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Precious Metals
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General Market Commentary
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General Precious Metals
Gold as an investment is made for times like these
The yellow metal is poised to hold its purchasing power as the Federal Reserve prints money on a massive scale
The average Wall Street trader believes all kinds of crazy stuff.
One long-running theory claims that the federal government has something called the Plunge Protection Team, or the PPT. If the stock market drops toward the end of the day, the PPT swoops in and rallies the market before it closes.
Or, so the story goes. I’ve never believed a word of it.
There’s a similarly crazy conspiracy theory element among gold investors. But you don’t have to believe a bunch of crazy stuff to own gold. And you absolutely do want to own some gold, especially now.
Gold standard
Long ago, the U.S. had a gold standard. This meant people could exchange their dollars for a fixed amount of gold.
The U.S. dropped away from a strict gold standard in the 1930s, and President Nixon abandoned it altogether in 1971. Since then, the dollar has been a “fiat currency.” Meaning its value isn’t tied to anything tangible such as gold. Those little green pieces of paper, and the digits in your bank account, are only “money” because the U.S. government says they are.
A gold standard is inflexible. So it stops the government from doing things like quantitative easing (money printing), which increases the number of dollars in circulation, and could potentially lay the ground for high inflation. Or so the theory goes.
I’ll be frank: I would like the U.S. to return to a gold standard, but that is never going to happen. So we’re stuck in a world of unlimited quantitative easing (QE) and other Fed funny business.
Which means this is a world where you want to own gold.
Yes, I think it’s a little weird that people invest in shiny rocks. However, this has been going on for up to 5,000 years. Some people say technology will change that. Yet it keeps happening.
Purchasing power
The fact is, gold has maintained its purchasing power over a huge span of history, and that isn’t likely to change.
Over the last 70 years, for example, gold’s inflation-adjusted annual return was 2.1%. In other words, gold has held its purchasing power. And that’s what it’s supposed to do.
Many investors argue that gold performed poorly at the beginning of the current crisis. Initially, yes, it slipped from around $1,700 per ounce to $1,470 in mid-March. Now it’s back up around $1,700. And it’s likely going higher.