Even during the gold rushes in California, Alaska, Australia, and South Africa, world gold supplies never increased by more than 5 percent per year. Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventh century. In short, gold is as steady as a rock, a standard-bearer by which all currencies can be accurately measured. If the price of gold is volatile, it is not because gold itself is volatile, but because government policy is reckless and unstable. Sharply rising gold prices are a sign of trouble ahead, whether it be inflation, war, or some other man-made crisis.
Lower prices mean a return to normalcy and the avoidance of chaos or war.
Stable gold prices suggest genuine prosperity and stability. Skyrocketing gold prices in the 1970s reflected a high level of inflation and financial crisis. The decline in gold in the 1980s suggested a dis-inflationary environment. The recent rise of gold in the 1990s implies a growing fear of more inflation. It is not surprising that Alan Greenspan and other central bankers are using the price of gold as an important gauge of inflationary expectations.