Traders say that they like a wide range of products, but “gold or silver is the most attractive because they can be traded for an arbitrarily large amount of time and for large amounts of wealth.”
It’s worth noting that the “long-term trend” in these markets is the rapid expansion of physical commodity markets, which have been “driven by political events in China which have caused the price of crude oil to surge.”
What will happen to the “gold rush”
We don’t expect this trend to continue – “the price of gold will fall to near a floor, but in the long run it is going to be in a much better place”.
Instead, we expect the price to decline for two reasons
The US currency was the first currency whose value depended on supply and demand. When demand increases, the inflation rate rises.
The second reason is that gold is a “reserve asset” that cannot be used in other forms. The more of its value is needed to pay debts or pay taxes on other forms of savings, the higher its value will rise.
A recent paper written by Harvard’s Laurence Kotlikoff and Harvard’s Steven Eisman describes the implications of the financial crisis in terms of a “currency crash”.
Since the 2007-8 financial crisis, gold has depreciated, not increased by a factor of 10 percent.
“We were talking about an average of 10 percent decline, when we should have been talking about 25 percent,” Kotlikoff said.
The key to the long-term impact of a global downturn on gold is “a collapse or a weakening in the confidence of the buying public.”
Why gold could be a problem
It’s worth noting that in the past, gold was used as a speculative asset outside of governments, banks and certain other industrial societies.
This caused gold to be sold to speculators in times of currency crises, and in times of recession.
The most important thing to be aware of now is that gold is “a commodity” and can never be used to purchase real wealth, including real physical wealth.
It’s just as much a form of money as money like dollars, euros or yen.
What about a “frictionless transaction”
The reason prices change so much is this
The market price for gold has been driven mainly by the demand for it to purchase other commodities and this, in turn, has driven the number
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