Direct "commodity speculators" into gold - the only commodity that does not adversely affect the general population when its price soars.
In a world full of fiat money,
it should not be surprising that investors of all stripes are gravitating to hard assets. Whether they be labeled "investors", "speculators", "index speculators" - call them what you'd like - more than any time in recent memory, people are choosing to exchange paper money for some claim on a hard asset.
Why?
In its simplest terms, too much money and credit has been created in recent years and now much of this money is looking for a place to go.
Stocks? Yeah, maybe some energy stocks.
Bonds? Nah.
Real Estate? Not yet.
That leaves a lot of money left over and some of that money is being used to buy oil, corn, and other goods on commodities futures exchanges that really weren't set up to handle the sort of volume they are now seeing.
Endowment funds, hedge funds, pension funds, and retail investors are exchanging paper money for hard assets like never before and this is surely having an impact on prices. Exactly what the extent of the impact is remains unknown, but even if it's only five or ten percent, we'd all rather see gasoline prices at $3.70 rather than $4.00.
Every little bit helps.
Back in 2006 when gold nearly doubled from $425 an ounce to $725 an ounce, no one really cared. Financial commentators and economists noted the increase in price of the yellow metal and laughed at the renewed interest in the "barbarous metal" and "gold mining clubs" - no one got hurt and there were no riots.
At the time corn cost about a quarter of what it does now and oil rose from about $55 a barrel to just over $70 a barrel - soaring commodity prices were more a source of amusement than a reason for oil producing nations to convene meetings of "heads of state" to address the problem.
Fast forward to 2008 and when the situation is reversed - oil prices soaring while gold rises only modestly - it's nearly the end of the world.
If gold were to rise to $5,000 as recently postulated, would it make any difference to the average person?
No.
If policymakers really wanted to stop commodity prices from rising, they should immediately ban all speculation in all commodity markets except for gold (and maybe silver too) and cease all sales of gold bullion from central bank or IMF vaults.
