Thursday, July 30, 2015

Gold standard never worked simply due to new discoveries caused massive inflation

The Supply Side of Gold

The primary reason why a gold standard never worked was simply because the “money” supply can increase based not upon economic conditions, but simply due to new discoveries. The 19th century was plagued by the gold discoveries in California, Alaska, and Australia. Likewise, the discovery of gold in South America by the Spanish created massive inflation in Europe during the 16th century. The idea that gold provides some tangible value for money is absurd, for it has always risen and fallen in value based upon market conditions. Gold would no more provide a check against inflation than paper money. The only way to provide a stable money supply is to eliminate career politicians and stop the borrowing by government.
Well, when it rains it pours. A new discovery of gold has been made and the quantity expected is up to 46,000 tons of gold, whose market value is estimated to 298 billion US dollars if the market stays the same. The entire USA gold reserve is 8,000 tons. So we are talking about a sizable discovery in the Sudan.
From a supply-demand perspective, this could crush gold. The likelihood of the dollar collapsing is zero right now. The crisis is manifesting in Europe first. The dollar will be driven higher as capital seeks to get off the grid and hide. The US debt of $18 trillion is still a tiny fraction of the near $160 trillion in total world debt. It’s all a matter of perspective. Simply put, gold will rally ONLY when the stage is set. They it will rise to the monetary crisis in the future – not right now.

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