Thursday, October 18, 2012

Gold Price and Currency

Gold Price and Currency
What is the relationship between the gold price and currency?  More and more analysts and financiers are beginning to realise that printing a never ending stream of currency is not going to bring the world finances out of debt. In fact it simply exacerbates the problem.

This is affecting the gold price as, while the value of gold remains steady, more currency is needed to buy gold and so the apparency is that the price of gold changes. As was recently pointed out by one analyst, this is grabbing the wrong end of the stick.  In point of fact it is not the value of gold that rises and falls, is the purchasing power of national currencies that rise and fall.  Gold value continues to remain stable as it has done for hundreds of years.
This persistent and continual printing of currency does not accumulate wealth. It simply increases the supply of currency and reduces its ‘rarity’ value.  The more money that is printed, the less value it has, and so the more is needed to pay for goods and services. The more currency printed in an effort to pay off debt the more the debt will increase as it is the very act of printing worthless currency that increases debt. The more debt is created through the printing of currency and the more currency is then printed to pay for the debt created by the printing of money. It’s not just a dizzy circle it is also a dwindling spiral.  
Gold, on the other hand, does not create wealth either.  But unlike currency, gold IS wealth. Gold does not generate a cash flow. It attracts no interest.  Gold is money itself.  
When the price of gold rises there is simply a transfer of wealth from the person who holds the currency to the person that holds the gold.  It is not new wealth created but simply a transfer of wealth.  One could use gold to buy goods and services and, in fact, this has been done and is being done many times.
In addition, gold is ‘good value’. Its value does not become eroded as currency does by the accumulation of more gold.  One does not ‘print’ more gold.  One can dig up, out of the ground more gold and one can accumulate gold.  The value of gold is not reduced by the acquisition of more gold.  All the gold dug up out of the ground has not reduced the value of gold one wit.  All one has done is simply accumulated more wealth.
Some have said that gold can be overpriced.   This is nonsense of course as, again; the price of gold is simply a reflection of how much currency is needed to buy gold.  
Is gold over valued?  Hardly.  The value of gold in purchasing power of goods and services has not changed in the past 50 or so years and seems unlikely to change in the foreseeable future.  Again gold is not an investment, it is simply money.  It has a purchasing ability. It can be exchanged for goods, services and indeed even currency.
The true relationship between the gold price and currency is becoming more apparent in that as more and more currency is printed to solve debt problems the more currency will be needed to buy gold and so the price of gold will continue to rise.

Good for those people that prefer the gold price to currency.

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