[e-gold-list] Re: Big gold rise predicted vs US$

[CyberFrontier Global Support]

Hey Paul,

> Gold may rise to $1,000 an ounce over the next 18 months, driven by a
> falling dollar and rising energy costs,

The problem with this prediction is that when gold costs $1,000 that those 
$1,000 will probably buy less than $600 buys today.
One of the presistant fallacies of small investors buying gold in the past, 
was that they believed to profit from a sky-high gold price. The problem 
with that belief is that gold is an inflation hedge at the best of times, 
and short ups and downs (that might last a decade or more) notwitholding, it 
is the one commodity everything else is measured against. In other words, 
over time an ounze of gold will only buy the same it bought 200 hundred 
years ago, if you ignore short-lived regional booms and busts.

As such, gold helps preserving wealth over time, but it doesn't create 
wealth per se. When we began investing in real estate in Asia and more 
recently in the Midwest, we calculated the purchase prices in gold, and are 
accounting for property holdings by converting the current market price into 
gold at the respectively current spot rate. Even though some of the 
properties we bought went up by 20% and more in the past two years, the 
converted gold value remains stable.

I would go as far as saying that the Wallmart assisted price drops of goods 
for some 20 years running, is in fact directly related to the low gold price 
at the time. Gold was low, other goods were falling to catch up, so to say.

Of course, there are the market manipulations and the rise of China to 
consider. However, China, like most emerging economies, start buying gold as 
soon as they can afford doing so.
In inflation adjusted terms, gold still is very low, yet, if you price gold 
against a basket of other tangibles, it is quite close to what CNBC would 
term 'fair value'.

And that suggests that if gold went to $1,000 an ounze, the $1,000 will then 
buy what $600 buy now. No profit in real terms.

Cheers,
Robert

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