By John Hathaway, Senior Managing Director, Tocqueville Asset Management
December 12 (King World News) - Shocking Events And The Big Picture In Gold As We Head Into 2014
Money printing by world central banks, it would seem, has propelled the prices of all things rare. The list includes fine art, vintage wines and antique sports cars. It is front page news that the flood of paper money has enhanced the quotation of almost any tangible asset perceived to be in scarce supply. In a 11/23/13 article, The Economist reports: “Evermore wealth is being parked in fancy storage facilities….The goods they stash in freeports range from paintings, fine wine and precious metals to tapestries and even classic cars.” The article observes that a key factor fueling “this buying binge…is growing distrust of financial assets.” It doesn’t hurt that the prices of most of these items have trended steadily higher in price over the past decade.
Most intriguing in this array of ascendant alternative assets, however, is the crypto currency known as Bitcoin, whose advocates offer a rationale that is striking in its parallel to that for holding gold bullion. Bitcoin, as almost everyone knows, is a liquid transactional medium of strictly limited supply. The parallel breaks down, of course, when it comes to price behavior of these two otherwise similar alternative currencies. The price of a Bitcoin has increased to $975/coin (Mt. Gox 12/10/13) from less than $25 in May 2011. At the end of May 2011, bullion traded near $1500/oz, and is quoted today at a price that is 17% lower.
The supply of gold has increased over the past two years by 180 million ounces. As an increment to the existing stock of above ground gold, the percentage works out to about 1.5%/year. In the meantime, the US monetary base increased 14%, or an annual rate of 6.7%. ...