Gold rush over?

Gold is viewed as a safe haven. Thus, it is interesting to see how gold behave in the past few quarters, when market fell off the cliff.

In the chart below, I plotted the worldwide identifiable gold demand from Q108 till Q209 in USD. They are jewelry, industrial & dental, and identifiable investment. In addition, I plotted gold price over the same period.

First we look at jewelry (yes, it is the gold chains, rings, etc, that ladies like). It maybe a surprise to many, but jewelry is actually the largest demand for gold. We see that jewelry demand peaked at Q308 and fell in Q408 and Q109. Since gold is a safe haven, I would thought that it should be in greater demand in Q408 and Q109 when market uncertainty was at its highest point. Apparently this is not the case.

However, if we look at identifiable investment, it shows a pick up over Q408 to Q109. Comparing this observation with that from jewelry, I would think that source of demand probably play a part. Comparing to the general retail jewelry buyers, gold investors are probably more sophiscated, more concern of uncertainty, and have more resources to satisfy its own demand.

Finally, we see that industrial and dental demand basically follows the trend of economy pretty well, bottom at Q408 and Q109 period.

In a bigger picture, we can see that the total gold demand starts to fall in Q209 to pre-crisis level in Q208. Is this an indication that market has shrugged off concerns over uncertainty? Maybe. But one thing strange is that the price did not correlate well with demand.

Is the gold rush over by now and market stability returns? Will the trillions dollar rescue packages lead to hyper inflation? It is difficult to draw conclusion now, but gold trend is certainly telling a lot of stories.

Singapore 44th National Day - a peek to the past

One more week and Singapore will celebrate its 44th National Day.

44 years is long in a man's life. However, it is relatively short in a country's history.

Singapore was occupied by Japan from 1942 till 1945. During this period, Japanese introduced a new currency, Banana money. As expected, when Japan lost the war, the Banana money basically become stacks of worthless paper. As mentioned in previous posting (http://mycroeconomics.blogspot.com/2009/07/gold-for-alien-attack.html), unlike gold, the value of fiat money depends on the credibility and capability of the issuer government.

Other than the well-known Banana money, the Japanese also used military exchange note. See below. It guaranteed full value exchange, and warned heavy punishment for counterfeit.

While celebrating the National Day, it is important to know what exactly is the celebaration.

Gold, for an alien attack?

You must have heard from your parents or grandparents, in time of war, money has no value, only gold is acceptable in business transaction. However, for the new generation, a war probably is as distant as an alien attack.

There is some truth in what they said though. In fact gold has been used as money or currency for generations, directly or indirectly. Before 15/Aug/1971, the value of $35was fixed at one troy ounce of gold, under the Bretton Woods System (since 1946). On 1971 Aug 15, then US President Richard Nixon abolished this.

Since then, for the first time in human history, there is no official link between currency and real asset (eg: shell, copper, gold). Therefore, what you have today in your wallet does not have an intrinsic value by itself, it is call Fiat money. It is a form of IOU by the government, promising you that you could exchange the note for some values. Therefore its value is highly dependent on the credibility of the governments. Now you know, in time of war, the survival of the country, therefore the government is already a big question mark, who talks about credibility?

Will the greatest mankind invented wealth creation technology, called printing technology defeats the thousands year wisdom in pursuing gold? Will the aliens strike one day? This is a complicated topic, let me do more research.