Thursday, January 18, 2007

Gold is Money

This is starting to feel like I'm beating horse's bleached bones, but I feel like some people still aren't "getting it".

While it clearly has a use as jewlery. And, although it's used in industry, it doesn't really qualify as a commercial commodity.
Gold is Money.
The same amount of gold that bought a loaf of bread, and as bought a nice suit in the the time of Jesus, will buy a nice suit, and a loaf of bread now.
It's price (as expressed in dollars) should be thought of as an "exchange rate". While it takes much labor effort and energy to extract an ounce of gold from the ground. Which is why gold's value isn't inflated away. Dollars (and credit for dollars) can be created out of "thin air". This fact alone means that you are betting on the restraint of fallable humans to keep your dollars valuable.
Because Gold is money, it has been known to move up in value during inflationary times -- more dollars are available to chase a smaller amount of gold.
The seemingly paradoxical happens during a DE flationary environment when money of all kinds in horded, and gold goes up in value again (being oft regarded as the 'safest' of all 'safe havens') That is the reason that interest in gold and gold mining shares soared not only during the deflationary 30's, but also the inflationary 70's.
So today the Nasdaq cracked pretty hard. Whether this is the beginning of a more complete "route" in the tech shares or not, I can't even begin to guess. The reason? Without seeing the mainstream media explanation (usually bogus) the only thing i saw that could begin to explain was that we are starting to recognize that we are living in an inflationary environment now.....Or, better put, maybe the evidence is so obvious that the Fed can't pretend that they don't see price inflation any more and may have to do something., here is where I might actually say something worth your time. Raising the short term rates 1/4 point (or whatever) isn't going to halt inflation if they keep creating money and credit!!! Reread that last line 10 times. Live it. Learn it. Love it.
If you pay attention to the MSM, you will be given stories (over and over and over again) that will explain things in a different light, and eventually you may actually start to believe them. Don't. If cash and credit are growing at a rate faster than the economy can be grown you'll eventually see price inflation.
Price inflation will erode your savings' ability to pay for things in your old age (or earlier) and make all that diligent working and saving a fruitless/worthless effort. Inflation (or the printing of additional dollars and credit) will be an invisible "tax" on your energies and efforts because the govt can print dollars. You can't. It's that simple.
*If* the break in the tech shares was caused (even partially) by a slight inflation scare, it's almost comical that even gold and gold shares were under water today....In a real scare, we're not there yet, people often raise cash first....dollars.....even before they realize that the dollar is exactly what they probably *don't* want to be holding longer term.
While I'm happy with the buys in the 605 area for gold that I posted about on here a week or so ago, I still think one week before Chinese New Year (Feb 18th minus 7 days = Feb 11th) is probably about the right time to be swinging the "big meat" We'll see how I feel as the day approaches.

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