12/22/09 Paris, France – As near as we can tell, gold is fairly priced. It will buy about as much as it would have bought 500 years ago…or 2,000 years ago, for that matter. That’s what’s nice about it. It doesn’t make you any money, but it doesn’t lose you any money either.
Of course, the price of gold can still vary substantially. In the last bull market in gold – from the trough in ’67 to the peak in ’80 – gold rose 1550%. That was a good time sell. The next two decades saw the price sawed in half…and then sawed in half again.
Now it is going up again. Most likely, it is merely adjusting to the inflation of the previous three decades. Or perhaps it is anticipating more inflation ahead.
As to the inflation ahead, we’re not so sure. There’s probably a long, dark, cold period of depression to go through before we get to the heat of hyperinflation. But then…who knows? As the challenges we’ve mentioned hint, anything could happen.
Here at The Daily Reckoning we are neither bullish nor bearish on gold. We don’t know whether it will go up or down. But as to our confidence in human beings, we have no doubt. In our opinion, the world’s most popular economists – notably Ben Bernanke and Paul Krugman – would probably make fine bartenders. They are good at providing ‘liquidity,’ and not much more. They have no idea what is happening in the world of finance…and their idea of what to do about it will almost surely make things worse. Meanwhile, we feel we can count on Congress and the president too. The nation may already have a net worth of MINUS $70 trillion (according to John Williams of ShadowStats)…but they will surely keep spending until the nation goes broke.
Typically, power begets gold…then gold begets power…and then both gold and power are begotten by someone else. The world never stands still, even for someone with a million dollars’ worth of Krugerrands in his home safe.
The BRICs – Brazil, Russia, India and China – are begetting power. Their economies are growing much faster than the developed, mature economies of the west. They grew by selling products – often in dollars. This left them with dollars as financial reserves. They have little gold.
For a very long time, dollars were ‘as good as gold’ – or almost. But now the power equations need to be reworked. The BRICs are gaining power…but find themselves still hostage to America’s paper money. Inevitably, they’re going to follow India’s recent example…as well as the example of practically every nation to gain power throughout history; they’re going to add to their supplies of gold.
A rising power acquires gold. A fading gives it up. The US has more than 8,000 tonnes of gold…nearly 80% of its reserves. Meanwhile, China – America’s most likely rival for superpower status – has only 600 tonnes of gold. It keeps less than 1% of its reserves in the yellow metal. Put all the BRICs together and you get 1,500 tonnes, less than a quarter of the US hoard. And the BRICs have 10 times as many people.
Official purchases of gold by central banks have been negative for many years. They still are. In the 2nd and 3rd quarters central banks sold more than they bought. Imagine if they suddenly went positive! If the BRICs wanted to bring their reserves up to just half the level of the US, they’d have to buy 2,500 tonnes.
Until tomorrow,
Bill Bonner
The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Harry is a blithering moron. GDP was ‘revised’ downward. Again.
Only fecalpheliac basement-dwellers like Harry think downward GDP ‘revisions’ are signs of a great economy.
If everyone Harry knows who was laid of has bee rehired, they must be in the banking clan. That’s not a real economy. It’s a commie scam.
House aren’t being bought by people. They’re being bought by REIT on foreclosure and reported as sales of already-existing homes.
“China – America’s most likely rival for superpower status – has only 600 tonnes of gold.”
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true for now, of course, China is also producing new gold from domestic mining
they will likely continue restricting export
they take the long view
Before the final game is played, the outcome is already obvious. Getting the right person to do the right job is of paramount importance.
Years ago, when the Shanghai Authority engaged Singaporeans who holds first university degree as economic adviser, I was in doubt. No doubt, u grads are highly qualified and they are equipped with the latest knowledge. But, can we say that a contemporary unversity taught
pratical and theory which are already universally known – information and material which have already been fully released and dispatched.
Now, looking back to history of three kingdom of China. Liu Pei, endured all the
hardship to look up his favourite, Zhu Ke Liang. Why ? Because Zhu, brilliant and deceptive was the real kind who could turn the tide.
Undoubtedly, a person like Zhu should be engaged to play such a high stake game
Why do citizens buy gold ? All the gold privately held can be legally confiscated by the government in a time of crisis . And this is a time of financial crisis .
Remember The Roosevelt Gold Confiscation Order Of April 3 1933.
“Franklin D Roosevelt, under Presidential Executive Order number 6102, confiscated all privately held Gold in the United States on April 5, 1933. »
Why is every citizen of our Western democracies so bad at History ?
No significant numbers of Americans coughed up their gold bullion in 1933. Yeah!
@ Rusty Spears
The Americans whose gold was confiscated in 1933 did not boast about it . How many people have boasted about losing millions in Wall Street in September 2008 or in the subprime crisis ? How many of your neighbours have boasted about losing their future retirement pension in Wall Street last year ?
Nobody likes being regarded as a dummy, a loser.
Moreover, the State’s interest is to let people buy gold and forget the existence of Roosevelt’s Gold Confiscation Act which is still perfectly legal . The state’s gold crop will be bigger . The state needs more and more money to endow more and more people with longer unenemployment allowances . Unemployment and debt ( public and private) are the biggest calamities in all the Western countries for year 2010 and the following .