Gold Off To Slow Start
A commentary on recent events by National Gold Group’s Chris Poindexter – November 26, 2012
Commodities got off to a slow start Monday as European markets were muddled by concerns related to Greece and the dollar made a small rally against the euro.
Gold was down $1.66 in early trading to $1,748.69 while silver was up $0.09 to $34.08, bringing the silver/gold ratio to 51.3. Commodities were mostly flat to slightly lower, with copper joining silver higher while platinum and palladium were sideways to slightly lower.
It appears gold is once again asserting itself against the fiat currencies of the world. One of the big reasons people buy gold and silver are as hedges against inflation and yet precious metals maintain an imperfect relationship with inflation, though that has not always been the case.
Back in the 70s and 80s gold did track nicely with inflation, but all that changed in 2001. Since then gold has parted ways with the inflation index and vaulted so high there is essentially no clear relationship to that index anymore. That’s because another value in gold has taken over and that is its value as a currency hedge.
Loose money policies started in 2000 have remained more or less intact ever since. It’s my opinion that has been the prime driver in the run up in gold prices over the last decade. Yet there is no single metric for gold that consistently tracks with prices. That’s because gold also carries intangible relative value and serves as a type of currency. If that were not true then central banks would be lining their vaults with some other commodity.
Due to the large number of variables in gold prices and the slight of hand reporting of our currency supply, there’s really no way to tell if gold is fairly valued against the worth of our fiat currency or if gold is in some kind of massive bubble. You will find economists who argue the case both ways. One of the reasons you stick to putting a fixed percentage into gold is on the off chance the predictors of gold bubble doom might be right. The reason you hold gold at all is that they might be wrong.
What I can point to with certainty is that the value of our currency, what you can buy with a given amount of money, is drastically reduced and keeps going down every year, which again is related to currency supply. Inflation stays mysteriously in check because there’s no shortage of goods, nothing to drive prices higher other than the value of currency itself.
The reason I invest in gold is because the people who print the money, the central banks of the world, are investing in gold. If it’s good enough for them, it’s good enough for me.
The above commentary is for informational purposes only and is not a solicitation by National Gold Group or Chris Poindexter. It is the commentator’s opinion only and not intended for investment recommendations, and does not necessarily reflect the views of National Gold Group. Any references to outside sources are believed accurate. Past performance is not a guarantee of future results. All commodities involve risk. Investors should consult their financial advisor before making any investment decisions.