James West has an interesting piece at Midas Letter - Gold Price Prediction
When anything, be it stock, bond, currency or commodity, reaches a new high, the impetus for selling into strength and taking profit off the table are enhanced dramatically. With gold’s new record high, there are plenty of holders of bullion who started acquiring it in the first years of the millennium who are now sitting on profit equivalent to 3 times the money.OK. I get that. But the question then becomes, what exactly does he mean by retaining value? If there is nothing that you would accept in exchange for it, how much "value" does it have?
The question is, however, sell gold in exchange for what?
Certainly trading gold for U.S. dollars is akin to forward selling gold at an incrementally lower price. Anyone smart enough to own gold since 2001 is unlikely to be so silly.
Renmibi might seem like a good trade. The only problem with that is you can’t easily spend renmibi at Home Depot or Safeway or Nordstrom.
No, there’s really no substitute for gold at this point in the global currency landscape. And so, the normally present impetus to sell and take profit has been castrated by the lack of anything else capable of retaining its value.
I always look at the extreme case such as me having the last plate of food on earth and you having all the gold. How much of that gold would you give not to starve to death? How much gold would I accept to commit suicide?
Since the person who survives gets all the gold anyway, the only thing that has "value" is the food and even that is losing value the longer I remains uneaten.
I completely agree that exchanging gold for fiat money is a fools bargain, but once you have the gold you too can get fooled by seeing its exchange rate (as distinct from its value) constantly rising against all other possible "stores of value". Storage of any kind only has value if it is able to be released. from water in a dam to grain in a warehouse to savings in the bank, the storage part only works if the release part can take place. So how do you release the value stored in gold?
At some point you have to exchange it for something in the certain knowledge that you will never be able to get it back at that price, it will always go higher.
Well it will until all those left holding all the gold realise that it can't be eaten, worn, lived in, burned or used as medication, and if all anyone else wants is food, shelter, clothing, fuel or medication, how exactly do you sell your "assets" in exchange for something you actually need.
In complex societies the location of value is seriously camouflaged, and we can get carried away by the idea that, just because gold is durable and unchanging it has some kind of intrinsic value that can be locked away. I don't believe it.
Show me the mechanism.