JG, Gold is an asset and just like all assets, supply and demand drive its price. In future, I do see demand for gold picking up in view of the liquidity glut and so one should definitely have a certain portion of portfolio in gold. But your formulation assumes that all available money (M2) goes after gold (100% demand) which is very idealistic.
With a constant amount of gold around, a growing population,a growing prodution line and a globally linked world,a gold standard idea seems idealistic but quite difficlt practically. Honestly, I don’t like gold as a commodity asset compared to more useful commodities like silver/copper/oil/houses. Reason is simply because if it comes to cut throat survival scenarios portended by true gold bugs, a shiny coin cannot really help me as much as oil(energy),food,copper(tools),guns,etc. But I do own gold because I believe in diversification.
