Morbo, when gold was completely decoupled from the dollar in 1971, many economists predicted it would lose its speculative demand, which is most of its demand, and its price would crash from $35 to less than $10. They said gold was a bubble whose day was done. Instead, the price rose to $200 in 4 years and $850 in 10 years.
Why? Because it made a better speculative asset to save than dollars or dollar-denominated assets, whose supply was increasing at unpredictable paces. Gold’s supply cannot be changed so easily. It is not destroyed in its consumer uses. Its annual changes are extremely minute compared to its overall stock. Its supply is predictable. This prevents it from being subject to wild supply-side speculation. This is why it was established as money in the first place - when used as such, its demand would literally be the output of the economy, which also was unlikely to experience severe fluctuations in supply or mass consumer value changes.
Today, there is plenty speculation on fiat currencies. This is driven by risk of government collapses which would severely change demand, in addition to risk of supply inflation. The less stable a currency is at predictably securing goods and services, the less valuable it is as a currency.
As hyperinflation shows, even a medium of exchange can be abandoned as a medium of saving. Even without a government collapse and while maintaining legal tender laws, high volatility or unpredictability of the future value of a currency causes it to be abandoned as a form of saving. This drives velocity of circulation through the roof, sending prices skyrocketing. It is a feedback cycle.
For any commodity to establish itself as money, its demand will increase significantly, and its price will rise, given no relative increase in supply. Similarly, if it becomes popular to save/invest in some asset, it’s price will generally rise. But just as a bubble can burst, so can the value of a particular currency. Gold is probably exempt from this, because it was the preferred money of a virtually global, virtually free market.
So…some things to consider as to why gold isn’t a bubble that will burst. Almost all central banks list gold as an asset backing its currency. Gold has no counter-party risk - if a bank fails, gold won’t disappear…if a government collapses, it doesn’t matter as it isn’t legal tender laws that give gold value but market decisions. in fact, this situation is good for gold, as its reestablishment as a currency would drive up its demand. Finally, gold has proven for most of human history to be a good form of money. In case fiat currencies start crashing, which would happen if the dollar crashes, which it will, gold will be the default money.
For gold to lose all speculative demand, you must find something else that has a more stable supply, no counter-party risk, pre-existing prices, widespread market knowledge, in addition to good money qualities, such as portability, divisibility, durability, and verifiable authenticity. or you must find a way to prevent belief of government collapse AND money supply inflation. …good luck!
