A few days ago, I wrote about Jim Roger’s forecast that gold price will continue rising to $2,000 an ounce. An interesting conversation started out because of this between a friend of mine and me. After having read the article, he gave me an interesting explanation of why gold price will eventually drop like a rock. What started out as a casual comment, turned into a lesson for myself. I have always believed that the only way for gold price to go is up. I knew that what goes up eventually must come down, but it was still not clear to me what the reason could be for this to happen. This friend of mine who happens to be a Jewish banker from a line of the few elites, shared with me a little bit of what he knows (and allowed to talk about).
The following comment was made in regards of my article about Jim Roger’s forecast of gold price.
Friend: Elisheva, believe me if it did, it’s all connected to a set of volatile complimentary reactions, as is with sugar and coffee or tea, and the price for alcohol beverages and prostitutes.
Elisheva: Interesting how you even put “prostitutes” in the list of commodities. I wouldn’t have a clue regarding the volatility of that market! (LOL)
Friend: You should know that consumable alcoholic beverages have a clear complimentary relationship to prostitution as most visitors of such places are consumers of such beverages. So when the price of alcoholic beverages goes up, it is expected that that the price for services rendered by prostitutes will also increase. Its like the equilibrium of both bad habits and need for the other one to compensate. Enjoy the market volatility, and remember what goes up must come down.
Elisheva: Prophecies in 1973 said that gold will become a safe haven for investors as paper money can no longer be trusted. This is already happening. It also says those who put their life and future in the hands of gold will suffer great losses.
Economic forecasts of today say that gold is going to continue rising at least until $3,000 and then sharply fall like a rock. How much it will fall, I haven’t heard but enough to hurt a lot of people.
So far I still don’t understand why it would go down. Paper money will only be worth the paper it is written on. With more quantitative easing, paper money will be more in supply than gold. How would it be possible for gold price to go down? Except if somebody extremely powerful intervenes.
Paper money is almost like a scam. It always has been anyways but people are too dumb to understand the value of REAL money,which is precious metal and even commodities. Consequently, the few wealthy people are the ones holding the gold and others, while the rest are given the paper.
My question is with paper money losing value and gold potentially going down eventually and commodity dependent on volatile complimentary reations, what are the few ultra-wealthy ones using as currency then? Nothing seems to be “safe haven”.
Friend: Regardless if it is gold, or coffee or any other metal they are still a commodity. When the demand for hard currency is needed of when one needs to bolster the need for fast track recovery or new infrastructure (start-up), gold is a perfect reason to invest at the current prevailing rate.When one is insecure whether it goes up or down it is perhaps better to invest in gold, especially if the Medium (the operating currency you are holding) is not performing as was predicted.
But to everything there is a limit, there is a beginning and there is an end. It all has to do with the supply and demand curve. From where you stand and how you are looking at this, it is like a two dimensional graph. But in reality it is even more than 3 or 4 dimensional perspective view. Try to see the world like a small ocean of water, when you look from above (one dimension) you see there are waves. Most of the time you can not even see how deep the highest wave is. It will be different if you look at it from a two-dimensional position.
Just imagine how busy your watchfull eye will be when this occurs in a ray of chaotic motions. One moment it is there and two seconds later no more. It even gets more exciting when two or more factors are influencing this motion, such as “the change of temperature and change of season”. So is it with gold as well. It will never last.
When an economy plunges into the deep end and hunger appears, war is the next thing to happen. Wealth will escape from hard cash to precious metal, but evidently precious metal like gold must return to normal as commodity is not expressed in a single market product (such as gold demand). There, the price of staple food may exceed the price of gold and then the negative equilibrium may cause a positive turn in the market. Often you see gold automatically going back down to hard currency again, because the payment is by means of a MEDIUM (i.e. paper money) that will become the lead currency, like the USD.
Is this lead currency going to change one day to Euro? I doubt it because there is already too much speculated into gold originated by USD, so why all this worry of paper money would never stand up?
Basically what I am trying to say is, don not get lured by the expression that gold can bring salvation (or safe haven), that is why I am saying, “What goes up must come down”. That shall always be the case. Just imagine by the time the great war is over, many peple will have been killed. There will be lesser demands for certain commodity depending what age catagory has been exterminated in the great war. But according to their need, the first commodity other than gold will rise. To start the exchange process, the prevailing currency will be the one operating. This was so with the US dollar after World War II.
What we need is another world war, where two third of the people will be destroyed. This will bring us back to the class of Agricultural Revolution, which then leads to Industrial Revolution and than to the freedom of act (Democracy).
After the next great war, gold will be released little by little and the economy will start thriving with an amazing urge of backing up the currency. If the offer and the release of gold into the economy is bigger than the demand of gold, the price of gold will fall. Other commodities will hold better than gold such as Bonds and even Rain Forest Plantation.
As emerging markets are up-coming out of the ground like tomorrow would never come (see China), it is predictable that a country like China will start producing their own inhouse gold without reporting how much their stock is. This alone will give a false picture like we have had from before, when looking into a sea of ocean and its waves. And when their Foreign Currency Deposits or Savings is amost larger than their domestic currency, it will certainly unleash their gold to stregthening their domestic currency, which will cause the need for their foreign currency to become less important (but that is also a false picture).
Therefore their compatibility becomes increasingly very competitive, as they buy foreign goods paid with foreign currency and export their domestic goods paid with their domestic currency. If the scale is out of balance than gold will step in. This does the trick to strengthening their domestic currency thus they can start printing more.
Elisheva: I understood about the coming famine, hunger, another great war as a result of this economic crisis. But I could not connect them with the plunge of gold price eventually. So after the great war, gold will drop like a rock, other commodities will rise according to the needs of the remaining people living on earth. And interestingly enough, even Rain Forest Plantation will be better than gold, and I believe you are referring to the future carbon credit market.
My question would be, how long do you predict until the end of the great war?
Friend: Gold is a commodity and so is Capital Market Security Papers, gold can also be expressed in gold certificates, these all are temporarily investment objectives to possibly avoid depreciation of the Nominal Value, if one has the correct info where to move from time to place it certainly would work out.
I remember I invested in Forest Investment Notes and in less than 20 years my portfolio in comparison to any other traded securities worldwide increased every year with almost 50%.
In 1999 I invested a small amount of money (while the market Economic Recession and monetary crisis in Asia was at its highest point) of Rp.5 billion in a stock portfolio, and within 4 years later I sold it with 30 times the value. In 2009 I learned that the same portfolio became worth only 2 times the amount I had invested in. I felt sorry for the remaining holder of this portfolio in that year.
Apparently so were the many banks in Europe, even those in Iceland, that became bankrupt. At that moment gold went hay-wire to unpredicted heights. The same people even held a portflio of gold but it did not change their belly-up position into healthy economics. On the contrary they had to let go much of their gold to start-up a new economy.
Since the prolonged economic crisis in the USA did not change, this gold is increasing but it does not change the parameters. More and more people are getting desperate and their investment. Anything other than gold becomes useless at this moment.
But one way or the other if you hold gold, the price of gold is equal to the price of the necassary commodities. What I mean is that basically if 1 kg of gold would buy 1 kg of rice, even if the price of gold increases, the price of rice will also increase.
As for the Great War you were asking me I am affraid that is a long shot into the future and I am not a soothsayer. Neither can I predict but only observe and quickly react if the resources of information are as what my eyes can see like the Sea of an Ocean of water.