Not too sure what to think about the recent drop in gold prices? Opportunity to buy more gold or sign to liquidate your own? There are obviously two schools of thought here, but many financial analysts tend to think that this price drop is only temporary. Let’s start with a little bit of history first…
The measure of all things
Gold has always been more than just a metal from which to coin money. It has also been a way of measuring the value of commodities and of determining the value of national currency — hence the expression “worth its weight in gold.” At various times in American history, there have been debates about how exactly to use gold as an economic yardstick: In the early days of the Republic the country adopted a bimetallic standard, according to which the larger denominations would be minted from gold and the smaller ones from silver. The gold and silver rushes of the middle and late nineteenth century heavily influenced American financial policy. After the Civil War, of which financing required Congress to issue paper money, the country wanted to revert to the antebellum metallic standard. And while no gold or silver coins have been minted in the United States since the 1930s, the federal treasury still keeps a store of gold to back the dollar.
A good time to invest
Today, when we are in the midst of a financial crisis, the need to buy gold may be greater than ever. The price of gold has recently begun to plummet, and anyone who can should take advantage of this development to make bulk purchases of the metal and store up for a rainy day. The significantly lower price is in large measure due to the efforts on the part of the federal government to make it that way, while at the same time inflating the stock market. By doing so, they aim to do two things: increase the prices of stocks even as economic conditions deteriorate, thus reassuring the faith of the public, and likewise increase the value of the dollar while undermining public sentiment in precious metals.
The strategy has been working — so far, that is. But like any attempt to achieve a desired end through manipulation and resorting to extremes, it can only last so long; eventually it will reverse itself. The artificial inflation of costs has affected only a few commodities besides stocks — real estate and bonds among them, and the latter only to a certain extent.
By contrast, the price of silver has risen 160 percent since 2011, so that the Dow can be purchased with over 620 oz. of the metal, compared with 250 in the past. During the same period, the cost of gold has gone up by 85 percent.
Guarding against inflation
Gold was and is a safe haven against the threat of inflation. Market analysts have found that those who sell gold futures (if they are only making an investment, few people will deliver actual, physical gold) use the funds to purchase stocks that pay dividends, which make it possible to generate a profit no matter what the present state of the market.
A crowded market
So many people are eager to buy gold futures that the markets are becoming crowded to the point of bursting: In April 2013 more than 153,000 oz. of gold coins were sold by the U. S. Mint, more than twice the amount sold the previous month. Timing, therefore, is important to the individual who wishes to invest in this market. Peter Krauth, Resource Specialist for Money Morning, says he believes the gold bull market will see prices go high up before it is all over.