08/18/11 Poitou, France – The price of gold jumped above $1,800 today. We can imagine $2,000 by the end of the year.
Meanwhile, Wells Fargo, among others, is warning of a ‘bubble’ in gold.
Is there a bubble in the gold market? An AP report explains why people are buying gold:
In October 2007, it sold for about $740 an ounce. A little over a year later, it rose above $1,000 for the first time. This past March, it began rocketing up. On Wednesday, it traded above $1,793 an ounce, just shy of last week’s record of $1,801.
Meanwhile, stocks, despite rising sharply in the last two and a half years, are only slightly higher in price than they were a decade ago. Since hitting a record high in October 2007, the Standard & Poor’s 500 index is down 23 percent.
Gold hits a sweet spot among the elements: It’s rare, but not too rare. It’s chemically stable; all the gold ever mined is still around. And it can be divided into small amounts without losing its properties.
Ultimately, though, gold is valuable because we all agree it is. It was used around the world as a currency for thousands of years, and then it gave value to paper currencies for a couple of hundred more.
Now, in a time of turmoil, from the credit downgrade and debate over raising the debt limit in the US to the growing financial crisis in Europe to worries of slow growth across the globe, gold is dazzling investors.
But wait….there’s more to the AP story:
Sharlett Wilkinson Buckner, of Humble, Texas, recently took an old bracelet, ring and necklace to her local jeweler and walked out with $1,070.
“I couldn’t wait for my husband to come home,” she said. “I fanned my money in front of him and said, ‘Look what I got for my gold.’“
The next day, he sold an old gold necklace for $650.
Do you see what we see? The average person is still ‘out to lunch.’ He has no idea what is happening. Desperate for cash, he sells gold in order to load up on – paper!
Of course, it may turn out to be a good move. At least, in the near term. The whole world is drowning in a tub of debt. As debt drains away – we are in a Great Correction, remember, a period of debt-reduction – ‘money’ goes down the drain too.
In an expansion, the banking system turns on the taps. It magnifies purchasing power…by making loans. In a contraction, purchasing power goes down…as loans are repaid or written off. A $100,000 loan that is repaid reduces the ‘money’ supply by $100,000 (unless it is lent out to someone else). In a fractional reserve banking system, a loan that can’t be repaid…reduces the money supply by as much as $1 million. It wipes out the bank’s lending capital, forcing it to reduce its loans outstanding.
This de-leveraging process should help support the value of the dollar and reduce the demand for gold as a refuge. But so far, gold is still going up. And in the long run…after the feds have intervened…it should soar.
Here’s our old friend Doug Casey on the subject:
I hate encouraging people to buy gold at $1,800 an ounce, because that level is already more than 700% above the bottom in 2001, and I’m a bottom fisher. I like bargains, and I can’t call gold a bargain today. But it’s plain as day that gold is going to go higher. There’s simply no other place for people to try to safeguard their wealth as the dollar, euro, and other currencies plummet toward their intrinsic values. What else could people buy as they get more and more afraid of paper currencies losing acceptance? What are corporations going to do with the billions of dollars in their treasuries when their management gets frightened? Where else can they go when they need to get rid of dollars, euro, yen, and yuan? Central banks, too – what will they do when they need to dump dollars in favor of something that will hold value?
This is why I see a bubble in gold still ahead. It has nothing to do with the supply and demand for gold in the jewelry trade, or whatever – it’s going to be a result of there being no viable alternatives when the paper-money con game is over. Gold is the ultimate cash, and that’s where people will go when there’s a global, total, panic to cash.
Gold is fundamentally a bet that the financial authorities are losers…that the world’s paper-based monetary system is headed for destruction, and they can’t stop it. It is a good bet.
Regards,
Bill Bonner
for 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.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
One more attempt with typographic corrections:
“There’s simply no other place for people to try to safeguard their wealth as the dollar, euro, and other currencies plummet toward their intrinsic values. ”
This is not true. There are currencies that show strength and the promise of endurance, they’re called the “resource currencies” and your associate Mr. Butler writes of them often. They have the advantage of liquidity and also the advantage that they are not taxed as “collectibles” in the US when they’re traded. They have not performed as well as gold pre-tax, but they’ve shown a respectable post-tax return over the past few years.
Gold will pierce $2,000 in the near future, no doubt, but if the shyte really hits the fan, guns, ammo, and water (hell, even whiskey) will be more valuable.
I’m not someone who can prepare for, or imagine, such an End Times Scenario, so I’m sticking with gold. If the End Times truly come, as some predict, all I need is one gun with one bullet.
Gold has worked for me for several years but I fully expect to get spanked on that at some point, it’s happened in every other asset so far.
I used to love life and lived it to the fullest as much as possible, spending my time doing exhilarating sports and traveling, living simple and free. Then I decided to take charge of my investments and prepare for retirement. While I have had some success with that it has hardly been worth the misery of constantly dwelling on the end of life as we know it on days like this. We’re spending the few precious years we have left to us worrying about our economic future instead of living life.
I believe I will head for Baja to do some windsurfing and kiteboarding, enough of this misery. Only problem is you can’t bring your guns down there. However the atmosphere is definitely a lot cheerier.
Lucky for everyone, gold isn’ so rare that it can’t function as a currency. The problem for governments everywhere, is that gold is very hard to manipulate since it can’t be fabricated out of this air. It can, of course, be taken at gunpoint, but that too is problematic since the governments gunman is going to be demanding gold in payment for his services. And if he is forcibily taking it from someone else, why bother sharing his spoils with the government at all?
As for the zombies, I suspect many will soon long for the “good old days” when all the zombies were pacified with fiat money. The crime and anarchy of an all gold monetary system are the big downside, and even for those who prudently have invested their savings in gold, this same liability applies.
“Gold is fundamentally a bet that the financial authorities are losers…that the world’s paper-based monetary system is headed for destruction, and they can’t stop it.”
That sir is NOT a “bet”, it is an “eventuality”. There is a rather large difference, both in semantics and in fact.
As for anyone taking “someones” gold at gun point… remember that the bulk of gold and the bulk of buying is by central banks and governments! What’s it called when “someone” tries to take government gold by force… yeah, either imbecile or … WAR!
Gotta agree with Dave. Life has become nothing but worrying about a financial future and what idiot is going to take the helm and save everything. Keep the zombies busy and afraid. Yep that’s the ticket. They will enslave themselves and most will be happy to do it.
“gold is very hard to manipulate since it can’t be fabricated out of this air”
Lets see now diamonds which can be made now have been manipulated for years by Debeers. All one has to do with gold is if a big find is made just keep it off the market. Just like Debeers does with diamonds. Anything that humans do can be manipulated and will be to someones favor. Dream on.
In my opinion, gold is always a buy. It’s just that there are certain times when it’s a better buy than others. $1600 is good and we’re nearing that now.