Gold Bubbles and Fiat Money – It’s All About Faith

I posted this recently as a long-winded, sefl-indulgent comment at the Bullion Baron’s blog site: http://www.bullionbaron.com/2011/12/goldsilver-on-verge-of-bubble-phase.html

Enjoy.

My 2c…

I think we will see some more movements down in USD terms, possibly to around $1500.

But, honestly, I think that there will be far too many people (even including “evil” speculators!) that would think $1500 is too cheap for, given the amount of actual and potential fiat/govt carnage in the works, such that $1500 would see the bottom for quite some time.

Personally, i think slow-ish rallies with sharper but less substantial “corrections” will occur after the next substantial phase of selling in PMs – ie. maybe gold to $1500 and silver to $25 USD/ounce…but steps and and down from there, gathering parabolic pace over the next few years.

The truth is, this is currently about Faith – the fundamentals.

But, like many bubbles, it will morph into a fundamentally-based frenzy that will build upon itself until the relative price is significantly divorced from its justifiable basis.

The way it “gets there”, though, is what is confusing many people at the moment, IMHO.

For the “gold is a bubble” crowd, they are confused why such a liquid asset has “bubbled” for so long, has had major corrections, and still keeps going up; for the “gold has fundamentals” crowd, too many of them are too simplistic in their thinking – if it’s supposed to “go up” because of the fundamentals, why does it keep coming down so far and fast, so often?

For both, they underestimate just how significant speculative financialisation is, and just how far it can drag a price in either direction, on a fundamental base or not. For the former, they do not quite realise that it is not REALLY about fiat dilution (printing, etc), but about fiat FAITH…

…where the USD and Gold (PMs) do not actually represent two commodities competing as “money”, but, instead, two stores of mutually-opposed FAITH: the USD as a store of faith in fiat/govt decree; and Gold (PMs) as a store of “non-fiat” or “un-dollar” FAITH.

ie. they are opposite sides of the same coin, so to speak (excuse the pun!).

Thanks again,
Stewart

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