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$1000 An Ounce
By Benjamin Ledger | March 10, 2008
During the past week, the price of gold in United States dollars has hit record highs. Analysts predict that gold will reach $1000 an ounce within weeks.
Ten years ago, gold traded at $300 per ounce. Five years ago, gold traded at $350 per ounce. In August of 2007, gold was trading just under $700 per ounce. It is now trading around $970 per ounce. That’s a 38% increase in only 6 months. For those who bought gold between 1998 and 2002, their investment would have more than tripled in value.
So why the sharp increase in the price of gold? The price of gold increases with demand and also with the weakening of the dollar. We currently have both…which is bad, unless a person owns gold.
As a metal, gold would normally remain about the same price. The sharp increase in price over the past several years shows that there is a problem. The problem is the weakening dollar. The price of oil is rapidly increasing, which is also a result of the weak dollar: it takes more dollars to buy the same amount of oil. It just so happens that the price of oil and gold are increasing at about the same rate. So if it took a tenth of an ounce of gold to buy a barrel of oil before, it still takes a tenth of an ounce of gold.
Why has the value of the dollar weakened so much in the past few years? There are several reasons. For one, President Bush has been proposing gigantic budgets with increasingly larger deficits. This weakens the dollar because it increases the national debt, forcing the government to print more money and borrow more money. When President Bush announced his $3.1 trillion dollar budget in February, the Senate Majority Leader, Harry Reid of Nevada, said, “President Bush’s fiscal policies are the worst in our nation’s history – he has turned record surpluses into record deficits – and this budget is more of the same.” Ronald Reagan set the previous record with a $1 trillion budget. President Bush has pushed through the $2 trillion and $3 trillion budget records. It is not completely his fault, though.
The U.S. government has the weird idea that it can spend money that it does not have. Well, maybe it is not so weird. A lot of Americans have the same idea. They have been extremely greedy, buying on credit what they cannot afford. Americans have been racking up debt to the point where the system just could not take it anymore. The credit bubble burst in 2007, and the economy is grinding to a halt. Inflation is climbing, the number of house foreclosures is increasing monthly, and unemployment is growing. Many businesses are struggling because consumers are spending less, and large shares of companies are being bought by wealthy investors overseas.
It has been all the rage on Wall Street recently. Some bank or business announces a large billion dollar loss, and then some wealthy investor in China or a Saudi prince shows up and bails them out. It works out well except that these overseas investors are beginning to own large chunks of our businesses. The United States is losing its national sovereignty.
In an effort to slow recession, President Bush introduced a plan in excess of $150 billion that will give money back to taxpayers and businesses. Where is the government getting this money? Probably from China or from the printing press; either way it makes the dollar weaker and increases the price of gold.
In January, you may have heard of a shocking emergency 75-point rate cut by the Federal Reserve. This encourages banks, businesses, and individuals to borrow more and stimulate the economy. However, this also weakens the dollar and encourages Americans to the same excessive spending that got us into this mess. That is foolish fiscal policy—use the medicine that made people sick to help them get better, except that they end up…dead.
With inflation and recession occurring simultaneously, the U.S. economy is facing a very difficult time. It was brought on by a lack of fiscal restraint on the part of Americans and their government. It appears that our economy is going to get much worse before it gets better. Keep watching the price of gold. It will be a sign.
Sources:
1. MarketWatch
2. The Associated Press
3. The Sydney Morning Herald
4. goldprice.org
5. USAGold.com
6. International Herald Tribune
7. LewRockwell.com
8. msnbc.com - “Bush’s proposed $3 trillion budget is biggest”
9. msnbc.com - “2007 inflation up by largest amount in 17 years”
Topics: Columns, Social & Religious Commentary, Volume 3, Issue 5 |
March 13th, 2008 at 8:25 pm
Gold hit over $1000 an ounce today, Thursday, then fell back to $993.80.