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Gold, Always There, Always Valuable, Always Convertible To Any Currency

July 20, 2015
By Charles Kubach, Mine-Engineer.Com

Last week the Wall Street Journal published a article titled "Is gold a pet rock?". Interesting title, but the assumption that gold has no value, is, well, just plain stupid. Since the earliest written records, gold has been held in esteem as a valuable commodity to possess. Whether the logic for such value assignment is reasonable or not may be argued, but it cannot be argued that gold has no value.

Today, as gold hovers near a $1,100/ounce low, one may wonder if the value of gold is real or imagined. Well, in the hot real estate markets, such as LA, a $600,000 house may be one that would have been called a shack a few years ago, and people are paying $10,000 to $40,000 above the asking price, just to purchase the $600K shack. So, is the $600,000 shack worth $600,000? As one real estate agent replied, "you have to sell it for that to find out". Therefore, for anything to have value, you have to sell it for the amount of its value. The larger the demand, the higher the value.

Nothing in demand goes up forever and nothing in demand goes down forever. Economics has taught us that values go up and down in cycles, and will increase or decrease in value over periods of time. So, the value of anything that has any demand is cyclical. So what determines the value of gold? A Troika of factors control the value of gold.

1. Supply and demand.
2. The Doomsday Effect, as the normal elements of economic foundation crumble and crash, gold always soars, counter cyclical to currencies, traditional investments, etc..
3. The value of the US Dollar, as measured by the USDX, because gold is priced in US Dollars, and when the USD is high against other currencies, gold is more expensive to the investors using those currencies.

Any of the above being good or bad, can trigger a resulting increase in the value of gold, or a decrease in the value of gold. Currently, the demand for gold is low, the supply is increasing about 2% annually, for the last few years. The Doomsday effect is minimal, after a few near misses. The US Dollar is soaring to new highs. Now, with two of the three troika elements (Supply & Demand, US Dollar) being negative for gold, it is no wonder that the price is currently low.

Is there a ray of golden sunshine on the horizon? Yes, there is. Central banks have not been buying gold, virtually zero in Q1, 2015, and a 30% decrease in gold for government issued coins in Q1, 2015, would lead one to believe that investors and Central Banks are not too interested in gold, currently. However, is the best time to buy an investment when the price is low, or wait until it is high? If you like to make a profit, low is the answer, and gold is probably hovering near the current bottom, at $1,100/ounce. So the governments should buy some gold and mint coins that investors will begin purchasing, realizing that gold is a good deal at $1,100/ounce, and will again be rising in value, and it is just a question of time, until the next economic crisis causes gold to soar into the wild blue yonder, once again. The stock market is so overbought, it is becoming difficult for the most zealous broker to justify the prices for their shares. It is due, or past due, for a correction in the 20% neighborhood. When that occurs, gold will soar over the towers on wall street, just like it always has done under such circumstances, illuminating the street in Golden Sunshine.

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