An earlier post stated that saddam held gold, I believe he used a figure that was 60% of his dollar holdings.
The problem as I really see it is that gold lacks the liquidity to become a reserve or replacement for currency.
Scarcity is my favorite component of value, but only when its compoundable, and that is where the gold equation breaks down. Spend a great deal of time thinking about this and you'll come to the same conclusion.
I believe gold was 35.00 an ounce in the 30's or 40's? Lets assume it was, an investor with 400.00 could have bought 11 ounces. AT its peak during the period following he could have sold for what $5225. Fast forward to April 15th 1980 and that same $400.00 could have bought 2 shares of Berkshire Hathaway, a true study in Scarcity. Which today is worth $140,000. This was accomplished without fudging on the Scarcity of the common stock, but by focusing on the underlying asset values of the business' being bought and sold.
You can get there any of a couple of ways, Buying Scarcity before it is multiplied by compounding as in CSCO. Or Buying Scarcity and take the Buffett path...
Gold isnt scarce enough nor is it compoundable, to the extant one would require; to repeat the performance stories as the two cited above...not even close.
If gold were valued at $40,000.00 dollars an ounce and it reverted to a metric where it was traded as drams or grams....your story could come true. Right now its a cyclical story with many useful values. But it is a fantasy to believe gold could be anything like a currency in an integrated global economy like we have today. If it was Interest rates would be 10,000% per anum. No Gold needs a new business case, fear isnt it, and scarcity dictates that keeping it scarce and free of any compounding would be required. Face it, GOLD is what it is, a useful commodity with limited appeal. |
