Gold is trading at $1185 per ounce and rising as central banks and hedge funds around the world seems to be in a hurry to buy as much as they can. It might be the beginning of “Great Gold Rush of 2009″.
While people in India and other places are buying gold bars as per their capacity, majority of trading is happening in “paper metals”. Paper metals are any instruments that are not physically a metal but are options, future contracts, exchange traded funds. most popular form of paper metals are metal “accounts” with hedge funds and investment companies that hold Gold or Silver for their clients. 
The outlook is quite scary as it indicates a major change in investor confidence on dollar and other paper currencies. currencies no longer backed by Gold or other precious metals as they used to be few decades earlier.
In my humble opinion, this trend of increase in gold prices and decline in dollar value is indicative of market’s intent to embrace a new global currency fully backed by Gold/silver or other real physical assets.
For over six thousand years, Gold and silver are being used as valid and reliable currency that remained inflation/deflation proof. Till start of last century, gold maintained a stable ratio of 1:15 with silver. that means every ounce of gold was worth 15 ounce in silver and vice versa.
Now that we know that the ratio of Gold and Silver is 1 to 17 in earth’s crust. Silver has been and is still being used in industrial products in huge quantities. It has a potential to become more scarce in future. I am not saying that it will be expensive than gold at any time in near future but the prices can pickup pretty quickly.
It is also very interesting to take a look at historic purchasing power of Gold. It’s an old saying that the price of a nice custom tailored suit for a gentleman is always stable at one ounce of gold. In 1930, the price of one ounce of gold was around $35 and price of a decent suit was nearly the same. Interestingly, this old saying still holds true. A decent suit these days set you back roughly $1100 to $1200 range. Same is the price of gold today.
Even thousands of years ago, best clothing can be bought at cost of one ounce of gold or 15 ounces of silver. the purchasing power of gold and silver has been stable for so long and there is no reason that it will not remain so in future.
The above few paragraphs make it very clear why in times of uncertainty, investors rush toward gold to safeguard their investments. This time is different, the difference is that central banks around the globe have joined the gold rush of 2009 and this could result in unknown outcomes.
If such trend continues, it will lead to major destabilization of political and economic systems across the globe. what do you think?
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Posted by R. MAK. in Gold Prices · 0 Comment
