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Gold

Gold is a precious metal and its price is set by the market: the rate people are willing to buy/sell gold at. Gold is usually traded as futures or options, agreements to buy/sell the resource for a certain price at a certain date. Gold, like silver, platinum, oil and other commodities is fungible, meaning that one piece of gold can be considered the same as another, allowing a regular price to be set by the market.

Gold Futures

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What is the price of gold?

Clem Chambers | March 20 2012

Everyone I talk to around the globe wants to know about the price of gold. The question they want answered is, "is it going up?"

My answer: "Of course."

The next question: "How high?"

My answer: "US$5,000 an ounce."

This might sound like a foolish prediction, but so did my prediction it would go to US$1,000 an ounce in 2001. I've been bullish on gold for years but I don't invest in the stuff for the very same reason it's likely to hit US$5,000 per ounce; the yellow metal is beyond rationality.

People are hypnotized by it. The SPDR Gold Shares ETF (GLD) is up 11.3% so far this year. Gold miners are also off to a good start: Yamana Gold (AUY) has gained 17.3% and Goldcorp is up 10%.

For some reason, gold bugs think it is real money that keeps its value and is a firm financial basis for monetary policy. This is a fine example of the irrational and mythic power of gold.

Gold makes terrible money. If it is an economy's money, then you have to dig more up to expand your economy. Growth is choked whenever the economy wants to grow faster than miners can get it out of the ground below the fixed cost of its monetized value. There is simply not enough gold in existence for the world economy.

As for stability, that is dependent on how much gold you are producing. Gold has been 5 to 1 with silver, 20 to 1 and 40 to 1 and, when it's allowed to float, has been all over the place. So much for gold's price stability!

However, you only have to see gold to feel that there is a primeval attraction between humans and the barbaric metal. This is the key to its value - gold has trust.

Money on the other hand, is fast losing favour. The bankers that control it have completely lost peoples' trust and the governments that print it are fast losing what credibility they ever had, leaving the barbaric metal looking practically angelic in comparison with the suppurating Babylon that fiat money has become associated with.

The price of gold may rise to US$5,000 an ounce just because the value of the dollar might half in the coming few years. If the U.S. government decides to rein in the real value of its titanic debt by inflating it away at 5-10% a year then gold could cruise to $5,000 an ounce this decade without the need of the kind of vertical price spike I'm expecting.

In my model, commodities are prone to bubbles. The price curves of commodities are prone to exponential rises at various times. Historical charts of commodities are littered with such 'rocket launches' and in the 1970's pretty much every commodity had these periods of exploding prices, two, or even three times in the course of a few short years.



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