Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation (Ben Bernanke on curing deflation,Before the National Economists Club, Washington, D.C., November 21, 2002 LINK)You know, I've read that speech several times and today is the first time that I noticed that he prefaced that particular passage with "like gold." Truly remarkable when you let that sink in.
We've seen today from one fundamental standpoint just why gold is going to go a lot higher in price, as it will become significantly more "scarce" in supply relative to the supply of fiat currency being printed up.
HOWEVER, largely unnoticed and distinctly not commented on or analyzed, was another key fundamental factor: the enactment of the Basel III Accord. I've written an exclusive article for www.Seekingalpha.com which explains why Basel III will unequivocally mean much higher values for gold (and silver). You can read that article here:
Gold will be de facto reasserted into the global financial system as a currency. This should add a new dimension to the ongoing bull market in gold and silver, as banks globally now have incentive to accumulate and hold gold as a valuable, liquid asset which can be leveraged as an operating asset.
Here's the link: THE BASEL III ACCORD AND HIGHER GOLD