Live World Indices are powered by

Wednesday, September 7, 2011

Gold Prices to Crater; Beware

A House of Cards?

Gold Prices to Crater; Beware…

Was P. T. Barnum Right? Your call…

The price bubble for “fiat gold” ultimately bursts.

The focus of economists on simple micro and macro concerns has left behind a more relevant conceptual framework of planetary economics a.k.a. "Quantum Realonomics". To judge the planetary state of affairs seven key indicators are set out, "Seven Key Diagnostic Measures.” One indicator is the Price of Gold. It concludes there is no evidence whatsoever that gold is a store of value related to usable items. Its real value today, lies in its mythical purpose to act as a "global gauge" of aggregate business, investor and consumer confidence. In the real world, P. T. Barnum perceived it as the "Fools Index" as he knew ticket sales would rise as the gold price climbed.

Here's a simple statistical analysis to consider. Firstly, the hypothesis that gold is the last store of value cannot be proven in any scientific way. However the null hypothesis can be proven, by observing the documented histories of Easter Island, (Nauru?) and other extinct economies. In all cases, gold gravitated towards a value of zero, and in the final days of these economies it could not be exchanged for anything. The statistical inferences are clear; “
gold is a worthless abstraction and the equivalent of fiat currency or worse.” The supply of fools rises geometrically with the initial onset of economic fears, followed by a “Seneca Effect” on price, when reality’s constraints are more evident. During this process, billions of dollars along with much human effort gets wasted digging up our planet for a fiat element with little; if any, redeeming value, save for pretty trinkets and trash.

So when will our foolish obsession with this pretty metal collapse?
There are at least three groups that may have a hand in its demise. First investors like George Soros who have been quietly converting their holdings into farmland. No explanation should be required for this; however, as this asset exchange becomes “general knowledge” the pennies should begin to drop in the minds of investors. Common sense will prevail; more savvy investors will follow the paths of George Soros and Jimmy Rogers, rather than the promotional insights of snake oil huckster Glenn Beck.

Central Banks and governments may also decide enough is enough, for monetary and economic reasons. Fiat gold certainly must be a thorn in the sides of these policy makers as it diverts the rationale flow of international currencies to the fairy tale currency of a planet or state that does not exist. Consider this experiment; fiat gold is actually the currency of a planet light years away; its currency therefore cannot be converted through practical inter-galactic trade and transport. No one in there right minds would object to Central Banks banning forever the conversion of Planet ZenonX23’s currency to any earthly form of currency. The planet’s government is also not likely to object. Central Banks hold the power of the pen to outlaw such conversions any time at their whim.

Environmentalists and others with planetary concerns will have a hand in the collapse of the price of fiat gold too. For this is the most obvious case where the invisible hand does not work; at all. Rightfully, they will point out the stupidity of using more finite non-renewable resources to scar our innocent planet for additional currency that can only be used for trade with the planet ZenonX23. (First we have to find it?). Would we use the last of our remaining essentials to mine for more of this inter-galactic currency as they similarly did on Easter Island? By all accounts, this absurdity should be crystal clear.

With fiat gold hovering near $2,000 per once, its price is certainly propped up by the usual mania, historically associated with bubbles. Bubbles always collapse. And when they do, the slide is fast and dramatic. George and Jimmy are spot on again, and as for Glen Beck? He lives near the Planet ZenonX23, so he says.

Mr Barnum was a smart man…

Tickets anyone?

T A McNeil,
First Financial Insights Inc.
Toronto, ON
September 7, 2011


NOTE: see comments in the article, Seven Key Diagnostic Measures; The Price of Gold.

The Picture Says it All