While gold fanatics, so called ‘gold bugs’ cant get over that precious metals are no longer money, people still revert to that idea as the reason countries hoard Gold. The idea is that government knows that their paper isn’t trustworthy money and that when it fails we will all be back to basics totting pockets full of Silver and gold. This is half right, but the remonetisation of precious metal is not going to happen.
If all money was to be backed by Gold it would be some incredible price per ounce. The dream is that one day in the future the past financial world of Gold backed money will return. It wont. Precious metals have always been turned into paper money, Gold has always only ever been part of a chain of credit.
Where this idea is right is that Gold is hoarded by government is because their paper is not trustworthy, but that untrustworthiness only kicks of in exceptional circumstances, otherwise in normal circumstances their money is completely trusted. That circumstance is war.
Gold is for war. If you want to pay foreigners during a war like WW2, your paper money will only get you so far. Especially if things aren’t going well, Gold is the only currency that can buy what you need.
This is why when the Americans fled the Philippines in WW2 they took the Gold and threw the silver in Caballo bay, Gold is a munition.
So it is somewhat disconcerting to see gold form what to a chartist looks like a mother of a platform for a huge rise. Is the Gold market suggesting we are sliding towards war.
Here is the chart.
WW3 would certainly send Gold to the moon.
To me it seems almost inconceivable that those in power would be that stupid, but you can clearly hear a distant drum beat of conflict, with calls for conscription and military service raising their ugly heads hear and there.
The alternative chart read is this:
This is totally credible but the formation of the classic base of a price bubble is hard to ignore and likely shouldn’t be.
The classic explanation for a potential price vertical is hyper-inflation. That would certainly do it, but I can not see that happen even all the while it is predicted in a never-ending liturgy of doomsaying. They dollar is not going to crash, we are not going to have south American style inflation. This leaves the above two scenarios in place.
I plump for the later but I admit to being unnerved by all this war talk. If the price does suddenly break up in a violent rally lets hope it is a leading indicator of probabilities rather than as trailing one of certainties.
In any event it’s a good reason to hold and watch Gold, because if it runs as ‘sabre rattling’ increases it will give an advance warning to whats ahead. That aside it remains good practice to have at least 2.5% of your investments in Gold and as I found out once I started stacking Gold, in the long run it’s a very satisfying diversifier for a portfolio.