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courtesy of zerohedge, worth the read.
http://www.zerohedge.com/sites/defau...12-14-2009.pdf
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In short, we believe Dr. Roubini’s misinterpretation of current data fooled him into putting his finger on exactly the wrong bubble. We believe the extraordinary growth rate in fiat currency supply of late better defines a "bubble". Thus, we would characterize gold as the "anti-bubble" (if such labels need be applied).
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We come back to the basic model of fiat currencies as the fundamental driver of the gold price over time. When systemic credit deflates from very high levels (vis-à-vis income and output levels), we know that central banks will repeatedly dilute their fiat currencies to synthesize rising nominal asset prices, and to try to expand nominal output growth and employment. We want to own gold now because it has a long history of sustaining its purchasing power value (as real money should) when paper currencies are diluted. Paper currencies are being aggressively diluted as we write.
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Gold is a relatively scarce form of money. If the dollar were inherently scarce (unable to be created nor extinguished at the whim of central banks), we would look to be implicitly long cash by being outright short overpriced assets. Regrettably, the dollar is not scarce and markets are treating it that way. The only way to be long cash in real terms then is to be long gold. Gold offers the opportunity to profit because the dollar can be (and currently is being) inflated administratively to maintain banking system solvency. We believe the magnitude of the nominal price appreciation in gold will be determined not by investor whim but, rather, by whatever nominal price is necessary to provide holders with positive real returns.
..."
http://www.zerohedge.com/sites/defau...12-14-2009.pdf
"
...
In short, we believe Dr. Roubini’s misinterpretation of current data fooled him into putting his finger on exactly the wrong bubble. We believe the extraordinary growth rate in fiat currency supply of late better defines a "bubble". Thus, we would characterize gold as the "anti-bubble" (if such labels need be applied).
...
We come back to the basic model of fiat currencies as the fundamental driver of the gold price over time. When systemic credit deflates from very high levels (vis-à-vis income and output levels), we know that central banks will repeatedly dilute their fiat currencies to synthesize rising nominal asset prices, and to try to expand nominal output growth and employment. We want to own gold now because it has a long history of sustaining its purchasing power value (as real money should) when paper currencies are diluted. Paper currencies are being aggressively diluted as we write.
...
Gold is a relatively scarce form of money. If the dollar were inherently scarce (unable to be created nor extinguished at the whim of central banks), we would look to be implicitly long cash by being outright short overpriced assets. Regrettably, the dollar is not scarce and markets are treating it that way. The only way to be long cash in real terms then is to be long gold. Gold offers the opportunity to profit because the dollar can be (and currently is being) inflated administratively to maintain banking system solvency. We believe the magnitude of the nominal price appreciation in gold will be determined not by investor whim but, rather, by whatever nominal price is necessary to provide holders with positive real returns.
..."
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