Global uncertainties abound: geopolitical Dustin Colquitt Jersey , financial, and economic. The aforementioned is a strong underlying driver for a more stable medium of exchange. The confluence of these events suggests $4,000 gold (per ounce) by 2020 seems more probable. I recently added a significant position in gold and gold mining assets to my portfolio. Financial engineering wreaked havoc with our financial system during the past three decades. Rather than acting as a catalyst to enable productive endeavors, finance metastasized into a machine that simply transferred enormous wealth while adding little value to society. It was enabled by a fiat currency that could be produced at virtually no cost. The Federal Reserve Bank can expand its balance sheet assets by $2 trillion digitally, by pressing a button: no need to deforest, produce pulp, manufacture paper, and print currency. Money creation is justified when it creates significant value for society. Gold can effectively serve as the fulcrum for this process. Gold is rare, not easily mined (produced), and it has functioned as a proxy for currency exchange historically. Some say we don’t have enough gold to back all the money in society. This may not be the case. The global money stock (M0, in economic jargon) represents the physical currency in circulation and the excess physical reserves held at banks. This amount totals roughly $4 trillion. The total money supply (M3), which includes credit issued by financial institutions, is nearly $60 trillion. Hence, the money stock is 115 of the total money supply. This amount of money supports a global GDP (income) of approximately $60 trillion. Imagine that we merely focus on backing the actual money stock (base) with gold. The World Gold Council estimates 30,500 tonnes are held in reserve by world governments (of the nearly 160,000 total tonnes mined in history – the balance of 130 Cairo Santos Jersey ,000 tonnes is primarily held in the form of jewelry and industrial products). At the current price of roughly $1,400 per ounce, the total market value for all gold reserves is $1.37 trillion. If the price of gold tripled, the value of these reserves would approximate the money stock of $4 trillion, and the price per ounce would be more than $4,000. Is it reasonable to expect the price of gold to triple? Currently, the United States holds 73.9 percent of its foreign currency reserves in gold, while China holds only 1.7 percent. China has nearly $2.85 trillion in reserves, with only $50 billion in gold. Recently, they purchased a significant quantity of gold, apparently to begin diversify their portfolio: smart move. They have an additional $2.80 trillion to spend (some on gold, perhaps). Credit Suisse estimates global private net worth to be $194.5 trillion, yet only 0.2 percent (that is, 15 of 1 percent) is invested in gold (less than $500 billion total). There is a significant amount of net financial assets available ($194 trillion) to rebalance global portfolios toward gold. As time passes, it is becoming very clear that global government debt (federal, state Donnie Avery Jersey , and local) is risky business, which is easily manipulated. The world central banks have engaged in a series of financial gymnastics to promote liquidity, avert defaults and prevent economic implosion. Unfortunately, these remedies treat the financial symptoms, not the root cause. The problems will come back, except more severe. Similar to the infection not completely killed by the antibiotic, the strongest strain survives, multiplies, and further debilitates the patient. All of this spells a large increase in future demand for gold. The cause of our ills: easy money. Too easy to create, camouflage, and manipulate. Some may argue, what about growth? To grow, we will need more money, and therefore, more gold to back it. Very true. A healthy nominal growth rate is typically 5 percent to 6 percent per year. This includes growth in population (1 percent), productivity (1.5 percent) Dee Ford Jersey , and inflation (3.5 percent). For growth to increase 6 percent, the total money supply would need to grow as much (actually or less in a more healthy economy). Today, global income and money supply are both $60 trillion. Therefore, each dollar changes hands once per year (velocity of money equal 1). A healthy economy has a velocity of more than 1.5. In this case, only $40 trillion would be needed to generate $60 trillion of income. In a worst-case scenario, for the total money supply to increase 6 percent, the money stock needs to increase 115 of 6 percent (earlier, I indicated the money stock = 115 of the total money supply). This would equal 0.4 percent of $4 trillion, or $16 billion. At today’s price of $1,400 per ounce, 360 tonnes would be required to back the additional money stock. The World Gold Council projects annual gold production of 2,000 to 3,000 tonnes. This quantity can adequately support the growth of money stock and satisfy consumption and investment demand. Moreover, the U.S. Geological Survey anticipates a 25 to 50 year supply of known gold reserves, given the current rate of production. Enhanced exploration techniques may identify additional deposits in the future. Once supply is limited, the price of gold will appreciate to back the additional currency required to generate more income. The underlying demand for gold seems to be appreciating Dontari Poe Jersey , especially given the volatile events occurring in the Middle East and North Africa (e.g., Tunisia, Egypt, Libya, Iran, Iraq, and Afghanistan). “Geopolitical tensions in the Middle East and North Africa region continue to fester, keeping risk aversion elevated and enhancing the appeal of safe-haven assets,” reports Marc Ground, an analyst at Standard Bank Plc in Johannesburg. Moreover, gold is now functioning as collateral to compensate for potential losses in the portfolios of financial institutions. Natalie Dempster, director of government affairs at the World Gold 锘?
