I see gold as the best way of financial investments. Its supply is limited and in the conditions of growth of the population and labour productivity it should constantly rise in price in middle - and long term perspectives, especially in measurements of inflating currencies.We observe it last years. Emitters emit currency and therefore gold promptly rises in price.But why gold did not rise in price from the middle of 70-s' till last years 90-s'? Was the currency policy during that time so conservative (even deflationary?)? I can't believe that.Whether we can expect the similar phenomenon in the future (not the nearest, certainly. Here all is clear)?
Gold did rise in price to US Dollar for the most part from misd 70s through the 90s.
year - monthly mean $/oz
1970 - $36/oz
1975 - $160/oz
1980 - $614/oz
1985 - $317/oz
1990 - $383/oz
1995 - $384/oz
2000 - $279/oz
2005 - $444/oz
We are the soldiers for righteousnessAnd we are not sent here by the politicians you drink with - L. Dube, rip
http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx
From 1979 to 2004 the price of gold was in one corridor.
Treasury bond yields were 15%+ then -- competing with gold as a risk-free inflation hedge -- and have been going down (bond prices going up) ever since. Yields are at 2% now, and not so risk-free any more, hence gold is left as the only safe inflation hedge. This explains the difference in gold's price behavior then and now. The current long-term rally in gold is safe until Treasury yields explode to 20%+ levels (bond prices collapse).
Z.
I don't understand how treasury bonds can compete with gold in a long term. Treasury bonds are also some kind of fiat money so they have to be inflationary, don't they?
One of the main reasons was the good performance of the U.S economy. Foreigners as well as Americans started to have greater confidence in the U.S economy after stagflation and especially when the U.S was at its zenith (inflation tamed in the 80s, fall of Soviet revolution, booming 90s economy, supposed Clinton budget surplus, etc etc).
Bodia: I don't understand how treasury bonds can compete with gold in a long term. Treasury bonds are also some kind of fiat money so they have to be inflationary, don't they?
Assume you have a nest-egg today which you're contemplating to allocate between two choices: gold or bonds. Case 1: Bonds yield (annual return is) 20%. Case 2: Bonds yield 2%. I propose that your gold allocation would be much smaller under Case1 than under Case2. Things are actually tons more interesting once you get into more detail but this is neither the time nor the place.
I agree that in short or middle term treasury bonds are more likely. But in long term gold have to rise more. Treasury bonds are fiat money so if government don't issue them in deflationary way (issue less new bonds). If that bonds still will rise in a price there will be speculative market bubble.
!!! I just realised that ABCT explains that. In short (or even middle) term bonds can rise in price (because of speculative motives). It is a boom. But every boom will end by a bust: and gold will rise in a price. So in a long term (which is measured in one or more BC) gold price will allways rise. The period between 1980 and 2000 was the period without boosts (and at the beginning - in 80s - there was also quite conservative policy of FRS).
if gold and silver were the actual currency...would there still be treasury bonds?
I think, they would be. But there will be impossible 20-percent profitability of that bonds.