John >What would happen to the value of gold throughout a competitive currency devaluation process?
Despite what you may read on the internet, gold is no longer considered to be a currency. It is true that the central banks still retain some of their original gold holdings but, over time, they are net sellers and do not buy, possibly with the exception of Russia and China who don't have much anyway.
Furthermore, it is easy for the gold price to be manipulated because the market is so small, certainly compared to the currency markets which, I understand, trade in the equivalent of trillions of dollars daily.
If you look at the World Gold Council figures
mips1.net
you will note that investment demand for gold represents only 10% of actual demand for bullion and, in fact, fell last year. From these figures I would argue that there isn't much evidence of popular demand for gold as a currency hedge. In fact, the above article states:
>>>Despite the markedly less stable international environment, investors have not been accumulating gold, but rather selling it.<<<
Today, those choosing to hedge the USD can do so against other currencies and in fact gold itself using derivatives. For this reason, one no longer needs to actually purchase the metal.
Perhaps you are suggesting that all the currencies could suddenly devalue like in the nursery rhyme ".....we all fall down" but, I imagine, that would presuppose a disaster associated with world-wide inflation or something similar to Argentina last year or Germany in 1922. So far, there isn't evidence for that although, I suppose, anything is possible. |
