Monday, December 05, 2005

Gold To $1,000. - Mogg.

It's all nuts to me, Mr Bush
William Rees-Mogg
An elementary lesson in supply and demand, from the fruit of the palm to the soaring price in gold



MONEY IS ONLY a specialised form of barter. In the middle of the 19th century, Mademoiselle Zélie, a singer of Théâtre Lyrique in Paris, made a professional tour around the world and gave a concert in the Society Islands in French Polynesia. In exchange from an air from Norma and a few other songs, she was to receive a third part of the receipts.
“When counted, her share was found to consist of three pigs, 23 turkeys, 44 chickens, 5,000 coconuts, besides considerable quantities of bananas, lemons and oranges.” In Paris, these goods would have been worth about 4,000 francs, generous remuneration for half a dozen songs.



Mademoiselle Zélie’s experience was told and retold by 19th-century economists to illustrate the principle that currencies operate like any other form of exchange. What matters is relative scarcity; in her case the relative scarcity of popular songs and coconuts, in present day usage, the relative scarcity of different currencies, such as the dollar and the euro. Or, indeed, the relative scarcity of gold, the one definition of value that stands outside the fluctuations of national paper currencies. One could say that gold provides the coconuts of our monetary system.

On January 22, 2001, two days after George W. Bush was inaugurated as President of the United States, the price of gold was $265.90 an ounce. Last week the gold price broke through the $500 dollars an ounce level; that means the dollar has been devalued in terms of gold by almost 50 per cent in the four years and ten months of this presidency.

That does not reflect well on Gordon Brown, who as Chancellor sold a large part of Britain’s gold reserve at a price that was way below the present level. It reflects even worse on President Bush. He is ultimately responsible for the management of the dollar. It has halved its gold value on his watch.

The rise in the gold price does not come as a surprise. Many commentators, including myself, had forecast that gold would rise to these levels. My forecast was that gold would reach $500, and when it broke through $500 would move on towards $1,000 an ounce. It would now require a radical change in US financial policy to stabilise the dollar; I do not think such a change is at all likely. So far, President Bush has been very reliable as an agent of dollar devaluation.


http://www.timesonline.co.uk/article/0,,1052-1904459,00.html
http://silverinvestor.blogspot.com/