Gold News

GOLD, THE BASIS of the world's monetary systems until the mid-20th century, cannot be created at will.

   Inflation in your cost of living, on the other hand, is all too often the result of runaway growth in the supply of what we've come to call "money" since then.

   "Governments are often tempted to answer the cry for more purchasing power by simply creating more money," as Jerry L.Jordan – a central banker – wrote in a recent issue of the Federal Reserve Bank of St.Louis Review.

   "But in so doing, the opposite effect is achieved – the purchasing power of money is actually reduced. The result is inflation: a rise in the number of Dollars required to purchase a given standard of living."

Gold Bullion Investment: The Surging Money Supply

   Here in 2008, soaring demand from China, India and the other fast-growing economies of Asia is pushing crude oil and world food prices higher. The supply of money in the major Western economies is also rising sharply. Many serious economists believe this is much more than coincidence. The rising Gold Price would seem to support this view.

   In the United Kingdom, the outstanding total of notes, coins, bank deposits and short-term loans has exploded over the last five years. It's growing by more than 13% annually in 2007. Inflation in the cost of living, meanwhile, recently hit a 15-year high.

   In Europe's so-called "Eurozone", home to the single currency Euro that's now trading at an all-time high against the Dollar, money supply growth is running at three times the pace agreed and publicly targeted by the European Central Bank.

   In fact, it's "close to 14% annually" – a near three-decade record – says Paul Vreymans at the Brussels think tank, Work For All. The Gold Price in Euros, meanwhile, has jumped by one third from this time last year.

   Over in the United States, the Federal Reserve actually ceased publication of its broadest US money supply data – known as "M3" – at the start of 2006. The Fed said that "the costs of collecting the underlying data and publishing M3 outweigh the benefits" to its monetary policy team. Whatever the truth of that, however, estimates published by private researchers since then now put the annual growth rate at nearly 14% – the fastest rate of expansion in the US money supply since the early 1970s.

   Don't mistake today's flood of money for an increase in wealth. Raising the quantity of money threatens to demean its quality. Unless the supply of goods and services rises at the same rate, then the more money there is in the world, the less each individual unit of money you own will buy.

   Gold, on the other hand, cannot be created at will. Mining it remains a dirty, expensive and difficult business today – and it's becoming ever harder to find new deposits below ground.

   Indeed, the world supply of gold has grown by barely 1.6% per year since the mid-1990s. Annual output in South Africa, the world's biggest gold mining nation, has more than halved in the last decade.

Gold Bullion Investment: Gold vs. Debt

   Nor is gold merely a promise of payment – quite unlike all those mortgage-backed bonds, futures contracts and the alphabet soup of CDOs and CDS traded on Wall Street today. It's simply a precious metal that people across the world have used to store wealth for more than 5,000 years.

   Why is gold the ultimate store of wealth? In the earth's crust gold is six times rarer than platinum and 18 times rarer than silver. Very nearly impossible to destroy, gold is also very heavy – 75% heavier than lead, in fact. One cubic metre of gold weighs 19.3 tonnes.

   So all the gold ever mined, estimated at 150,000 tonnes, would fit into a cube less than 20 metres on each side. It's growing by just 12 centimetres per year, but it still wouldn't even cover a tennis court.

   Now compare that cube of gold to the mountain of debt built up by Western consumers, governments and financial traders over the last decade. The rarity of gold really sets it apart – and even after six years of rising prices, Gold Bullion Investment remains a very select decision.

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Or click the right-facing arrow below to read about the balance of Gold Bullion Investment: Gold Supply vs. Demand...