A Constant Upward Trend
After the 2008 economic crisis, many people found their retirement accounts depleted by as much as 40%. During the interim period, many naysayers that don’t understand markets blasted equities as an investment. Today those investment portfolios have largely regained their previous price levels. Note the careful use of the word price, not value.
During this period of time, the prices of precious metals, such as gold and silver, have seen a dramatic increase in prices. More importantly, their value has also enjoyed a significant increase. It is very important that the individual investor get comfortable with this distinction between prices and value; it is critical to obtaining your future goals by utilizing investment news.
The difference between price and value is not a mere word game. Since the end of WWII, we have lived in a time of increasing prices. The constant upward trend is the result of our economy’s internal inflation. As inflation compounds and/or increases over the years, the value, or purchasing power, of certain investments increases while others decrease. This value is somewhat independent of their rise and fall in prices.
Price and Value of Precious Metals
In very round numbers, you can assume a price of gold in 2000 of $300 and ounce, and of silver of just over $8.00. Those prices today range from between $1,400-$1,500 for gold and from $25 to $28 an ounce for silver. Different analysts use different ways of projecting these increases, but a range of conservative estimates sees the respective prices at $3,000 and $200. Again, understanding the ups-and-downs of markets, there are fluctuations within those ranges.
Throughout history, the metals considered to be of investment value, or precious, have served as excellent stores of value. That statement means that an ounce of gold has intrinsically maintained its purchasing power over the past 3,000 years.
With this kind of increase in price and value, it raises the question of what is driving such an increase in price and value of these metals. In the final analysis, the spot price, or cost of an ounce at any given point in the trading day, is a function of supply and demand. There are major factors that currently influence that supply and demand equation.
Fears of Inflation
A part of the current economic environment is based on solid facts, another part on the fears that those facts create. Economists and businessmen understand that inflation is driven by, among other things, unbridled government and debt. In the past decade, world governments have printed $120 trillion to bring their global debt to over $200 trillion. Of more concern, this trend is not abating, but increasing.
There are volumes of research on this subject. The only real question most have is at what range inflation will run and for how long. This is a major trend pushing the price of metals considered investment quality to remarkable levels.
Use of the Commodity
It is easy to forget that gold and silver are both, in their natural form, first and foremost commodities. With their unique properties, there are a growing number of applications that consume much of the annual production of each, as well as other metals such as platinum.
Almost never used today as money, these metals remain legal currency in many countries. A number of countries mint in total millions of bullion coins annually that are purchased and stored away. This further increases the demand for the metals.
Will the Trend Continue?
While there will surely be fluctuations, even wide ones, the overwhelming consensus is that the prices of these commodities will continue to rise, as will their value. There is an exceptional potential with silver, as its price moves back into the historical gold/silver ratio price range.