Hi everybody. I was considering buying gold as a shore against inlfation, though, even given current monetary inlfation, I am still unsure if this is a sound decision. Part of my doubts are dictated by the fact that gold prices overall had been dropping since 1979 until fairly recently. What is the Austrian explanation for this occurence? I mean if interpreted naively, doesn't it lead to the view that gold should always be a good investment agains the US dollar?
I think it can be explained by the fact that there exists a very low demand for gold, causing a drop in its price.
In British Pounds, the gold price was an average of £134 in 1979, and now, it's about £650. What does this tells you?
That there's many factors to take into account.
First, is that people (especially americans) typically look at the price of gold in US dollars as if it's an accurate reflection on the market value of gold over time.
Problem is, the gold spot also fluctuate because of the USD fluctuates, and since there has been a massive rally on the dollar and dollar denominated assets (T-bills) for the last few months, gold in USD looks lower than it has been.
But gold is still at an all time high for many other currencies, including the canadian dollar, the british pound, the euro, etc..
Then, gold value has a lot to do with inflationary expectations.
Now, we have around 1-2% (at least from what is officially reported), down from 4% before the crisis, in the US. In 1979, we had around 9%.
If you want to see how gold help up against inflation, compare today's price with another year in the past that had the same inflation figure, it will give a better idea of how gold fluctuate over time.
Then, looking at 1979-1980 for gold price figures is cherry picking, since there was a spike in the gold spot those years.
People bearish on gold always pick those years, and in US dollars only.
Now, the question is: What do you think will happend in the future for the USD, given that trillion dollar deficits are now real, and how will that play for gold in USD?
I'm in the UK, so although I have a US stock trading account, I'd be intending to buy gold in pounds. I guess I should check its chart against pound, and hold on to it more as a long term asset, only to sell at similiar conditions as recently right?
If you don't already own gold, I'd strongly recommend to acquire some.
Timing is always tricky, and it certainly would have been a better time for someone that owns sterling denominated assets to buy few months ago than now, but on the other than, the price of gold it can easily get higher onces those billions pounds bailouts start to translate into higher consumer prices, and still no recovery.
For me, gold is an excellent assert for long term wealth preservation.
What about supply and demand?
And well, if you think that 2002 is fairly recently than you are right.
As long as you can sell your paper backed dollars just before they are considered paper, it might be a great investment to hold them :-). Yet, once the dollar is gone, what would you guess would be a great think to store value? Maybe gold and silver?
In the begining there was nothing, and it exploded.
Terry Pratchett (on the big bang theory)
Supply and demand of gold vs. supply and demand of USD. Obviously, when America's economy was strong under Reagan and later, the price of gold decreased as the supply of gold kept increasing while the USD remained strong. However, as we entered Greenspan/Bernanke's massive pumping of credit that weakened the dollar, we saw that a weakening dollar meant strengthened gold, just as it did in the 1970s.
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