precious

[novapsyche]

lameautarch informed me that gold is selling near $1000 per oz. That's an insane price, especially considering that through much of the year the price of gold was falling.

He said it had something to do with the fact that China recently revealed that it has been hoarding gold, as well as the fact that the Fed continues to inflate the money supply even while credit markets are miserly tight.

Comments

[sophiaserpentia.livejournal.com]

Yes, I was just reading about this. China is now saying they want to gradually shift away from US Treasury bonds and into gold, though they are conscious about inflating the market too quickly.

That cartoon figure suddenly way high up in the air and running in place like Wile E. Coyote? That would be, um, us.

[bonerici.livejournal.com]

gold is a strange material. throughout recorded history people have valued it, from the ancient incas to the romans, but why, you can't eat it, it's not as strong as bronze, you cant use it as armor, maybe it has some use in dental work, but it doesn't have any intrinsic value. Compare that to oil, which we have to use for our cars, our airplanes (there will never be an electric airplane, the batteries are too heavy). When there is inflation pressure and the dollar gets weaker because the chinese leave t-bills, this puts direct pressure on oil. So oil was $140 last year during the bubble, a reflection of too much credit, then down to $30 in december, deflation, and back up to $70 as a hedge against a weak dollar. During this same time gold went only 700 during the worst deflation and the rest of all of 2008 and 2009 it has hovered around 1,000, yes it broke 1,000 but it has been around 900 for the past couple of years.

What does this mean? Basically it means that gold is a floating currency just like the euro, the dollar and the yen. There is zero intrinsic value in gold, so at any moment the bottom could drop out. However it won't inflate so during an inflationary period it is a safer investment. During a deflationary time, it is a pretty bad investment, but gold first and foremost is an emotional investment. Unlike oil it has no value.

Going above $1,000 means nothing really, oil, black gold, is a better indicator of a weak dollar, because nearly all the world's oil is bought and sold in dollars, so fears of a weak dollar should drive up prices, however fighting against that is the recession. If the economy should recover that would strengthen the dollar, but also put pressure on oil demand.

As for it having something to do with "China hoarding gold" that is one of those ex-post facto explanations people use to explain a product that seems to behave at random. Why didn't gold go down to 300 the same way oil did when it seemed the financial world would collapse? Emotion. People like gold. It makes them feel good to own it.

What happens next week if gold goes to 900, does that mean China quit hoarding gold or will we have another ex post facto explanation? Don't worry China is still buying T-bills. They want to quit doing it, but they don't want to crater our economy, so they are kind of stuck right now.