Wednesday, December 21, 2005

Wall Street analysts miss gold's significance

I've watched with amusement over the past few months television pundits trying to explain why the gold price has increased so dramatically despite "low" inflation. Wall Street types are the ones best in a position to profit from the post-Bretton Woods fiat currency system. Unlike most citizens around the world, they can directly profit by arbitraging pricing inefficiencies in fiat currencies. Everyone else must protect their savings from the ravages of governments' currency debasements. The US goverment does not calculate asset prices in the CPI. Inflation is underreported because it is calculated from a basket of consumer goods and services which are manufactured in a highly competitive environment, often overseas, and subject to being discounted by "hedonic" adjustments. Inflation is not an increase in prices, but an increase in the supply of money. The increase in prices is the result of inflation. If there is an increase in the money supply and prices are stable, the money supply increase is masking a decrease in the real prices of manufactured goods. Prices of many goods gradually decreased when countries were on the gold standard in the last century. As proof that inflation is underreported, the broad money supply (M3) of dollars has increased at an annual rate of 5.9% over the past 20 years and 10% recently. In the Euro zone, M3 has increased by over 6% recently. By contrast, the annual rate of increase in gold supplies has been about 2% annually over the last century. Gold cannot be "printed" by governments

7 Comments:

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