Heap of observations

Observation on currency that is not from me so it is OK to read:

Fundamentals are all that matter!

I am always astounded when it comes to the price of Gold when people say it is going up in price! To some degree that is correct when considering supply demand of the asset for there are more buyers than there is supply. However the main reason for Gold's rise is because the currencies we measure the Gold price in are inflating or having there supply increased over the longer term.

Every currency on the planet today is fiat paper, it’s backed by nothing but faith in its issuing government. Central banks only job is to inflate these currencies, continue to print them until they collapse or fade into worthlessness, there simply is no other option for them. It is interesting that the average annual growth rate for major first-world currencies is on the order of 7% to 8% annually(according to grossly under reported government statistics). 

So for example let’s say every year, on average, there are 7% more US dollars inexistence than in the previous year. Meanwhile over history global gold supplies have only grown by a little more than 1% a year on average. At a 7% growth rate, it only takes 10 years for the US dollar supply to double. At a 1% growth rate, it takes a far-longer 70 years for global gold supplies to double. Over these same 70 years, at 7% compounded annually the US dollar supply will multiply by 114 times! 

And as you know, there is nothing more certain in financial markets than inflation of paper currencies, which I might add over the last few years is almost impossible to quantify now that certain government statistics have been removed. It is a sure bet. So history’s best and only surviving currency, gold, which cannot be inflated, has to grow in value relative to the US dollar or any other major fiat currency. There is just no doubt the relative scarcity of gold will force its price up in currency terms.

Until next time,

Simon Heapes