Gold’s true value in the world of money will only come when the debts cannot get paid and the central banks’ balance sheets are called into question. In the interim, we can focus on the hubris exhibited in the world of finance where consequences for poor decisions appear to be illegal.
Yesterday, something happened that brought into focus how little value the world of financiers attach to gold. You can thank governments, corporations and central banks for all colluding in their efforts to eliminate the business cycle for the latest bout of insanity the past several years.
Here is what happened and we will show it in relative terms. A drug company called Actavis sold $21 billion dollars of BBB- rated bonds but the demand for those bonds, via the order book, was roughly $90 billion. There was $90 billion dollars available for a poorly rated company to fund its acquisition. It was oversubscribed by 4.5X.
Gold is $1200 today and in a veritable ocean of money looking for the tiniest of yield, no one and I mean no one, in the finance industry that matters is buying it in quantity. They will flock to a company, whose prospects are suspect, at a yield of just 3.5%!!! but they do not want gold?
All the gold mined this year or 5000 tonnes priced at $1200 is $192 billion dollars. At $2000, a year’s worth of mined gold is $326 billion. How was gold in a bubble at $1900? Because it went up? On a relative basis to the insane people that are running money these days gold isn’t even in the realm of expensive. It is dirt cheap!
If Apple wanted to it could almost buy all of the gold mined this year at $1200 with its cash hoard. So the next time, someone tells you gold is in a bubble, relay a few facts about what gold is worth in relative terms.
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