Wednesday, October 5, 2016

Gold is...

A unit of savings - gold is a competitor to bonds
Gold can't be printed (diluted or debased)
Above-ground gold stock increases by 1.5% p.a.
Importantly, gold impacts interest rates:
“We show the that the real gold price... ... displays marked
negative correlation with the real interest rates” *
“...The negative correlation between real interest rates and the
real price of gold that forms the basis for our theory
is a dominant feature of actual gold price fluctuations
....” *
As real interest rates fall, the real gold price rises
Gold's spiking price is a braking system on low interest rates
* From:
“Gibson's Paradox and the Gold Standard” 1985 NBER

1) As real interest rates (i.e. nominal interest rate – inflation rate) go down, real (constant dollar) gold price goes up – is a “dominant feature of gold price fluctuation”
2) If you want to create more money in a debt-based money
system, you need lower interest rates. A spiking price of gold is the “tell” of monetary inflation / excessive debt creation (ref. 1970s and early 1980s).
GOLD limits prolonged excess credit creation. GOLD IS A BIG
Currently $230T of global credit market debt. About $120T
excess vs historic norms and will be cleared from the economy
Asians and Indians understand the value of REAL money, as a culture...the West does not