I haven’t been to Zimbabwe, but from what I read, payment for goods was made in US$ (where possible), not in gold.

Again, I don’t disagree that the dollar is being devalued purposely and that hyperinflation is a possibility – what I disagree with is that gold can somehow save you from impending financial doom. It can only do this if the fiat currencies stay in existence. Otherwise, by the time relative value is given to everything to have a defacto currency system in place again, most of us will probably be dead.

So, if you fear impending financial doom, go buy a farm and prepare to grow your own vegetables and rare & slaughter your own meat! Gold will not save you!

But, the simple fact is that fighting the system that supresses these prices will only lead to bankrupting yourself. They have more resources than you, and when they run out, they can print more! So, when they decide gold prices are too high, they’ll come back down!

Also, while gold stands up as a great hedge against inflation, I’d like to see someone go to their local shop to buy bread and milk with it. The economic system that has been built up depends on the fiat currencies. Without returning to a barter based system, gold has no real value on the street (without exchanging it for a fiat currency). This means there will always be a demand for the currency, whereas the demand for gold is primarily industrial (consumers simply have no use for it, except as an investment).

So, the value of the currencies changes based on supply; the value of gold changes based on demand. Right now, demand is high mainly because of consumer investment and not industrial use which means the price of gold has to fall back to “reasonable” levels again.

I don’t disagree with the argument that fiat currencies are, in essence, value-less pieces of paper, but the demand for them in our economic system gives them value.

There’s still loads of scepticism about the rising price of gold and the bull market in gold. It’s been so long since the US public (since 1971) realized gold was real Constitutional money that they don’t know what to make of the gold action. They think gold near $1,200 an ounce is expensive and they’d rather have dollar bills.

I’ve coined the phrase, ‘dollar-bugs’ for these ignorant Americans. I guess they’ll have to get educated the hard way, which means holding on to their fading Federal Reserve Notes, no matter what. As far as I’m concerned, it’s an amazing example of mass brainwashing. ‘Hey, I’d rather have junk paper turned out by the Fed than the real thing – gold.’ Pathetic. And the happy thought is that you can (legally) still swap your junk fiat paper for gold.

Look at the last 5 posts :

October 4th – World Bank President: Time To Diversify Out Of The Dollar (into, among others, gold)
October 6th – Gold hits record high!
November 9th – Gold breaks $1,100: Does It Matter?
November 16th – Gold Is A Lousy Investment
November 22nd – Trading & Investing Strategies for the Current Environment (sell stocks, buy gold!)

Do you think that, maybe, you’re finding any and all reasons to back up your continued holding of gold? Sure, it’s done great this year, and over the last 10 years – but like all the terms & conditions say – past performance is not a good indicator of future performance.

A large part of gold’s run-up in price over recent months has to do with the weakening US$. This won’t continue forever, and is probably a strategy to boost US exports in an attempt to help the economy. It’s also aided by weak banks in Europe repatriating euros by selling foreign assets in order to strengthen their balance sheets (causing the euro to strengthen against the US$). Again, this won’t continue (eventually they’ll run out of things to sell).

Also, since the mania has hit the main stream media, the general public are now piling into gold also. As we’ve seen, the public are the last to know about these events, and tend to pile into the trade just as it’s peaking out.

My advice would be to take profits on your gold positions (whether that be selling some or all of the position) or protect it with put options. I’m not going to attempt to predict the price of gold in the future. My short term outlook (6mths – 1yr) is for a stronger US$ & weaker commodity prices.