Tuesday, July 8, 2014
MY PREDICTION BACK WHEN The Gold Bubble Was Topping Out: Gold Bubble May Be About to Melt Down
Gold Bubble May Be About to Melt Down Gold is Advertised as a Safe Investment and as a Store of Wealth but Today it Looks to Be Anything but a Luxury of Waste Lex Loeb Contributor Network . Gold bugs and their clients maybe in for a rude surprise. The Idea that gold is still legitimately a monetary precious metal has a few unfortunate problems. The biggest problem maybe that gold is wildly inflated in price but not in intrinsic value which is defined as the cost of producing it. The next biggest problem is that gold has become a tremendous economic waste because it is no longer a store of wealth when one considers that diesel fuel is the primary industrial cost in producing it. To sacrifice one scarce commodity for an other by burning it rather than trading it, Gold becomes the means of wasting scarce resources and not storing wealth but destroying it. World wide gold production actually helps support the market price for Oil and gasoline because so much of that ultimately goes into the production of gold. As the price of gasoline and oil go up necessarily the cost of mining , smelting and transporting gold goes up. Gold becomes anything but a store of wealth. Gold is wealth destruction because one cannot take gold and convert it back to energy. 100 years ago gold was easier to mine or find in placer deposits, Today the biggest best gold mines extract a fraction of an once per ton of sold rock that needs to be dynamited and then pulverized before sifted and smelted. Huge mountains of materials have to be removed from the earth in order to have production. When the market price is sufficiently higher than the cost of producing gold, producers go crazy with production volume. High market prices tend to bring a lot of gold to market. Today's market with gold flirting with 1000 dollar per once prices and sitting between 700 and 800 dollars an once means that gold cost as much as 4 times the production costs of the most efficient producers. That says nothing of the demand side. The demand side is beginning to look like a pending disaster. The reason why is that India and china both stopped giving their citizens gasoline subsidies which in turn helped to cut world consumption of gasoline and oil. Costs for producing gold then also drops allowing gold to be sold at the exact same profit margin but at a lower price. Producers and suppliers can attempt to resist that temptation. Even worse is the devaluation of various currencies in lower wage countries including Russia, China, Latin America and India. Devaluations almost automatically raise gold prices in terms of the value of the devalued currency and that may not help demand considerations in the countries were gold accumulation was most aggressive. The virtue of owning gold in those places is before the devaluation and not afterwords especially if one should need to buy gold with the depreciating currency. Gold may be in a huge bubble now given the above considerations. Hoarding gold when the price is relatively high is definite mistake. If the high price of gold is sustainable it can help boost oil prices and that in turn can raise production prices. The biggest cost is that gold comes to represent the waste of scarce resources for a just pretend luxury commodity. As it is true that panic stricken markets are now willing to buy loads of gold at very high prices that is no justification for it being in bubble mode. .