GOLD BUBBLES

An article by an internet dodo appeared today a on a financial salad web site, in which he presumed to discuss gold as a bubble, quoting billionaire George Soros who claimed gold was the ultimate asset bubble.

Does being rich make you smart or because you are smart does that make you rich?

We tend to equate the two, but in fact often they are mutually exclusive, the rich often possess a knack, or were in the right place at the right time. Most frequently they have the ability to hold on to their money. Sometimes they are very keen in some areas, and sometimes they are very clever and deceitful.

George Soros may fit the later category and one should take care to do what he does and not what he says or claims he does.

Asset bubbles such as stocks and bonds or real estate tend to balloon in nominal currency terms and thus can be described as "bubbles" for often they burst and are

then worth less than when they started to increase.

Gold has tripled in dollar value in the last few years, but its' value has remained the same--it doesn't change, only the currency used to measure it changed. Gold is not just an asset, it is money . People over the centuries of time have found it to be the most durable, divisible, consistent, convenient, and inherently valuable thing to use as a medium of exchange.

Our U.S. dollars are not money, they are measures of debt. Money is a store of value and a medium of exchange. U.S. dollars are a medium of exchange, but not a store of value. Are dollars a currency? Yes and we use them as a medium of exchange as legal tender by law. Starting with the Breton Woods Agreement, the U.S. had most of the world's gold , dollars were agreed upon as a substitute for gold and could be accepted in international trade and held as "reserves".

Since that time however, our store of gold has dwindled and the world's supply of dollars has multiplied. At one time, the dollar was a claim on the U.S. Treasury; however with the advent of the Federal Reserve Note, they are now backed by "the full faith and credit" of the United States government".

Gold cannot be increased by the stroke of a pen or computer keyboard. Its' supply can be marginally increased only by mining and new discoveries, so it can be considered constant and hardly a candidate for a bubble. Men's desire for it can sometimes be measured in currencies. As currencies are elastic, then the amount men are willing to give up in exchange for gold can vary.

With Love and Kindness,

THE HATMAN