The next bubble: GoldDecember 14, 2008
The government is looking for a new bubble to entice hoarders of cash to spend. Those who believe in gold as the ultimate investment (a growing community) are the only people consistently prepared to dump dollars at first opportunity. Rather than depress the price of gold to maintain stability in currency markets, could a massive deliberate devaluation of the dollar versus gold be the more appropriate policy to stimulate spending and boost the velocity of dollars? Gold fever will cause dollars to move, there’s no doubt about it. Bernanke is a student of the great depression and is apparently a big fan of FDR’s decision to devalue the dollar from $20.67 per ounce to $35 per ounce, a 69% increase in the price of gold. He credits this move with helping to lift the economy out of its hopeless slump. Today with gold at $830 per ounce a similar move would take it to $1405. Of course there has been a public policy of suppressing the price of gold for decades so nobody really knows the true market value. It’s not unlikely the Fed would need to devalue the dollar to $6000 per ounce or more to achieve the same effect. Regardless of any deliberate policy, gold is still the best hedge against a risk of either inflation or deflation, but especially hyper-inflation. If the Fed doesn’t guide a managed devaluation of the dollar, their hand may be forced by more chaotic events. Psychology doesn’t move in small steps, people can perceive dollars to be a good store of value on Monday then not on Tuesday. The longer they wait, the more steep the declines. Personally I am still accumulating physical gold and silver, just in case. I prefer to only use GLD and equities for trades.
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[...] at least equivalent safety and the prospect of better returns. I have suggested in other posts that gold could serve this purpose. Gold can rise in both deflationary and inflationary environments, but [...]