Friday, June 25, 2010

Gold to Go

Maintaining that gold is emerging as money, Paul Nathan writes:
At a time when government debt, currencies, and financial institutions are all under suspicion, is it any wonder that the market demands an historic form of money, devoid of government influence and promises? That demand is being sought out and satisfied daily.

Many investors look at the price of gold and claim it is in a bubble. But it is not a matter of price -- it is a matter of possession. If only a fraction of individuals around the world posses gold today, what would a future price of gold be when almost everyone wanted gold? . . . .

In my opinion the private market is in the process of developing a private competing money. No one can predict where this will lead us, but it is happening as we speak. We are seeing the emergence of gold ATMs whereby individuals can convert dollars for gold on demand. If those machines eventually are equipped to also accept gold for paper money, we will have the specter of convertibility on street corners everywhere.

"We are going to make gold public with these machines," said Thomas Geissler, CEO of Ex Oriente Lux AG, which owns “GOLD to go." Fifty thousand machines are being produced to be placed in countries all over the world. And retailers such as Sears and K-Mart have announced they will now be dealing in gold. Companies that buy gold are everywhere, and companies that sell gold are increasing. Convertibility is becoming an industry. This is a further sign of the establishment of the "new" private money.

And why would "almost everyone" want gold? As Jeff Clark at Casey Research notes: Price inflation has not kicked in yet, even though monetary inflation has. According to the World Gold Council (WGC), more countries are buying gold and moving away from the dollar. The Chinese government encourages its citizens to buy gold. China, the world's largest gold producer, already consumes all the gold it mines. But within the next decade the WGC estimates the Chinese demand for gold will double. With war likely between Israel and Iran, and the U.S. certain to be involved, fiat currencies the world over will endure even more depreciation.

For these and other reasons a number of analysts (including Peter Schiff) foresee gold climbing as high as $10,000.