Hi Hrattle!

Lets make one distinction in this discussion. People often talk about supply/demand for commodities, but we agree that most gold produced is not actually consumed. It sits in refined state in some vault somewhere in the world. Investment demand therefore is just a function of what one person is willing to pay to own that gold for a period of time.

Now for comparison, lets talk about fine art. Like gold, you cannot live in it, and will probably not swap a Group of Seven painting for a loaf of bread, so its not money either. But it has value. And like gold, one person may be willing to pay a premium to own it as a store of wealth, that can one day be converted back into paper money with greater purchasing power locked in by the transaction. Paintings may be sold, but they are not consumed. So too for gold.

I own some gold jewellery but in total, the amount of gold that is actually consumed is a fraction of the total world supply. But I own some bullion and I am happy to have it because I fully believe that as paper currency loses value, my gold will preserve that value and perhaps even gain value. I think that is the point of our discussion.

I think paper money has increased by a lot more than 200% in 20 years. Inflation itself is not a bad concept, but the problem is that the average guy on the street falls behind. If it was money supply and wages that were increasing at the same rate, then it would not amount to a big problem. However, as we have discovered lately, the average family is falling behind in purchasing power. We have more money, but it buys a lot less. Now it takes two working parents to support a family when it used to be just one bread-winner. And many families are falling into debt on top of that. So I do not trust inflationary presures to bail us out. I do not think the value of money is going to grow in the years ahead, now that things seem to be spiraling lower. The urgency to own gold as a store of wealth has never been greater in my opinion.

cheers!

mike