I thought it would be nice to take a break from sounding like one of Plato's lesser-known, even-more-evil competitors, and note the latest in the eternally fascinating and bizarre gold-dollar system.

In the dollar's favor, gold lease rates appear to have stabilized. (Ie: either this signal was only a glitch, perhaps due to LIBOR weirdness, or it was countered effectively by policymakers). Moreover, as expected in a recession, true jewelry consumption has crashed.

In the East, at least, it is hard to separate luxury from investment jewelry, but even gold investors of the Oriental persuasion seem to operate on an intrinsic-value theory: they feel that the stuff has some natural price as a commodity, and they tend to buy when it is cheap and not when it is not. As we have seen, this is not rational - the rational gold investor is a momentum investor. However, this demand pattern is real and unlikely to change any time soon.

And "Western investment demand" is keeping the gold price in dollars relatively high. Perhaps a more accurate description is perhaps capital flight to gold - or, here at UR, moving to Moldenstein. To paraphrase Milton Friedman, perhaps it's just obvious that you can't have a heavily-bleeding global reserve currency and a free market in the precious metals.

Of course, as per the paradoxical logic of monetary commodities, this is true only if everyone knows it. Perhaps you are familiar with the paradox (familiar to every CTY veteran) of the blue-eyed islanders. As we enter 2009 there is a simple, mechanical trigger analogous to the stranger's arrival: any dumb, statistical screen for financial assets that outperformed in 2006, 2007 and 2008 will put gold somewhere near the top of the page. Moreover, it is obvious that the market for monetary gold is anything but saturated - even most rich people still have none. Doh.

So, while it appears to me from my cursory perusal of the mainstream press, that more people are beginning to understand gold, readers should bear in mind that (a) this too might be a glitch; (b) the debt market is a Rube Goldberg machine which may suddenly, if enough gasoline is poured into it and a sufficiently large blowtorch is applied, restart for no obvious reason; (c) even if people understand things, they can subsequently be made to un-understand them; and (d) the fact we continue to have a free market in said precious metals is a function not of USG's wisdom, but of its weakness - a quality never to be relied upon in one's enemies.

That said, the statistics for early 2009 are fairly impressive. Gold flow into the SPDR trust alone, for example, is at almost 200 tons for the last month. Ie: six billion dollars. Ie: roughly equal to planetary gold production. On February 11th and 12th, the flows were 40 and 35 tons - a billion dollars a day. This is almost real money. (Briefly: gold flows into to the trust when, if gold did not flow into the trust, the price of SPDR gold would exceed the futures-market price.) Furthermore, while God only knows what they are backed with, precious-metals bank accounts are reportedly proliferating in Russia.

This trend is not sustainable at its present level. It must either accelerate, or terminate. In retrospect, it will look like either a real signal, or a real glitch.

If the latter, the gold price carries a heavier monetary premium than at any time since 1980 - at least. It has more monetary support and less support from the traditional market, ie Hindu brides, and it will collapse more sharply. Gold can flow out of monetary caches, as well as in. Just so ya know. (And besides, it is always a contrary indicator when UR mentions gold.) In retrospect, it will look as if gold has experienced another 1980 bubble and collapsed.

If the former, it will look like Exter's pyramid has finally rolled tip down. This, like everything, will appear obvious and inevitable in retrospect. (There is probably no one at the New York Fed who remembers John Exter, but I'm sure his collected memos remain in the files.) I would not be surprised to see some political changes accompany any such monetary earthquake.

Computing any level for a fully-monetized gold price is number abuse. Gold price in what? By definition, your denominator has gone AWOL. However, perhaps a ballpark guess can be constructed by comparing annual global gold production, which while elastic is not as elastic as one might think, to annual global savings.

Certainly, until incremental monetary demand is consistently absorbing all new production, the gold rocket is still, in some sense, sitting on the launch pad. And so it is. There is some steam or something, however, emerging from the base. Either this is nothing, or it means the rocket is about to take off, or it means the rocket is about to fall over and blow up. It's your call, dude.