Click to enlarge.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan (1966)
If you believe as I do that what he said was true then...
1. There is no gold standard.
2. There is no way to protect savings.
3. There is no safe store of value.
4. There is no way for the owners of wealth to protect themselves.
This is just an opinion of course, but it is my belief that at these prices gold is a risky store of value. It is roughly 4x its median price over the last 100 years when compared to other commodities in general (as seen in the PPI: All Commodities index).
See Also:
Gold vs. All Commodities (PPI)
Source Data:
USGS: Historical Mineral Prices
Kitco: Gold
St. Louis Fed: PPI: All Commodities
It is roughly 4x its median price over the last 100 years when compared to other commodities in general.
ReplyDeleteHere is a puzzler. Since gold is clearly way overvalued, historically, why isn't the US Treasury taking advantage of these high prices and dumping gold. They've got 280 million ounces just sitting in vaults.
Why not sell half into the market and use the windfall to pay down the debt or fund Obamacare or a foreign war?
Why isn't Germany or China or the IMF selling their gold? What use could the possibly have for so much stockpiled gold? Not being sarcastic, just curious.
Mr Slippery,
ReplyDeleteHere is a puzzler. Since gold is clearly way overvalued, historically, why isn't the US Treasury taking advantage of these high prices and dumping gold. They've got 280 million ounces just sitting in vaults.
I think that's a great observation. I would counter with this.
Why did Gordon Brown sell 60% of the UK's gold reserves shortly before gold entered a protracted bull market?
Here's my answer for what it is worth.
Governments are made up of people.
In general...
If people believe gold has a high value (as is apparently the case now), then governments do too.
If people believe gold has a low value (as was the case in the late 1990s), then governments do too.
1. Are people great investors?
2. Are governments great investors?
3. Is there any correlation between having great political skills and having great investment skills?