Friday, March 18, 2011

Reminder Of What Gold Is Good For

Gold is seen, rightly, as a safe haven when a Black Swan event erupts. However, as the Japanese nuclear disaster has shown, the metal sometimes disappoints. Lawrence Williams reminds us that, although such disasters often act as a spur to gold, they don't explain why gold is valued so.

Simply put, gold becomes more valuable over time as a result of fiat currency debasement - not relative to other currencies, but absolutely. When central banks debase their curencies in concert, gold comes into its own.
Gold remains, in many people's minds, the key protector against declining wealth caused by inflation. In many views, if not necessarily those of academic economists, gold is the constant in this process. It's not that gold is actually rising in value, it is that everything else is falling against gold and the more these unpredictable events occur, the more the pressures on so-called global reserve currencies will escalate. The downwards spiral is hard to control once it starts to move in earnest - hence recent talk of hyperinflation, even if the actual point at which plain inflation becomes seen as hyperinflation remains obscure in the proponents' prognostications.

Lessons can always be learned from history. It is an oft-spoken truism that history repeats itself - even though it would seem that economic drivers nowadays are seemingly totally different from those which may have affected our forefathers. But analysis of the patterns of the past shows that they do recur over and over through time and it would seem likely that gold will similarly continue to retain its position in people's hearts and minds as the best form of wealth protection....
Wiliams ends by saying that the recent plummet will be a mere stumble in the longer term. So far, the gold market is giving credence to his call.

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