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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: long-gone who wrote (90992)	11/10/2002 4:54:20 AM
From: E. Charters	Read Replies (3) \| Respond to of 116906

I am not a Bob Johnson Basher. I am sure he is very sincere and dutifully counts his ounces and his dollars. He believes really that gold is "overpriced". Why? I can tell you why. It will sound at first insulting but it's not meant to be. He votes liberal. Really. There are certain people that no matter what their intellectual co-efficient, go along with the status quo. They may be rebels in many ways but they tend to lump with authority and power as they feel they cannot change it. But do they think entirely unprejudicially? Lets examine the "facts". In 1940 the world produced 1000 tons of gold a year. The price was 35 dollars by fixation by Roosevelt dictum -- the buying of it at that price by the US "pay to the bearer" notes. Really, they were selling it at that price if they would "pay the bearer on demand" 1/35 of an ounce of gold. Today with about 2000 tons of gold produced per year, and one of the main suppliers, South Africa in perilous political disarray, good's prices have expanded by perhaps 13 times but the gold price is now a mere 320 dollars. If we look slavishly at supply and demand, then given that supposedly supply is linear with price, and inflation is linear with the money supply, the price of gold should be 6.5 times 35 dollars or 227 dollars. BUT -- If gold is independent price-wise of demand and purely reflects inflation then its price should be 13 times 35 dollars or 454 dollars. In fact despite wide swings in supply from 1492 to present day, its median price over 500 years in constant dollars is about 400 dollars. The only times gold dips in constant-dollar terms is in response to sudden inflation at a fixed gold price (gold standard or Bretton Woods, either situation -- 1920 or 1960's) The only times gold climbs in REAL terms (price at the present) is when inflation strikes and the gold standard or price-fixedness is inoperative (1492 and later, 1849 and later or the 1980's). So it would appear that the SUPPLY of gold is not an issue in its price, as it is RELATIVELY inelastic. (It's price does not change with supply. Demand changes to meet supply.) If it were ELASTIC, then Johnson's provisos of supply-demand would be linear within narrow range, and his warnings of increased production would be germane. This does not appear to be the case historically. The IMF auctions of gold in the 1970's also to support currencies -- (as is the case of CB "sales" or loans recently) -- did not affect the price of gold. It's inelasticity was amply demonstrated to modern economists. The tendency of modern economists to deprecate this factor in the economy could be called "pathetic fallacy." They are trying to evaluate what cannot be valuated. An economy is the study of what people do with their money, not an ideal of utility. But never mind inflation, what about the money supply? Does all inflation register in prices? What is inflation? In fact we can have hidden inflation, as we had in the 1990's. This is called classically non-inflationary growth. All the money went into investment, and the prices of investment, not durable goods, increased. Now we are getting the lie that durable goods are the market and the investments must reflect them! What about the shares? Investments are in equity, not durable goods. Business is not the market. EC<:-}