Is the Price of Gold Falling?
by Robert Wenzel: How
To Run for Office Like Ron Paul
Jordan Weissmann writes:
who love gold tend to think of it as a sort of bomb shelter. It's
supposed to be a secure place to park your money when the rest
of the financial world is blowing up.
So some may
find it surprising that in a year when Europe's troubles have
thrown the global economy into fits, gold has been a loser's bet.
The price per ounce of everyone's favorite rock is down about
7 percent for the year and is off 15 percent from its September
peak. According to a report released yesterday by the World Gold
Council, total demand for gold fell 7 percent in the second quarter
of 2012 compared to the year before.
be a reminder that, no matter how long it's been around, gold
just isn't that special. It's a commodity that responds to the
laws of supply and demand. Unlike commodities such as wheat or
oil, which you can at least eat or burn for fuel, gold pretty
much lacks any inherent value beyond what the market assigns to
it. And in the past decade, much of the new demand that set gold
off on a wild tear from around $300-an-ounce at the turn of the
century to almost $1,900-an-ounce last year has come from two
places: India and China. Combined, they account for 45 percent
of the world's demand for gold jewelry and bars.
Here we go
again, the idiotic assertion that we can't eat gold. Most things
we can't eat, including hard copies of The Atlantic. One
of the most important things to evolve in economies is a medium
of exchange. It allows indirect exchange and a greater division
of labor. It is an important driver of economic growth. Without
indirect exchange via a medium of exchange, it would be pretty difficult
for Weissmann to earn a living as a writer. Think about it, he would
have to go around offering his columns for food and shelter. Do
farmers and carpenters have a demand for his writings in sufficient
quantity to provide him with regular food and shelter?
test this out right now, he could stop working for money, type up
a column and head off to farmers, rental buildings and see if he
can get food and shelter for his writings.
In short, the
man is clueless about money. Money is much more important than wheat
or oil. Since money is so important, you would be an idiot to want
a money that you can eat, since food spoils. that is, it would deteriorate
quickly. In other words, when I am looking for a medium of exchange,
the last thing I want is to be able to eat it. But hey, if Weismann
wants to test this out, after he fails to get home and shelter in
exchange for his writings, he should try and offer ham sandwiches.
As for the
items that have emerged as money, currently in the U.S. we have
the U.S. dollar. The problem with the dollar is that the amount
of dollars in circulation is controlled by the Federal Reserve.
Since the Fed is for all practical purposes controlled by the banksters
(JPMorgan's Jamie Dimon is member of the board
of directors of the New York Fed) and the Treasury, they will
influence the Fed to print money whenever they need it. When they
print, they cause price inflation, which screws the rest of us.
to paper money, such as the dollar, is gold. Governments hate gold,
since they can't control the supply of gold the way they can paper
money. That's why they push individuals toward paper money and at
times (see FDR)
have made it illegal to own gold.
correct that demand from China and India can boost the price of
gold, but the key driver is Fed money printing. As the Fed prints
dollars, there are simply more dollars available to buy gold with
and investors will choose to hedge against the price inflation by
buying even more gold. This is when gold goes up. Since the start
of the Fed, the Fed has been on one long money printing binge, with
only minor slowdowns. There was a major slowdown in Fed printing
in 2008 and more recently the Fed has slowed money printing once
again. When the printing is slowed, which Weismann, does not mention
at all, the climb in the gold price in terms of the dollar will
start to decline. That's what is going on now, but eventually the
Fed will start printing aggressively again, maybe after a crash
or after the elections,. The Treasury has
too many bills to pay for the Fed not to prop up Treasury debt
with newly printed dollars.
So while Weismann
continues to look for a money that he can eat, the rest of us should
take advantage of the temporary decline in gold, to stock up. The
next round of Fed money printing is likely going to be very vicious,
pushing gold to new heights, regardless of what buying comes out
of China and India.
with permission from Economic
Economic Policy Journal
Best of Robert Wenzel