11A073 Our Golden Future by Jim Davies, 3/15/2011    

A few comments about the facts shown in the chart, courtesy of goldprice.org - showing the dollar price of one ounce of the metal for the past 20 years.

The first is that after the high spike if 1980-82, which took it briefly over $800, it was more or less flat for the rest of the century. That spike was certainly a "bubble", after the mad dollar printing of the late 1970s, which brought inflation briefly over 20% a year, there was sufficient panic around to boost gold beyond its true worth at the time and the spike has a classic bubble shape; a narrow inverted "V", rather symmetrical. It was an anomaly, caused probably by the deceptive government funding of the Vietnam war. "Dollars" were printed later to pay off its loans with depreciated value. Why, though, the flat performance from then until 2001?

My take is that during that period anyone with investment money to spare had a rich variety of apparently excellent alternatives. First came the Reagan boom years, then in the late 90s the Internet opened up with the "dot-com boom" with potential for huge ROIs, and it hardly seemed a good idea to lock up money in what is, after all, an entirely nonproductive asset - gold metal. The Feds were still busy diluting their paper currency's value, but there were all those exciting opportunities to be grabbed, which also exceeded the damage done by inflation. Many failed, but some of them did pay well.

Then came 9/11, and two new wars, and Katrina, and the bursting of the housing bubble, which all combined to suggest (correctly) that the Feds are pretending still to manage the economy but in fact have no such ability. Gold, therefore, becomes a refuge - especially now that not even housing is a good investment. So, in one decade, its price has been driven up from $250 to $1400 an ounce; an average increase of 18.8% a year, a phenomenal rate. Moreover as can easily be seen, the growth curve is rather uniform; there is jaggedness as always, but it's unmistakably an exponential curve. Will it continue?

On the same basis as my take for the years prior to 2001, I believe it will; for there is no evidence of highly profitable alternative investments. The Great Recession continues, because the Feds have no idea how to stop it; they would have, if they listened to any Austrian economist, but they will never do that because the advice would put them out of business. Since no exciting opportunities are visible, the attraction of gold (and other commodities like silver) will continue; if paper money is printed at an increasing rate, as it may be in the coming years, its price growth can only accelerate as a result. An additional (new) factor is the welcome emergence of middle classes in India and China, which have a strong traditional preference for gold as a store of value; that helps push demand faster than supply.

Some time soon after 2020 as I predict in Transition to Liberty, when increasing numbers of government employees quit and join the free market which will increasingly trade in terms of gold and silver, paper money will spiral down to its natural inherent value, namely nothing; so ultimately the dollar price of gold will approach infinity and those metals will be the predominant market choices to serve as money - one ounce of which will probably buy about the same amount of useful stuff as $31,100 will today. Since government has in the past confiscated gold (in 1933) it would seem an obvious precaution meanwhile to acquire it quietly, creating no paper or electronic trail as one does so, and in coin or bar form rather than as certificates of a hoard kept "safe" in the vault of some third party; those folk may be honest and well meaning, but ultimately while government exists it monopolizes force and can access and rob those vaults. Those who do this will be very well positioned for a wealthy future in the coming zero government society.

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