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  • What It Really Costs To Mine Gold: The Eldorado Gold Edition [View article]
    To Hebba investments
    From a conservative

    << ... the government is doing what was unthinkable 10 years ago - BUYING its own debt! >>

    Whoa. If you or I were buying our own debt, that would be reducing our outstanding debt. If the government were buying its own debt, that would be reducing the government's outstanding debt. However, I must admit that that's a more concise way of stating the following:

    The Fed literally prints money, then buys bonds from Banks, who then buy bonds from the U.S.Treasury, who then spends the newly printed money all over the place. Inflation is negligible only because the velocity of money has declined, apparently because citizens are hesistant to spend or invest due to the looming $16 trillion national debt, continued budget deficits, the high unemployment rate, Medicare/Medicaid, expected higher income taxes, etc..

    This creates a lot of uncertainty in the economy and the future value of money. If and when citizens feel secure enough to start spending and investing, inflation occurs as velocity returns to normal. And that inflation is the tax that the American public will pay to finance the annual budget deficits since 2008 (I think).

    The run-up in the price of gold is due a flight-to-safety in the face of the uncertainties mentioned above. Look at gold's price-history. Every period of economic crisis is marked with a run-up in the price of gold, and afterwards, a crash in the price of gold. People have a variety of reasons to see gold as a safe haven, most notably it seems scarce and has good physical and chemical properties.

    If you took all the gold ever produced since the time of the Pharoahs, melted it, purified it, and poured it into a cube, the cube would be only 63 feet x 63 feet x 63 feet.

    The scarcity of gold is protected by the high-cost of mining it, which is why it's supply has ony increased 1% or 2% or so per year. As the price goes higher, more mining operations become economically feasible, and supply increases. If a newly-found source of gold were found that was cheap to mine in significant volumes, then the price of gold could fall, even in today's worried environment.

    There is at least one possible new source that could provide significant volume.

    Apr 15, 2013. 02:29 PM | Likes Like |Link to Comment
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