A Post made about Gold which deals with the argument of its scarcity as a defense against loose money and why I believe its an impractical idea. Whereas; great but scarce stocks, seem to be the place to position money for wealth building. Enjoy.
Thursday, August 21, 2003 3:53 PM ET
To: dvdw (who wrote)
From: dvdw
Fact; Economic transactions are taking place in multiples of millions of economic decisions per minute.
Many gold bugs use golds scarcity as a link to some monetary discipline....or somehow link gold as a plausible hedge against one calamity or another. The fact is that Gold has becomea commodity for the jewelry industry with no extensible value beyond its current uses.
To put the hedge argument to test just think about this; GE Corp processes transactions at near 5 times the rate of the entire world gold market during comperable periods of time. Where does that leave every single transaction outside of GE's needs for a hedge against calamity? In a true collapse cans of Baked Beans to the hungry or bullets to the frightened, might both be horded and demand more by weight than gold.
While accumulating information on the gold supply, my ulterior motive isnt to bash gold but to form perspective on its plausability in relation to the broad arguments gold bugs make. I've begun linking Gold and certain other commodities in a supply demand model that points out their relative merits.
By way of example;
Farm Land which grows corn. Did you know that 68 million acres produce 9.5 billion bushels of corn? That corn at 2.5 per Bushel is a 23.8 billion dollar annual production. Which is the same value as the world gold market over the last 5 years.
By drawing a comparison the investor caught up in the web of the gold bug, should pause, and recognize that these acres are producing 4/5ths more than commodity gold over a 5 year span.
Farm Land is scarce, so is Gold. Farm Land produces an annual return, gold produces a subjective return, because the predominate value is jewelry which is a subjective asset. Golds scarcity is somewhat of a misnomer as well because gold gets lost, but does not go away, its quite durable. When you go to sell gold jewelry you will always get less per gram or ounce than raw golds quoted price.
Meaning the subjective value of gold could instantly be set to a rate where new supply would appear in abundance, but the buyers could not sustain their offers unless the demand dynamics for gold were somehow changed permitting a never ending spiral in price.
If the gold price were momentarily placed much higher the market might/would be flooded with supply, as jewelry would be converted en mass to utilitarian exchange. There are claims about extraterrestrial demand for gold, maybe if those claims were proven true, I too would become a gold bug once again.
We could decide tomorrow that Indium Phosphide is prescious...because its a foundation for a whole range of exotic electronics parts....its very scarce right now, hard to make....why not just go lay some in and begin to spread the word..>? The FUD mongers are busy making the gold case...let em, in a growing world economy there are billions of choices made everyday by consumers great and small; Ive noticed I am spending more for bits of light lately...how bout you. |
