Say I sold klaser 1 ton of bananas for USD280 in 2001. He buys TJ gold and he demanded USD280 for a Troy ounce or 31.10 grams of his precious vile metal.
Today I sold klaser 4 (four) ton of bananas for same USD1120, he goes and buys gold from TJ, but TJ tells him now he is demanding USD960 for a Troy ounce.
He asks TJ why, and he tells him that the FED printed USD faster than gold can be mined and there was more USD than TJ vile metal available. Thus the price of USD fells vis a vis TJ gold.
klaser says, why my bananas dod not climb too. TJ tells klaser to ask Elmat since he is the one from a Banana Republic and understands about the bananas.
I explain to klaser that while gold is traded in the world market as a reserve of value, bananas are not. Thus, even though priced in USD, some stuff follows the vagarities of the market other not.
It is hard for someone to buy bananas and store as value since it is perisheable and costs a bundle to store and wait. Compare to Contango's oil. You just have to keep it inside a super tanker and wait for the due date, as Haim told me.
I tell klaser to go talk with Haim since Haim is the guy who understands about currency trading.
Haim explains to klaser that holders of USD sensing the USD loses its value, exchange them for other stuff. Gold, oil, real estate, shares of companies...
If Gold is priced in USD, he tells klaser, anyone with Euro, Yen or Ruble would need to covert that into his own currency and cough up the amount of his home currency to buy a Troy ounce of the barbaric relic.
Holders of Yen, Euros and Rubles also are thinking like everyone else: If the reserve currency is risking being taken to the dogs, even when OPEC, China and other majors hold a lot of it, imagine my own currency!
They start exchanging their own currencies for Gold too. As they do so, there is more Euros, Rubles, and Yen chasing a limited amount of gold.
Else people would arbitrage in the delta between gold in a currency and another. |
