U.S. debt is spiraling out of control. The Treasury Department’s printing presses are cranking out hundreds of billions in new money. The U.S. dollar is weak. The stock market is volatile. European countries are imploding financially and the entire European Union is at risk of collapse. The Middle East is an even worse tinderbox than normal, due to all the “Arab Spring” unrest.
Should you put all of your assets – your hard currency, your 401K, your stock portfolio – into gold and silver now, before it’s “too late?” Capital market specialist and entrepreneur Peter Pham thinks so.
Since 2008, when the Great Recession began in the U.S., gold and silver prices have hit the stratosphere. On Oct. 30 of that year, gold closed at $737.20 an ounce; silver closed at $9.785 an ounce. Today, gold and silver respectively are around $1,550 and $28 an ounce. Gold has more than doubled in value; silver has performed better, nearly tripling in value.
That’s all well and good, and there is no question that people who got into the gold and silver markets early-on have done well with their investment. But what about from this point on? What does the future hold for gold and, to a lesser extent, silver?
That’s never an easy question to answer – predicting the future value of something. But there are signs that could at least point you in the right direction.
Historically valuable and a hedge against bad times
First, gold and silver had historically held some value, especially as economic times get tough.
Secondly, governments today seem to be adding gold to their currency reserves, not divesting themselves of gold.
“The latest numbers published by the World Gold Council reveal that there is a sea-change happening in the gold market,” Pham wrote in an assessment of gold and silver recently. “It’s no secret that central banks have been buying, intermittently, gold and adding to their official reserves. The first quarter numbers showed clearly that gold demand is rising in the East faster than it is in the West and this has helped push the price higher. The trend looks to be just beginning.”
Producers of a product watch their markets closely to see if demand for their product is increasing or decreasing. As Pham notes, there has been some recent “weakness” in gold and there has been some decrease in demand in certain sectors of the global economy. But overall, production is up 5 percent, and that’s largely due to acquisitions of gold by governments, especially in Asia.
And that, says Pham, is likely because those governments believe gold is presently undervalued.
Central banks around the world loading up
“In 2011, for the first time, investment demand outstripped jewelry demand by 9 tons,” Pham wrote, noting in one example that Turkey’s central bank added 79.3 tons, raising reserves to 195 tons by the end of 2011, an increase of more than 32 percent over the previous year.
“Efforts by the government to bring some of that private gold into the banking system have seen their reserves rise to 209.6 tons by May, representing more than 12 percent of Turkey’s reserves. Clearly both the people and the government of Turkey are worried about the future,” he wrote.
That trend is growing throughout Asia, “from the Baltic with countries like Russia, Kazakhstan and Turkey all adding to their official reserves, to Southeast Asia where investment demand dominates in places like Vietnam and Thailand.”
He said central banks make these kinds of monetary moves for a variety of reasons, but in this case, he believes it is happening because “they are diversifying away from the U.S. dollar as their primary reserve currency to protect themselves from the stresses in the U.S. and European banking systems.”
‘Something fundamentally wrong’
“The gold flow data clearly shows them reacting to protect themselves,” Pham says.
There are also geopolitical factors driving the demand.
“Let’s not forget the looming U.S. and E.U. sanctions against anyone still trading with Iran, namely Iran, Turkey and Russia, who have been, by far, the biggest buyers of gold in the past fifteen months,” Pham writes.
What does it all mean? What is gold, at least, trying to tell us?
“At this point gold is telling us that the people on my side of the world believe gold to be grossly undervalued in the futures market and will continue to sit back and catch gold bars as they fall into their laps at discount prices,” he said.
“It’s also telling us that there is something fundamentally wrong with the path we’re on.”
Sources for this article include: