In Gold We Trust
Now imagine what would happen if gold production were to decline by a very large amount next year, say e.g. by 10%, from roughly 2,600 tons to 2,340 tons. According to the the analysis by Standard Chartered, this would have a significant effect on the gold price. But why should it? There are an estimated 165,000 tons of gold held above ground. Some estimates say the amount is even larger (there is considerable uncertainty as to the total amount of gold that was produced before detailed statistics on global production were gathered), but let us for now hew to this widely accepted number. 2,600 tons represent just 1.57% of this total, while 2,340 tons would represent 1.42%. Obviously, given that there is a stock of 165,000 tons of gold available, it will hardly matter whether 260 tons (0.157% of the total stock) more or less are produced in a given year. It is precisely because of this large stock-to-flow ratio that gold is useful as a money commodity (this is not the only reason of course, but it is an extremely important factor).
Hence an analysis of gold that treats gold as though it were an industrial commodity will always miss the mark. Gold must be analyzed as though it were money, a point Ronald makes early on in his latest report.
We hereby offer Ronald's latest missive – the fifth 'In Gold We Trust' report – to our readers for download (download link further below). As always, it is an excellent and highly recommended read.
Gold has regained a great deal of the stature it lost during the 1980 to 2000 bear market after rallying for almost 11 years, but it is still the one investment asset that quite a few people 'love to hate'. We think that many people will reconsider this stance in coming years – and the sooner, the better it will be for them. Gold has once again become an indispensable tool for investment portfolio diversification – and unless there is a dramatic change in the policies governments and central banks have embarked on, it may well become a life-saver for the hard-earned savings of a great many people.
If you are interested in a thorough, well-written and most importantly, correct analysis of gold, then this report is for you.
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