ITT: ADF expressing the depth of his ignorance of the smoke-in-mirrors end of economics. Do you even money multiply?
I've already mentioned the amplification effect of fractional reserve banking on money created by the central bank.
People buying stuff because they are afraid the currency is going to inflate is speculation. NOT inflation.
0.25% Federal Reserve rates, quantitative easing, debt monetisation... where is the speculation? There is nothing to speculate here, inflation is baked into the cake, it's guaranteed.
That's not what inflation means, and in no way can it be construed as such.
Yes, people buy gold for that reason, as they did in the 80's when *that* bubble burst.
I'm not saying it's a bubble; nobody knows for sure. I just think it's overvalued at the moment.
Some would argue that it's under valued.
The peak gold price in 1980 was $850. Adjusted for inflation, that is $2,368.38 today. So while the media bang on about gold hitting all time highs in 'number' terms, in real money terms it's nowhere near its historical peak.
In all honesty I wouldn't have called the events in 1980 a bubble. Yes the price exploded, but when you look at the circumstances of the time it makes sense why. The world had just been forced off the gold standard and there was a mad rush to exchange worthless paper currency for the physical gold that once backed it. It sounds an alien concept today, but we have to remember the world had just left the gold standard and people still strongly associated it with money. What burst the "bubble" was panicking governments who placed a temporary ban on the buying of gold on the exchange, part of their inflation fighting measures to combat the fallout of the Nixon Shock. Needless to say, if you ban buying gold contracts and people can only sell; the price is going to fall off a cliff. And this burned a lot of people who had bought at a higher price, deterring people from wanting to consider gold over the following decades. An experience the present generation of investors are not burdened with.
Granted, what's to stop the governments screwing everyone again? Quite frankly you cannot live your life based on how the government could screw you, especially when it comes to responding to threats on the horizon.
If the Fed keeps pouring money into the economy the end result will be the Dow going up and gold will have the speculative rug pulled from under it if all the demagogues suddenly pull out because they think the stock market will do well. If there is a sudden plunge, people are going to sell.
If the Fed keeps pouring money into the economy, the end result will be the price of everything will go up. Not just the stock market, not just gold, everything. So I'm not sure why you think the Dow would receive special treatment, especially with the 2008 and 2010 crashes in recent memory. The stock market is pretty much entirely reliant on Fed magic money right now, something even the bottom of the barrel commenters on Fox News have admitted. That, along with gilts/bonds, are the biggest bubble threats right now. Not gold. The moment the free money stops, the stock market and this fake recovery is going to go boom. But if they don't stop pumping out all this money, then there is a real risk of the dollar dying. You cannot expand the currency supply into infinity and not expect hyperinflation, it doesn't matter who you are.
You get these idiot gold bugs on YouTube salivating at the prospect of $5000 gold as a result of all these problems, they forget that gold is about protection; not profit. $5000 gold is not a good thing, you do not want to live in a world with $5000 gold. You cannot get rich off inflation, which is why this QE pumped up market is just full of hot air. The market going up is pointless if the cost of living goes up just as much, if not more. With enough inflation, everyone can be millionaires...
Anyway I'm off to bed, will check any responses in the morning.