Historically, once the world banks grab it as fast as they can, the price crashes. Ultimately, it has as much value as diamonds, almost nothing.
as long as the whales and paper tigers masquerading as IB's / CTA's regard silver as "bling bling's bitch" there will always be timeframes when gold is dust and is forgotten www.taxfreegold.co.uk/images/2006goldbeagledog2ouncerev400.jpg
I'm still holding my core position of (long gold + short S&P 500). Didn't do much up until the last few weeks, when it soared by a nice 10%. I think the pair should do well in the current deflation scenario. If and when the printing presses are put into super-overdrive mode, the pair should do well in a hyperinflation scenario as well.
I've bought August gold for an average price of 1207 as it came out of last month's deleveraging cycle. I've seen some attempts have been made in this thread to asses the current valuation of gold by looking at it's increasing importance in public culture. Joe4422 attempts to do this assesment by correlating it to the dollar or central bank buying. Somewhere else I've heard the argument that gold has no value as it has no cash flow. None of these attempts understand the value of gold however. The value of gold is that one can bury it. In ancient times, taxes were levied in gold as the city states needed to maintain gold reserves to ensure their continued survival during wartime. Because gold does not rust or decay it can be buried during a time of war to ensure that the enemy does not get to it. Because of its role as a strategic asset during wartime it can also serve as a succesful proxy for productive capacity. After all, getting to your enemies gold reserves would be the same as acquiring the rights to its future productive capacity as the acquired gold could be used to buy goods and services from its soldiers and craftsmen. Now that we're off the gold standard a fiat currency no longer obtains it's value from gold. Instead it obtains it's value from its ability to extinguish tax liabilities. The state, being able to demand taxation in the currency that it issues is able to ensure that there will always be a market for their currency. Under a fiat system the value of gold no longer exists as a succesful proxy for productive capacity since it's no longer freely circulating as a currency. What then is the value of gold under a fiat currency system? This value is still derived from gold's ability to be buried and remain buried. It's a metal that can be hoarded in large and secure storage safes in order to hedge against a collapse in a countries ability to levy taxes. In other words, it's a hedge for a breakdown in the social order and rule of law. If such a breakdown would occur then gold would again be in demand as a proxy for productive capacity precisely because of its ability to be hoarded and buried. This human instinct to hoard during times of crisis is what ascribes value to particular goods and objects. For those willing to delve deeper into the functioning of this human instinct I'd advice them to read The New Testament. It's basicaly an exposé of the hoarding instinct and the way that "the world" ascribes value.
Green pieces of paper have even less value. So if the value of gold is a collective hallucination than that is even more true for the value of the dollar, yen, or euro.