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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (101148)	2/11/2009 12:23:50 PM
From: Hawkmoon	2 Recommendations Read Replies (2) \| Respond to of 110194

So what is the benefit of investing in gold? I keep asking myself the same question. I see it appreciating in value and that seems a tempting investment. But then again, we all know the history of gold and the power of global governments to demand it's surrender if it threatens their currencies. And then we have to recognize that some of the greatest periods of inflation occurred during the Spanish conquest, when Aztec and Incan gold and silver flooded the European markets, fueling the merchant and industrial revolutions and ultimately leaving Spain far behind economically when the treasure ran out. And the real problem with Gold is it's dual nature.. It's viewed as both a currency, as well as a industrial commodity. So it's difficult for a producer to rely upon a reliable price for such a raw material without long-term fixed contracts. And as a currency, it doesn't pay interest (although some Central Banks lease it out) and it has to be stored. But more importantly, when the US came out with TIPS bonds, I think it drastically undercut the value of gold as an inflation hedge. When you can buy a bond that is indexed to inflation, is fully liquid, and backed by the full faith and credit of the elected government (who hope to be re-elected), I not sure what purpose gold serves except as a speculative investment. In sum, gold is a medium of exchange agreed upon by two or more counter-parties, like any other currency. However, because it's rare, it's quantity is not able to compete with the economic potential of humanity. Regardless of whether gold is the medium of exchange, or Fiat currency, there will still be a requirement for a fractional reserve system, and even more so under a gold standard. So I don't see the use for gold as currency when it impossible to increase it's quantity at the same rate as human economic potential. It might have done fine for the greeks and romans, but when western civilization developed it was stretched.. And now that Asia's star is rising, how will gold be able to keep pace with the demand for money? Hawk