Investment Craze

For several years now, particularly with the current state of the US economy, people all over the internet have been adamant about their claims of a major economic collapse, providing a convenient solution as well — precious metals. Wild claims are cited, such as gold reaching $10,000 per troy ounce and silver $1,000, promising huge returns and urging immediate investment. Is there not a contradiction? In an economic collapse, where the dollar would be virtually devalued (though some argue that, being the world’s reserve currency, it just can’t happen), those gains in dollar value would be meaningless. Precious metals ought to be used as hedges against the hyperinflation a currency would experience during the aforementioned economic collapse. Even though there are indicators that suggest the supply of silver may be overstated, the laws of supply and demand would make silver mining profitable enough (as well as other PM’s) to resume on a larger scale once more. Hypothetically, keeping a good watch on the market conditions may give people a chance to sell their precious metals before the supply reaches demand once more, but that is hardly something that can be expected of the majority of precious metal owners.

Therefore, the advocates of investment in precious metals ought to be citing inflation hedging and not easy profit. Videos are constantly put up on YouTube which proclaim the end of the dollar and allude to a near-Armageddon scenario — they are meant to incite fear, not to provoke reason. Feeding on this fear are companies and individuals who are more than happy to sell many silver coins and bullion bars for way over precious metal spot price.

This is not to say that precious metals are entirely immune to inflation. If a large amount of gold would suddenly be introduced into the market, its value would undoubtedly decrease. However, it’s much easier to print fiat currency than to acquire gold at nearly no cost. Thus, the value both types of currency hold — hard currency and fiat currency — still depends on the amount in circulation. The point is a bit more complicated with regards to fiat currency as there is virtually nothing to back up the dollar expect people’s confidence in it, but the concept still applies.

Advertisements

, , , , , ,

  1. #1 by DungeonMaster on July 4, 2010 - 12:36 pm

    The dollar is no longer the world’s reserved currency. China and the EU have announced their are planning on dropping the dollar.
    I do think there is a reason to fear (did you see what i did there?). We ought not disregard the parallels between the current economic crisis in the US, and the one faced by Germany after WWI. That, however, does not excuse fear mongering in order to rake in revenue.

    • #2 by rambleandrant on July 4, 2010 - 12:44 pm

      There is certainly talk about replacing the dollar as the reserve currency (http://www.cnn.com/2010/BUSINESS/06/29/un.report.dollar/index.html?hpt=T2), but it’ll undoubtedly take time — much more time than fear mongers claim our currency has left in it.

      A note on the parallels. I concede that there are lessons to be learned, but I still hold that investing in precious metals for the wrong reasons is a terrible idea. Imagine if people hoping to profit on, say, silver, sell their bullion when the price goes up, but remain with more fiat currency at the time of the economic collapse, currency that’s now useless. Those focused on holding for the sake of holding would, of course, hold. Those who hold for the sake of selling high would be the losers. I fear that the latter category would constitute the vast majority of the precious metal holders the newly publicized investment “gurus” are appealing to.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: