Warren Mosler: Gold Buying

This graph shows the annual world gold product...

Image via Wikipedia

Looks like govts. are increasingly moving into gold.

Govts. can support prices for at least as long as they increase purchases geometrically, which, operationally they can do without limit. It’s a political decision.

To get all the gold they want, govts. have to out bid the private sector, and then maybe each other as well.

That means when govt buying slows down, if it ever does, prices then fall to the private sector’s bid.

With precious few non hoarding uses for gold it’s all waste of human endeavor and a waste of all the other real resources that go into gold mining and refining, etc. But it’s all a very small % of world expenditure of real resources.

Bottom line, it’s another example of govt. ‘interference’ creating a distortion, but in this case the real resources expended- land, labor, capital, energy- are relatively small as a % of total resource consumption, and since gold can’t be eaten and isn’t used for shelter and clothing (ok, some ornamentation) the high price probably alters too few lives for the worse for a political backlash.

However, central bankers stuck in mythical inflations expectations theory with regards to the cause of inflation could react and cause problems that wouldn’t otherwise be there. I doubt the Fed falls into that category, but it’s not impossible. [Source]

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