While out and about today on a trip to Dillon, Montana to see if we could score any Patagonia gear at their Labor Day outlet sale (it was a mad house and a pair of ski pants alpine climbing pants were secured at a hefty discount), one of the lingering little gold mysteries that had popped into my head over the years was solved.

It really didn’t take much to solve this riddle – it was more a matter of it never rising to the level where any attention was ever focused on it.

To wit, how can they sell these little bottles that are seemingly filled with gold (about two inches high) in the many Gold Country gift shops that dot the western U.S. for just six or eight dollars a pop?

Surely, there has to be more than a couple dollars worth of gold in these little bottles that are marked “99.99 Percent Pure Gold” while, at the same time, the manufacturer and retailer can’t be selling them at a loss.

Well, malleability is the operative word here and a display in the mining section of the Dillon Museum is what prompted the writing of this post. According to one of the displays, a single ounce of gold can be hammered into a flat sheet that spreads out into something like a 100 foot square. (Note that I don’t recall the exact number, but it was much, much bigger than you would believe when looking down at a one-ounce gold coin in the palm of your hand that is about an inch and a half in diameter).

Apparently, gold leaf can made unbelievably thin, a post over at Zero Hedge today noting that it “is commonly 0.18 microns (seven millionths of an inch) thick. It’s so thin that a stack of 7,055 sheets would be no thicker than a dime.”

The folks who make these little bottles filled with gold leaf are probably making a killing.

The holdings at the iShares Silver Trust (NYSE:SLV) have been climbing recently, some 129 tonnes of the metal added in just the last seven days, as the price of silver has surged from under $18 an ounce to more than $19.50 with more upside likely ahead.

At 9,280 tonnes, the inventory is still a bit short of the high seen in late-2009 at 9,514 tonnes, but, with the price of silver rising as it has been, that could change very quickly.

Full Disclosure: Long silver coins and bars

What you read in the mainstream financial media about gold never ceases to amaze and amuse. About a week ago, in this item at the Wall Street Journal MarketBeat blog, Matt Phillips said he was pretty, pretty, pretty skeptical about the shiny rock save for his belief that it’s a bubble. Today, sitting in for Jason Zweig in writing the Weekend Investor column, Jeff Opdyke thinks that the shiny rock is some sort of a shadow currency.

Rethinking Gold: What if It Isn’t a Commodity After All?

_
This won’t sit well with some people: Gold isn’t a commodity. There. I’ve said it.

But before you fire off an angry response, hear me out. The facts might change your view of gold’s role in a portfolio.

For a long time, we’ve all heard that gold is a commodity—no different, really, from silver or wheat or pork bellies. Its price ebbs and flows (supposedly) with inflation, which historically drives commodity prices.

Odd, then, that gold’s elevated price hasn’t fallen in response to tepid U.S. inflation numbers. The Consumer Price Index as of July pegged inflation at just 1.2% for the previous 12 months, not counting seasonal adjustments. Nor has gold reacted to what Mohamed El-Erian, Pimco’s chief executive, recently called “the road to deflation” on which he sees the U.S. traveling.

The conventional wisdom holds that neither of those scenarios—low inflation or deflation—should be good for gold. And yet it refuses to abandon record highs in the $1,200-an-ounce range. Something seems amiss.

Yes, something is definitely amiss, but it’s not gold. Gold just sits there, waiting to be dug up out of the ground or pulled out of some vault and sent off to some other vault while central bankers run their printing presses non-stop in order to get the ailing economy – its ills widely believed to be a result of too much easy money – back on its feet.

It is truly remarkable that there is such great interest in a metal whose only real purpose in the world is to make paper money look bad in comparison.

Actually, it’s not remarkable at all – unless you’re part of the mainstream financial media.

After seeing only a modest correlation between inflation and gold and the much stronger inverse relationship between gold and the trade-weighted dollar, Opdyke figures the yellow metal is some sort of an anti-dollar or a shadow currency of some kind that is sending off signals about the “potential diminishment” of the purchasing power of paper money.

That sound plausible…

Apparently, after what’s happened to the global financial system over the last few years, the world’s central bankers have had a dramatic change in thinking about gold bullion, formerly known as the “barbarous relic”. A metal once considered to be a remnant of a bygone era is now increasingly viewed as not only relevant, but “the most important” central bank asset.

The details are in this Financial Times report($) (alternate link):

Even so, the more positive trend towards gold was highlighted recently by UBS, the Swiss bank, in its annual poll of central bank and sovereign wealth funds. It found nearly a quarter of central banks believed gold would become the most important reserve asset in the next 25 years.

At its annual seminar for sovereign institutions, UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000bn in assets. The results were not weighted for assets under management.

Asked what the most important reserve asset would be in 25 years, roughly half of polled officials chose the US dollar, but 22 per cent chose gold. Bullion was the second most popular response, well above others such as Asian currencies or the euro.

Not surprisingly, given the combination of U.S. dollar hegemony and a seemingly insatiable desire in Washington to borrow, print, and spend our way back to the prosperity we once knew, the appeal of gold over paper money is strongest in emerging market economies where the standard of living is still rising and the future still seems brighter.