Thanks to global currency devaluations, investors have been turning to precious metals like gold and silver as a hedge against inflation. At the same time, few investors seem to understand how the actions of the government and the Federal Reserve impact the price of precious metals.
Since 2008, the actions of the Federal Reserve have put the U.S. on a path to economic failure. To stem the economic slide of the U.S. housing collapse that first surfaced in 2005, the Federal Reserve unveiled three different quantitative easing efforts. Since 2008, the Federal Reserve has printed off trillions of dollars, and it continues to add to that number at a staggering rate each month.
The extra dollars pumped into the economy are supposed to spur growth. This also has the reverse effect: shrinking the buying power of each dollar…which is the driving force of inflation. As the U.S. dollar declines in value against other world currencies, goods imported into the U.S. become more expensive.
Since hitting a low of $253.70 in July 1999, gold prices have surged. While some economists think gold’s historic run will come to an end, others are not so sure. The overarching driver of the price of gold will continue to be the global financial crisis and ongoing tensions in the Middle East. As a result, some analysts believe gold will rise above $2,200 an ounce in 2013.1
There’s more to precious metals than gold. If you’re looking for a precious metal that historically outperforms gold…look to silver. Since trading as low as $4.00 per ounce in late 2001, silver reached highs of almost $50.00 an ounce in 2011. While silver prices have retraced a bit, the metal is still up more than 675% from its 2001 lows. When it comes to a precious metal bull market, silver consistently outperforms gold.
The simple truth is that precious metals are a trustworthy and realistic investment instrument that should be in every investor’s portfolio. And given our current economic situation, it’s not hard to see why investors turn to inflation-proof hard assets like precious metals.
1. Larkin, N., and Roy, D., “Soros bets big on gold as prices expected to hit record highs,” Financial Post; Investing November 20, 2012.
With the stock market scrambling to find buying support and with the May West Texas Intermediate (WTI) back up around $50.00, I’d like to take a closer look at gold prices.
Why Gold Prices Are Catching My AttentionEveryone is aware the Federal Reserve will likely take the next steps and begin to raise interest rates either in July or by September, which will help drive up the dollar. A strong dollar translates into lower gold prices, which will help to keep some pressure on the demand side for the precious metal. Yet a look at the charts shows a potential trading opportunity in the works, despite the futures chain showing the price of gold staying around $1,200 to $1,215 an ounce for much o ... Read More
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