Chapter 6. The Ring in the Bull's Nose

Making Money with Gold and Silver

If gold were simply for filling teeth and making jewelry, it would be a commodity like any other and wouldn't need a separate chapter. Silver is in some ways a similar story but in other ways quite different. Let's first look at gold.

Digging for Gold

Gold is a scarce resource, and after 4,000 years of prospecting, I'm not holding my breath waiting for a replay of the California Gold Rush. Unlike other commodities, however, gold is hoarded rather than consumed. What's been mined is still out there. Supply, though, is always limited, meaning that demand is the main variable affecting the price of gold. Demand comes principally from sources having economic or investment interests in gold.

Gold's financial role is unique. Money gravitates to gold as a safe haven, a store of value when the purchasing power of currencies is threatened by inflation or economic instability. The United States has both problems in spades. Inflation is also becoming a big problem abroad. Not surprisingly, the price of gold has more than tripled since 2000. But we ain't seen nothin' yet. The current gold price reflects only a fraction of the inflation already in the worldwide monetary system. Inflation is also playing a huge role in our government's initiatives aimed at softening the effects of the mortgage meltdown, and some $40 trillion of unfunded future obligations like Social Security and Medicare assure the printing presses will be ...

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