The Traditional Worth of Gold

Mike Shedlock agains comes in with an interesting Post, with multiple links which should be explored. He examines whether Gold is a decent hedge against Inflation. I decided a real element of the value of Gold is its acceptance as a possession asset for nonparticipation in the economy. The Microscope must be turned on Inflation in order to discern the value of Gold. Here is where I will get into trouble, as Economists will begin to protest my Reasoning.

Inflation can be generated by multiple causation, but in the final analysis, must always be related to the Supply Process. I expect I should expound a Rule of Thumb for evaluating Inflation at this Point. The real reason underlying Inflation can be considered a constriction of Supply facilities for the production of Product. This means that the Demand for Resources spreads more rapidly than does the functional Supply facilities for those Resources. The very Risk to those Supply facilities can generate Inflation, let alone any substantial reduction in the Output of those Supply facilities. This means the Price of those Resources increase. The entire aspect of Inflation, therefore, revolves around on the speed of Demand expansion for Resources, in functional relationship to the speed of expansion of Supply expansion or contraction for these Resources. There is another element affecting this Process, that of the expansion or contraction of the Money Supply, which determines the Supply of funds available to Purchasers of Resources. This still does not explain the role of Gold in this Scenario.

This is composed of two Parts, and most Readers will understand the limited supply of Gold itself. This establishes, along with the limited but Constant use of the metal itself in Production, a basic value for the Gold in the Production process. The second Part of the Supply impact on the price of Gold consists of the largesse of Production throughout the rest of the economy. Gold is the Hedge commonly utilized by Investors who believe any one of a number of things: that the Economy is expanding at too rapid a Rate–already generating excessive Resource pricing, that the Supply of Resources is expanding at too rapid a Rate–lowering the value of other Resources, or expectation that the Money Supply is expanding too rapidly–lowering the long-term value of other Resources. Gold, in the final analysis, is the Hedge to protect against inferior functioning of the overall Economy through any number of circumstances.

Unlike Mike, I must say I have no position in the Gold market, though I wish I did. lgl