<Since loss in value of paper currencies could undermine the entire economic structure of substantially all of the world (since there is no longer an East Bloc), I wonder if the the powers of the G8 countries could get together to block any uncontrolled rise in the price of gold, say to usd 330 and beyond. >
Selva, why bother controlling the gold price other than by selling stocks if the price seems to be into bubble territory due to speculative irrational exuberance?
The fact that money supplies are increasing quickly means that the measuring stick used to measure things is shrinking [since economic output and demand for money isn't increasing at the same speed as the money supply is increasing]. A smaller measuring stick means things, such as gold, appear bigger than they were. So the price of things goes up.
If there's a problem with the entire economic structure of most of the world, it won't be helped by selling gold at prices lower than the market will bear by dumping stocks on the market in large quantity. That would just mean that bank stocks would run out, then the price would go right back to where it was.
Gold as an store of value just sits there in a block in a vault, whoever owns it, so nothing is economically gained overall by transferring it from one vault to another. But it would mean the sellers get a of money with which they can go shopping in a depressed sharemarket, or that they could lend. So they would economically do better than holding deadweight gold if they sell it at prices which are temporarily high.
However, gold prices are not necessarily temporarily high, given the amount of money that's been printed over the past few years, which all has to find a profitable place to go. There is only so much stuff in the world to buy and more money chasing a fixed amount of stuff means prices will rise.
Everyone is trying to guess what values are and guess whether there is going to be a big depression and monetary bust to match the Nasdaqian dive.
I'm guessing values are about right and that there won't be a US$ monetary bust. But I haven't placed my bets on that yet, because I think there could be a few more bumps downwards as the huge market clearing of debt from the accounts of wishful thinkers and irrational exuberants is tidied up.
There are still some very huge debts hanging over markets and the individuals and companies with those debts could be forced to sell assets at firesale prices for creditors to recover some cents in the dollar on those debts.
Here's an example of a profitless company which seems likely to have its assets sold to the highest bidder siliconinvestor.com That graph is very typical of a huge number of companies. There isn't much [relatively] market capitalization still to lose, but the debts have still to be cleared and that means asset sales at low prices.
Mqurice |
