People talk about the bull market in gold being over. Can something that never began and never was, actually end? That is not a philosophical question meant to deceive. The question is critical to understanding gold and its valuation. [Let me explain.] Words: 595
So writes “Monty Pelerin” (www.economicnoise.com) in edited excerpts from his original article* entitled Gold Is Not In A Bull Market.
This article is presented compliments of www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Pelerin goes on to say in further edited excerpts:
The Nature of Gold
There is no bull market in gold! There never has been and never will be. It is an inert element, which reasonably describes its value. Just as its atomic number is fixed (number 79), so pretty much is its value. That is, gold is stable in value, at least in terms of other real goods. The claim that an ounce of gold bought a fine suit one hundred years ago and that same ounce buys the equivalent of a fine suit today provides an anecdotal example of what is meant by it’s value stability.
Those who discuss gold in terms of bull or bear markets do not understand reality and do a disservice to less informed readers. Gold is money, true money, as opposed to fiat currencies. True and honest money cannot be in a bull or bear market. Its value is stable (but not constant!). Demand for true money changes and influences value at the margin. People demand more or less to accommodate their expectations and changing circumstances. The demand effect is generally small in terms of its influence on value.
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The supply of gold is generally considered fixed. It is a non-factor in value determination (unless there is some technological breakthrough that produces an 1840s type “gold rush” event). If supply is constant and demand is relatively stable, then the value of gold will be stable.
Why Gold Is NOT In A Bull Market
The price of gold has risen from the low $200 per ounce range to about $1,600 per ounce in a little over a decade. How is that not a bull market? Well, price and value are not the same, especially in a fiat currency world. Price is always two-dimensional. When we say the price of something goes up, we are referencing two different items. In most cases we are comparing the price of a good as relative to fiat currency. When the price changes, we know that it changed in terms of whatever we are using as the numeraire – but we don’t know whether that change is due to changes in the good itself, changes in the value of the numeraire or both.
The fine suit anecdote illustrates this point simply. If a hundred years ago a fine suit cost an ounce of gold and today a fine suit costs an ounce of gold, the price of gold has not changed, at least as expressed in terms of a new suit but both changed dramatically in terms of fiat currency.
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The price of gold and the price of the fine suit rose dramatically. A hundred years ago the suit cost about $20. Today it costs around $1500 – $1600. Neither the price or value of gold or the suit has changed in relation to one another. Both prices however have soared in terms of the fiat currency used as a numeraire. In terms of a fine suit, gold has been stagnant. In terms of gold, so too has the fine suit.
Rather than claim that gold (or suits) are in bull markets, wouldn’t it be more appropriate to say that fiat currencies are in a bear market?
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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1. What Does a “Troy” Ounce of Gold Mean? What Does 18 or 24 “Karat” Gold Mean?
When the price of gold is mentioned as costing “x dollars per troy ounce” do you fully appreciate the signifance of the term “troy”? When looking to buy gold jewellery do you fully understand what the difference is between an item that is 10 “karat” gold and another item stamped 18 “karat” gold (other than that it is much more expensive)? Let me explain. Words: 587
2. Interested in Buying Physical Gold and/or Silver? This Site Provides Everything Needed to Buy Intelligently
For those new to the metals space, knowing where to go to buy or sell physival gold for a fair price is difficult. That’s where APMEX, formerly known as American Precious Metals Exchange, enters the scene. APMEX has become a favorite among precious metals buyers and sellers for a few key reasons noted below.
3. Protect Your Future Standard of Living By Buying Gold & Silver Now – Here’s Why
Higher interest rates [are eventually coming and]… will substantially increase the annual interest costs, the deficit, and the required borrowing/printing. More deficits, more borrowing, more printing, and higher interest rates will cause a larger deficit and more borrowing and the cycle will repeat. [You have a choice as to what you do to protect your current and future standard of living and this article sts it all out.] Words: 595
4. Gold & Silver vs. Fiat: Do You Live In An Imaginary World Or In Reality?
Make no mistake about it, it is the central bankers that are leading governments around by the nose, and by proxy, governments leading people around by the nose, and that “nose” is inhaling “lines” of fiat. Unless cured, all addictions end badly, and the only “cure” central bankers have for ever-increasing fiat is, ever-increasing it more. [You can protect yourself, however, by] demanding less of the valueless fiat and keeping, and growing, your wealth by buying and accumulating real value: physical gold and silver. Anything less, and you are still dealing in the imaginary world that is failing. [This article explains why that is the case.] Words: 834
5. Owning Gold Bullion Can Help Boost Your Global Net Worth! Here’s Why
Today’s world is as uncertain as any we’ve seen in some time. Sovereign-debt crises threaten major economies in Europe and Japan and the fiscal state of the United States is the worst in non-wartime history! It’s no surprise, then, that investors are becoming increasingly attracted to the safety, anonymity and purchasing-power preservation that comes with bullion ownership. That being said, one of the most-often-overlooked benefits of bullion is its ability to help you increase your wealth across currencies, so today I’ll show you how owning physical metals — and the most-precious of them all, gold in particular — can help you to boost your global net worth! Words: 896
6. Gold Belongs in EVERY Portfolio – Including Yours! Here’s Why
I like gold because it’s a risk-reducing, portfolio-diversifying asset. It’s also been a strong-performing asset over the past decade – up nearly 400%. What’s more, it’s been reliable. In 2008, when the major U.S. indices plummeted 37% (and more into early 2009), gold returned nearly 6%. In addition to being an exceptional investment, however, gold has also been an exceptional investment within a portfolio context. That is, it has provided return while reducing portfolio risk. Gold has, in essence, been a free lunch. Words: 490
7. James Turk: Why Gold is Preferred to National Currencies
Some say that the gold price rises and falls, but they are grabbing the wrong end of the stick. It is the purchasing power of national currencies that rise and fall. Here is an analogy to make this point clear. When standing in a boat and looking at the shore, it is the boat (currencies) – and not the land (gold) – that is bobbing up and down. [Let me explain the value of gold further.] Words: 631
8. Race to Debase: How Gold & Silver Have Performed vs. 75 Fiat Currencies
9. Take Note: Gold and Silver are NOT an Investment!
10. If You Don’t Think Gold IS a ‘Safe Haven’ Then You Don’t Know the Meaning of the Term!
11. Why, Pray Tell, Would I Want to Own Gold??
12. Physical Gold and Gold Stocks Should be in Your Portfolio – Here’s Why
13. Gold is Not an Investment – Gold is Money – and Here’s Why
14. Buy Gold to Protect Your Wealth – Not As Speculation! Here’s Why
15. Surprise, Surprise – Gold Is A Safer Investment Than Any Other!
16. What is Money – Really – and Why Do We Need to Own Gold – Really?
17. A Message to Newly Minted (or Potential) Gold Bugs
Interesting article and I completely agree with the concept that PM is “just” PM but flat currency is the one that fluctuates depending upon the publics perception of its value.
BTW: As far as the supply of GOLD being “FIXED”, I know that seawater contain a massive amount of GOLD and that the Koch Brothers own companies that make filtering membranes, so as GOLD increases in value I expect to see more GOLD being “discovered”, which is yet another reason I like Silver more than GOLD…