Is the price of gold and silver bullion any real reflect of their “worth”, or is it more of a symptom of larger problems?
Louis Gargour, chief investment officer at LNG Capital reported that 2 fears drove up the price of gold:
- Fear Of Inflation – Bullion tends to hold real value, regardless of the ups and downs of the value of the paper dollar in your pocket.
- Fear of Currency Fluctuations - This is not just the value of one particular currency, but the value of that currency against other currencies is hard to predict. Some investors may have invested in other currencies in the past, but they are getting hard to predict.
So it may be hard to figure out the value of the dollar bill in your pocket. It may be hard to predict the value of that dollar bill against the Euro or the Yen. But people purchase gold bullion, and silver too, in order to purchase a stable currency. So that means that gold has become a sort of secondary currency in its own right.
What Are We Scared Of?
Well, the unstable situation in the Middle East and the US debt crisis are a couple of things to start with. When people get nervous about financial situations or world stability, they still turn to bullion as a way to preserve asset value.
It may not be surprising that the rich are stocking up on gold. It may be more surprising that the average investor is starting to wonder about precious metals too!
However, I think we can draw one conclusion. Gold and silver have become more popular, and more expensive, because they are becoming a base currency, and not because they have suddenly developed more intrinsic worth. So that is a word of optimism and caution. Gold and silver will have the value that the market says they will have.
