By: Alex Stanczyk
Mexico, Russia, Thailand Add $6 Billion of Gold to Reserves, IMF Data Show
As western nation debt continues to escalate, this trend of Central Bank buying will likely continue, because gold is indeed money.
Gold is not in a bubble, fiat currencies and sovereign debt is in a bubble. The comment parroted so often by those who have not taken the time to study history or the underlying factors is that gold is overpriced, the problem is what they are comparing it to. This view most often stems from the common western idea that gold is a speculative commodity, and not money.
This view is changing fast, evidenced by massive Central Bank buying. If you compare the price of gold relative to the explosion in money supply, gold is incredibly cheap. Smart investors are starting to make this switch, and are comparing gold now to currencies instead of stock market performance. The inability for many people to even, as an experiment, consider gold as money, is the reason so many are incapable of understanding gold’s recent and likely future performance. Only those who are able to think outside of what our current generations have accepted are the ones who are able to grasp it.
“Gold is a possession and not a promise. A government that owns an ounce of gold does not have to ask the United States or anyone for permission to cash it. The gold supply is finite; that is its monetary significance.” – Sir Rees-Mogg, The Times, Dec. 12,1979
The above quote is the exact opposite of what those incapable of grasping that gold is money has to say about gold. The common claim is that gold cannot be money because there is not enough of it. If a person exercises their common sense they will see this is a ridiculous statement. The reason any money has value at all is due to its scarcity. If dollar bills were as common as rocks on the ground, how valuable would they be? Yet those who have a hatred of gold as money bordering on paranoia would suggest that creating infinite amounts of paper notes is a better idea?
It took almost 100 years for the Dow to hit 1000, yet it took only 16 years to hit 10,000 from 1983 to 1999. It is important to note that the money supply of the US was about $1.5 trillion for the majority of the US’ prosperous years – all of the hospitals, bridges, etc were built with that limited stock of money – all the way up to about 1971 when gold was severed from the USD – since then the money supply has exploded by over ten fold, arguably carrying the equity markets with it.
This same effect can be seen by comparing the recent QE to the SPX as this excellent chart from Zeal LLC shows:
So the question must be asked, are the equity markets really rising or is that just a symptom of an explosion in paper money printing?
If the (Continuous Commodity Index) CCI has risen an average of 14.4% each year for the last decade, is that really the value of food and other commodities increasing or the value of the paper money decreasing? If your portfolio increases by 10% in nominal USD terms, but you lost 14.4% in buying power, did you really move forward or backward?
If you expand the money supply 10 fold, can gold not go from $350 to $3500, a ten fold increase? It seems it is easy for financial commentators to accept that the money supply measured in M3 is well beyond $14.5 trillion, yet cannot fathom dividing those dollars by the number of ounces of gold in the US treasury to arrive at a price north of $50,000 per ounce.
The biggest subject that must be decided upon by financial professionals is to realize that gold is actually money and stop comparing it with the stock markets and other speculations. Gold is not rising on speculation, gold is rising on the fact that it is now and always has been the measurement by which all value is compared to.
All Things Considered – John’s Commentary:
Alex Stanczyk writes commentary on the gold and silver markets, general economy and monetary policy from a bullion desk perspective. He is also the Editor of Anglo Far-East’s ‘Global Insider’.
To again quote Alex, ” Watch what they do, not what they say. Gold is indeed money. You don’t see Central Banks holding coffee or copper. They hold gold.”
Please pay attention to what our Central Bank (The Fed) is doing. Their entire focus is on utilizing proxy institutions (J.P. Morgan, Bank of America, Goldman Sachs, Citigroup etc.) to generate limitless artificial demand with the public for any and all U.S. Government debt – they have to, they have no choice.
Action to take: In my opinion, all excess in any part of life has to be purged before stability and subsequent healthy growth can resume. The recent correction is very, very good for the long term prospects of silver in particular. Use this opportunity to begin to acquire/reacquire in regular, modest amounts.
Quote of the day: “Gold is money, and nothing else.” – J.P. Morgan
