gunDriller
22nd October 2010, 03:57 AM
http://www.gata.org/node/9189
just a part of it -
"Gold's antagonists claim that gold is a Ponzi scheme. Its value continuing to rise, they say, depends on people willing to buy it at higher prices from previous buyers.
This is to misunderstand the nature of gold. It is not just another commodity. Gold was once money and no doubt will be again. The last four decades are the blip in time when money has not been backed by gold.
All this you know, but now you know I know. We're back to those "unknown knowns," aren't we now?
People always say to me gold has gone up a lot and so it's too high. I always reply that gold has a price and a value. These two constructs are not interchangeable. Price is a level at which you make an exchange, and value is whether it is worth it. Right now gold is at a high price, but when examined in the context of other assets, it remains undervalued -- primarily against paper money.
As gold's value rises -- or, more accurately -- as paper money's value falls, what we are seeing is an incremental return of gold to a monetary asset. The fact remains that the subtle confiscation of your day's labor by issuing printed money has only begun to dawn on the populace. They are only just waking up to gold as money.
Governments today are struggling with thumping budget deficits and unfunded liabilities, so the risk of further money printing looms large. With gold already undervalued, its outperformance will only accelerate.
A German banker once said that gold normally trades like a commodity. But he also said that when investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited.
He is spot-on. When individuals obsess about the validity of money, they lose faith in government. Their discarding of money in such a situation is akin to an increase in the money supply, which is an inflationary event. Hyperinflations such as these are thus a political event, not only as government will be deficit-financing but because people have made a statement about government. After all, fiat money is by decree of government, not free markets.
I am also often asked how high I think gold will go -- as if I had answered the riddle to the uncertainty model. My prediction is: How low can money go? How many zeros can you put on a piece of paper -- that is how high gold can go. In Hungary the pengo was denominated in 100 quintillion. That's a lot of noughts per ounce of gold.
My personal framework is that we are experiencing the invisible signs of inflation, which manifests from the issuance of global sovereign debt. Professional pundits like to polarize the world between deflationists and inflationists Richard Cantillon noted that the supply of credit and money does not work its way uniformly into the economy. Government cannot control where the money flows.
I predict with uncertainty that encumbered asset classes such as housing will in real terms go nowhere. In nominal terms they may even rise. But areas with a small float of stock -- certain commodities -- such as silver, gold, small-cap emerging-market stocks -- will rise in nominal terms tremendously. My only concern is that the market is embracing this concept, but far from me taking a contrarian position here, I believe that the feedback loop will self-fulfill this eventuality."
just a part of it -
"Gold's antagonists claim that gold is a Ponzi scheme. Its value continuing to rise, they say, depends on people willing to buy it at higher prices from previous buyers.
This is to misunderstand the nature of gold. It is not just another commodity. Gold was once money and no doubt will be again. The last four decades are the blip in time when money has not been backed by gold.
All this you know, but now you know I know. We're back to those "unknown knowns," aren't we now?
People always say to me gold has gone up a lot and so it's too high. I always reply that gold has a price and a value. These two constructs are not interchangeable. Price is a level at which you make an exchange, and value is whether it is worth it. Right now gold is at a high price, but when examined in the context of other assets, it remains undervalued -- primarily against paper money.
As gold's value rises -- or, more accurately -- as paper money's value falls, what we are seeing is an incremental return of gold to a monetary asset. The fact remains that the subtle confiscation of your day's labor by issuing printed money has only begun to dawn on the populace. They are only just waking up to gold as money.
Governments today are struggling with thumping budget deficits and unfunded liabilities, so the risk of further money printing looms large. With gold already undervalued, its outperformance will only accelerate.
A German banker once said that gold normally trades like a commodity. But he also said that when investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited.
He is spot-on. When individuals obsess about the validity of money, they lose faith in government. Their discarding of money in such a situation is akin to an increase in the money supply, which is an inflationary event. Hyperinflations such as these are thus a political event, not only as government will be deficit-financing but because people have made a statement about government. After all, fiat money is by decree of government, not free markets.
I am also often asked how high I think gold will go -- as if I had answered the riddle to the uncertainty model. My prediction is: How low can money go? How many zeros can you put on a piece of paper -- that is how high gold can go. In Hungary the pengo was denominated in 100 quintillion. That's a lot of noughts per ounce of gold.
My personal framework is that we are experiencing the invisible signs of inflation, which manifests from the issuance of global sovereign debt. Professional pundits like to polarize the world between deflationists and inflationists Richard Cantillon noted that the supply of credit and money does not work its way uniformly into the economy. Government cannot control where the money flows.
I predict with uncertainty that encumbered asset classes such as housing will in real terms go nowhere. In nominal terms they may even rise. But areas with a small float of stock -- certain commodities -- such as silver, gold, small-cap emerging-market stocks -- will rise in nominal terms tremendously. My only concern is that the market is embracing this concept, but far from me taking a contrarian position here, I believe that the feedback loop will self-fulfill this eventuality."