we need to learn, the secrets of the insiders, as part of being savvy with our money, and introduce alternative wealth creating strategies, in future articles and updates at my blog over the next few weeks.
Finally, I want to thank Nathan Lewis, author of the book "Gold: The Once and Future Money" as he was the source of some of the material mentioned in this post.
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