This seems like the argument they made when they eliminated the last remaining ties of the USD to gold. I have never understood how having too little gold on the planet would make it a bad currency. On the contrary, the less of it there is, the fewer milligrams you need for everyday purchases. If there were 1/10 the amount of gold, we could use handy 1/10 oz coins rather than 1 oz ones. I agree if you had a substance whose abundance was, say, 1 milligram per person, it might be challenging to use it as money, but available gold is on the order of magnitude of 1 oz per person. More than sufficient to use as money worldwide. Another example: You stated earlier that the gold market is "too small" for SWFs. How exactly does that make sense? Say it is "too small" for them to invest all their cash into gold. What would keep them from buying just enough gold to raise the price of gold by 10% every day until they decide it's time to start distributing it again? Remember, since the gold market is "too small" for them, they can keep the price as high as they want with their relatively infinite reserves. Regarding practicality of gold in an "end of the world as we know it" scenario: When there were no motor vehicles, firearms, stock exchanges, ATMs, supermarkets, radios etc etc, a gold coin would buy a cow. After the invention of firearms, a gold coin still bought a cow. After the invention of motor vehicles, a gold coin still bought a cow. You just have to think about the basics. Any substance that is durable, easily recognized, easily cut into smaller pieces without losing much value, scarce enough so you don't need more than you can easily carry around for everyday purchases, abundant enough so you don't have to use a microscope to be able to see the amount necessary for an every day purchase, would be a long term store of wealth as well as money at the same time. As far as I know, any such substance is called a precious metal, with gold and silver being by far the most easily recognized ones. You are correct, wheat would work just as well, unless your goal is to save up for retirement, in which case it may be a bit bulky and difficult to keep fresh.
I expect gold to either chop around the $770-$950 range for the rest of 2008, or (less likely) trend downwards all year. This despite the fact that I've been long gold since 2000, and still hold 64% of my position. Reasoning: Trend following funds have been shoveling billions into AU, but now that trend is broken and the technical damage is severe. If gold somehow cracks new highs this year (unlikely, IMO), disregard everything I just said. This is an official RM prediction.
The $900 dollar support has be violated... I guess checking the chart often will keep us aware of the price action. I had hope that gold would establish itself as a low/fixed supply panic trading vehicle and act like a penny stock... I'm just not sure what to think now. Maybe if the billions return we can see some price appreciation and a trading opportunity.
What specifically makes you bullish on the dollar now - anything other than it just being almost universally hated?
Earnings week starts Monday, I would expect the reports to be quite dismal and for some sectors, just downright big losses. This will place renewed downward pressure on the DOW and the FED will cut to 2.0. This will send the dollar weaker, yet again, against the 6 major currency pairs and thus Gold will appreciate. I do not see the drop happening. When bears try to gain control and take Gold back into the middle 800's, it gets bought right back up into the 900's. The summer months are lull months for equities anyhow, and with losses across the board and more than 1 trillion of those losses in subprime CDO's still hidden on the books, Gold will appreciate. Silver will make even a stronger move, percentage wise, and eventually get back to the tranditional Gold/Silver ratio. Chart does point to a drop and the correction was neccessary and healthy for the overall upward trend.
Not holding 64% anymore... Sold another big chunk today. Long term, gold is real currency & fiat is not... but short term, gold is about to go either down or sideways. Silver is a mega-short right here too.