Doubloon,
Thinking about the gold price rise, there are a number of factors: hedge against inflation and store of value. (It might appear to be a bubble, but I believe that gold is seeking its true value).
The twin deficits, aggravated by the massive hurricane damage and necessary repairs, will reflect the continuing eroding of the dollar. That means more dollars in circulation.
Greenspan's departure is great, except that clone Bernanke might even be worse as evidenced by his speeches referencing helicopter money and his beliefs in inflating.
The Fed's signal that it will no longer report (but it will collect) M3 in March 2006 indicates to me that the Fed does not want the public to monitor it money activities. The reason for this apparent approach worries me that the government will go into massive inflation.
I truly believe that the twelve recent Fed Funds rate increases can't keep pace with the increased dollars in circulation. In other words, the Fed's current inflation policy is negated by excessive government spending.
The contrived Consumer Price Index (CPI) is a joke, as it measures "core" rate of inflation, excluding food and energy.
Actually "core" should be food and energy, and everything else should be excluded. We all buy food and we all use energy (directly or (indirectly in the products that we buy.)) And we all know that the prices are increasing rapidly. The consumer is now awake; the genie is out of the bottle.
It behooves all of those who save to begin "protecting" their assets with gold and silver. I think that this approach will eventually gain wide acceptance. It will provide some protection and maintain a store of asset value. It stands to reason, that if you have homeowners insurance on your home, then you should have investment insurance on your investments.
While The Fed keeps printing money, the circulated dollars will make gold and silver more valuable. Unfortunately, the increase currency will also make energy more expensive. Just my opinion, but I think that foreigners are tired of accepting our cheap dollars in payment for everything and that includes oil.
Gold and silver will backtrack, they always have. Central banks hate the precious metals as they usually reflect the weaknesses in their currencies. So, periodically the central banks dump gold on the open market to drive down the gold price.
But there has been so much gold dumping over the past decades, that the Western banks are getting precariously low in their gold holdings. And guess who are buying gold on the open market? Two countries come to mind immediately, China and India. (In fact, India had a massive debt and currency problem in the 1990's and its gold proved valuable as collateral in securing loans to resolve the situation.)
If the world is approaching the advent of Peak Oil and Peak Gas, prices will only get worse. Scarcity in these energy forms without alternatives is scary. All of this will be reflected by a lower dollar value.
A lot of top guys are moving into precious metals and foreign currencies, Warren Buffett to name one. If it's good enough for Warren, then it's good enough for me!
I predict that we will have deflation in real assets, e.g., real estate, with concurrent inflation in consumer goods. Basically the worse scenario. Houses will no longer be ATM machines funding our standard of living. The latter will regress, to my regret.
So, how does gold and silver play in the above mix? I guess if you believe that raw materials will become more scarce, that the world's population will continue to increase, and that governments will increase their deficit spending to cover their needs, then you will see gold seek its true and higher value. In fact, it is inevitable, money can be printed, gold must be mined and it is therefore expensive to extract and it is scarce, as well.
I believe that the future will be brighter for those holding precious metals and minerals, and energy. Time will tell.
sumisu
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