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Wednesday, September 17, 2008

Huge Increase in Gold and Silver Price

The FRN-denominated price of gold and silver increased sharply today. The Federal Reserve is massively inflating to bail out banks. This should show up as higher commodity prices.

According to Kitco, Gold increased almost 11% to $862. The price of gold had sharply increased. Alternatively, the value of the dollar sharply decreased.

I was watching CNBC, and they said "Gold had a great day, but silver didn't do as well as gold." Silver increased over 15% to $12.05.

Am I reading that price correctly? The spot price of silver is only $12/ounce? Buy!!

If you're concerned about a financial industry meltdown, physical delivery is the way to go. Just recently, a money market fund "broke the buck", with a share price below $1/share. The GLD and SLV ETFs are at risk for a default. GLD and SLV lend out their holdings for short selling. The fund shareholders might be stuck during a financial crunch. Under really bad market conditions, there could be a default on gold or silver futures. Even a COMEX warehouse receipt might not be as secure as physical metal in your possession.

If the stock market went up 10% in one day, the headline would be "Hooray!! Buy stocks!! Everything is awesome!!" When gold or silver go up more than 10%, it's merely a footnote in the financial news. "The price of gold or silver went up a lot recently. Gold and silver are no longer attractive investments."

(Note: I fixed the typo that the Anonymous commenter pointed out.)


Anonymous said...

There is a typo in this line:
According to Kitco, Gold increased almost 11% to $862. The price of gold had sharply decreased.

It should have said the price of dollar sharply decreased.

anarcho-mercantilist said...

"It should have said the price of dollar sharply decreased."

Not really. The price of gold is easily manipulated by the financial industry, so gold isn't an accurate measure of price.

Speculation can influence prices without any change in money supply. For example, if speculators predict that the money supply would double over the next year, the price of gold would immediately increase; even if the money supply didn't change. The price of gold has risen due to increased speculative demand. Speculators bid up the gold price as the predict that they would reap the profits from negative real interest rates, after they heard the news that the fed would increase inflation.

Anonymous said...

Well, gold is the only real money here. Paper promises are not. The value of dollar may have not changed, since as you say (just above) the dollar supply wasn't increased (if it was so).

However, the price of dollar had definitely dropped. Whether by manipulation or not, the price had decreased.

There is no such thing as "price of gold", it makes no sense. It does makes some sense if we measure it in silver or some other money. But, with respect to non-money, such a fraud notes, it is only one way: the ratio of exchange of gold for paper is the price of paper, and not the other way around.

For example, today the price of dollar is 1/870 of gold ounce, while the value of dollar is about 1/30000 of gold troy ounce of gold.

Anonymous said...

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Joan Stepsen
Wise geek

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