I don’t believe that gold Eagles and Maple Leafs and Pandas will save me from the Obama-caused zombie apocalypse after 21 December 2012 (my non-hybrid seed bank will do that). I see current gold prices as a bubble just like dot.coms and housing where an artificial demand is drivving up the price. So what would reasonably cause the gold market to crash?
Republicans not raising the debt-ceiling?
A Republican being elected president?
A change in fiscal policy from Treasury?
The Federal Reserve significantly raising interest rates?
Serious discussion of a Balanced Budget Amendment?
Something else?
There’s been talk of the US selling off its gold reserves, since its probably never going go get a better price for them then now, and they don’t really serve a purpose anymore. Dunno how big the reserves are compared to the total amount of gold out there, but I’d think its big enough that it could signifigantly increase supply.
Plus, the conspiracy theorists would have a field day with the Obama administration killing the price of gold after the crazier conservatives have spent the last two years sinking all their money into it.
The economy recovering, as it’s probably bound to do. As the economy gets better, the Fed will raise interest rates, which will lower inflation, and gold will no longer look like a good hedge against inflation. Then the recovering economy will provide investment opportunities that give real dividends, so people will switch back to stocks and bonds as better investments.
I don’t think that gold will crash catastrophically. (It might, of course, but I doubt it.) Rather, I think it will peak gradually and then decline over a period of a few years. It won’t drop off a cliff because so few people will agree on when the economy is recovered enough to drop gold as an investment. However, I do expect that gold will peak in the next year or 18 months, and begin the decline from there. The economy is already sending out green shoots.
Inflation was extremely low, in some cases negative during most of the period that gold was rising. I seriously doubt any likely action by the fed is going to make inflation lower then its been.
The way I see it is that inflation will start to look ugly and gold will shoot up (higher then it is right now). The fed will raise interest rates and gold will crash down to maybe the 1,000 dollar level.
Sorry for the double post, but you got me thinking. Here’s some numbers on the notion:
The US reports a national gold reserve of about 8,100 tonnes*. Gold right now sells for about $1500 an ounce, which works out to $52,800,000 per tonne. That means that the US national reserve is worth $427,680,000,000. US federal spending in 2010 was about $3.45 trillion, while the federal income was about $2.16 trillion. So if we sold off the entire gold reserve (and got market value for it, and didn’t depress the market by doing so) we still wouldn’t balance the budget for even a single year.
All the gold ever mined amounts to about 165,000 tonnes. If the US has 8,100 tonnes, then the US has about 5% of the total world supply of gold. Of course, much of the gold in the world is in reserves similar to ours-- about 30,000 tonnes is currently in various nations’ gold reserves, or just under 20% of the total (including the US national reserve).
IANA economist, but I don’t think that the US selling off its reserves is enough to cause a collapse in prices in and of itself. However, it might be enough to burst the “gold bubble”, if there is one**, which would trigger a massive price collapse.
*“Tonnes” refers to long tons, which are about 2200 pounds.
**I think there is, but it’s hard to say with absolute certainty.
Oddly enough its the Conservatives who are talking the most about selling the gold, and Obama who is resistant (or at least wants to do so in a careful manner). I find this surprising given that it also seems to be conservatives who want to go on the gold standard which is hard to do if you sold all your gold.
Overall I think selective selling of the US gold reserves as present prices sounds like a good idea.
I hope inflation starts to become a problem. That would suggest the economy was recovering strongly.
I don’t follow commodity markets, but I do know that many commodity prices, including silver, recently experienced a large decline. In the case of silver, it was a change in margin requirements that sunk the positions of numerous speculators, and there seems to be a lot of speculation happening in the commodities markets in general.
The conservatives are also the people who want a huge military and low taxes, as well as a small government that monitors what everyone does in their bedroom. Internally inconsistent agendas have been a hallmark of American conservatism for decades.
Part of the rise in both gold and oil is the fall of the US dollar. And part of that fall is deficit spending. Once that gets sorted out, GDP rises, and the debt to GDP ratio shrinks, the dollar should go back up pretty quickly. That will eat into the value of gold and might spark a flight from it.
The top of these bubbles usually represents speculation, in that those people buying never plan to take possession. When gold stops rising the speculators pull out fast and cause the sharp drops.
I thought the right-wing marketing machine’s interest in gold was as anti-Obama propaganda (e.g., such things as ‘look at everyone buying gold! That’s sign of such low confidence’) and profiteering on brokering gold sales (e.g., adding huge fees to transactions or marketing 'Merica Coins). Isn’t the price of gold on a global scale relatively unaffected by partisan politics over here? I would think that the number of right-wingers buying into the paranoia is relatively small compared to the overall global market.
The government doesn’t need to own gold to have a gold standard, if gold is in circulation as money, along with silver for the smaller coins.
I agree that the only thing that will bring down the price of gold, long-term, against the dollar is an increase in the value of the dollar (ipso fatso, as the man used to say), which might be done by getting our fiscal house in order, so long as the country doesn’t collapse in the effort.
I like to imagine what would happen if the dollar were re-valued to match the price of gold (roughly 75-to-1 at current prices). A salary of 1000 new dollars per year would be a good income, a car would cost $400, a week’s groceries for a family of four would cost $2 or $3, and so on.
Roddy
There’s nothing stopping you from using gold coins as money. But that ain’t a gold standard. A gold standard is when you have paper money, but promise to redeem the paper money for gold bullion on demand. Of course, the first thing that happens is they put restrictions on your ability to actually exchange paper for gold. And so you have a certain amount of paper that is theoretically exchangable for a certain weight of gold, except you’re not allowed to actually get the gold.
Note that with today’s fiat money you can walk into any pawn shop or coin dealer and exchange your worthless paper scraps for as much gold as you want.
But there’s no way to peg a currency to gold unless you’re willing to buy and sell gold at a rate. You can’t just declare that 1 dollar is worth 1 ounce of gold, because what happens when somebody goes to buy an ounce of gold, and the gold seller wants more than a dollar for that ounce and refuses to sell for less than 2 dollars? The only way to keep the ratio stable is to promise to sell dollars for gold when gold is low and sell gold for dollars when gold is high. And so arbitraguers pocket the difference in value both ways.
Gold could decrease in price without an increase in the value of the dollar. Gold is a commodity. An increase in supply, or a decrease in demand means the price of gold can fall even if the value of the dollar is also falling. Gold is just a particular good, and so is a dollar, and the value of both can change independently compared to a barrel of oil or a loaf of bread.
Note that if you revalue the dollar at 75 to one, that means a penny is worth about a dollar. You’d have to start minting haypennies and farthings for transactions smaller than current dollar. Of course the value of the unit of currency is irrelevant. It takes 80 yen to make a dollar, does that mean Japan is poorer than us?
The only real value gold has - in market terms - is as a raw material for the jewelry industry. So I suppose the price of gold depends on how much people want their bling.
Sure, and they held onto a good chunk of their stocks in the run up to the last stock market crash and afterwards (and even Soros still had some gold holdings after cashing out the majority). Many others have also cashed out (as noted in the article you cited).
And they also held onto a good portion of their real estate holdings through that bubble.
And they also held onto their bond positions.
Focusing narrowly on their holdings in gold is simple selection bias. They’d still hold onto a bit of gold, were it priced at $100 an ounce or $3000 an ounce. It’s just the amount that would change. It’s another sign of goldbuggery. Most folks don’t care when one of these guys shifts 100,000 shares of Widgets-R-Us and buys up Unobtanium, Inc, but there’s all these people who hang on every word when it involves some physical commodity.