Gold is Different. What Next?

Gold is Different.

What Next?

The price of gold recently plunged against a backdrop of increasing global money printing (“quantitativeeasing”) and increasing demand for physical gold.
On the face of it, this is odd. It is however quite rational, due to some perverse incentives in the structure of the gold market that are not well understood.

The Backdrop The world went off the gold standard in 1 971, enabling much freer manufacture of  money because the constraint of possible redemption for gold had finally been removed.

The 1970s saw a period of stagflation, ended by 20% interest rates in 1980 that reset the system with low inflation.

Our story begins in 1982, when the great money bubble started. It was a good time to be a banker.

Commercial banks manufactured ever more bank money ( or “credit”), raising the level of bank money in the economy to record highs. Because bank money is created by the act of lending, bank money is also debt, so the debt levels also rose to historic highs.

David Evans:  Full report (PDF 17 pages) Gold is Different. What Next?