For the last 30 years or so, it’s a well-known fact that as the value of the US dollar decreases, the price of gold increases. In today’s post-US sub-prime mortgage economic climate, does it still make good fiscal sense to invest in gold?
By: Ringo Bones and Vanessa Uy
As the price of oil draws ever closer to the 100 US dollar-per-barrel mark, is our present (fiscal year 2007) global economy fast becoming into the economic climate that existed in 1980? Even though there are similarities like the Federal Reserve reigning in on credit and interest rates, the tumultuous political situations in the Middle East. The US$100 in 1980 is still higher in value after FTC algorithm-inflation-adjustments compared to US$100 circa-2007. Armed with this data, will the price of gold do a 1980 era repeat of reaching over the US$800 per-ounce price range?
With an aspect of Sharia Banking Laws fast becoming into vogue in Western financial sectors like the idea of financial institutions should only honor “concrete” or “tangible” forms of collateral, the lure of investing into precious metals –like gold- had recently become the hottest trend in high-yield investments. But the precious metals market is by no means strictly infallible and not immune from unlawful market manipulation. If anyone still remembers-or cares- about the “Hunt-silver debacle” will surely attest to this. At the beginning of the 1970’s the Hunt brothers – heir to the multi-billion dollar fortune of Texas oil/petroleum tycoon H.L. Hunt used their billions to purchase and hoard silver in an attempt to increase the price of silver to be comparable to that of gold. But near the end of March 1980, the Hunt brothers, along with a major Wall Street firm and U.S. securities and commodities markets came almost to the brink of financial disaster. Even though those were different times back then, if most of today’s current billionaires will do a “stunt” similar to what the Hunt brothers did -but to gold- the price of gold could reach US$10,000 per-ounce.
Our current allure of gold and its related retinue of precious metals, stemmed from the US sub-prime mortgage crisis that became news by the end of July 2007. During the succeeding months, the fallout of the US sub-prime mortgage crisis affected the global currency market – with their anchor – the US dollar weakened by inflation due to the Bush administrations current quagmire in Iraq. (At an average cost of US$1billion-per-week, it does seem like Uncle Sam is setting up a colony on a distant earth-like planet orbiting the star Alpha Centauri). Bonds and conventional bank savings accounts quickly lost their appeal as inflation drained their purchasing power. So investors and their dogs everywhere quickly began to turn to the oldest stores of value they can find – gold and related precious metals.
The novice investor may ask: “Why invest in gold?” Well, since the time paper money gained widespread appeal. These “paper money” –by common sense- should be worth just about or lesser than the paper on which it is printed on, unless the paper money’s value is backed-up by “tangible” or “concrete” assets namely gold, silver or the other related precious metals. But it is mainly the “gold standard” i.e. a monetary standard under which the basic unit of currency is defined via a stated quantity of gold circulating freely into the international financial system, hence the term “bank notes”. The reason we expend an almost excessive amounts of our mining expertise in obtaining this rare but almost useless metal, which even in “gold rush” days involves the “processing” of a ton of ore just to get 17 grams of gold. At present, even “processing” a ton of ore just to get 3 grams of gold is considered very economically viable. And also, it is because gold is what makes our paper money able to buy things i.e. purchasing power. The other uses of gold is in the jewelry industry, dental “bridgework” and electroplating electrical / electronic components to make them corrosion resistant.
While platinum is far more useful than gold and the gyroscopes of modern bombsights are made from it. Unlike gold or silver, platinum doesn’t occur in its native state in nature i.e. free elemental form. Platinum, and its related metal siblings on the Periodic Table namely rhodium, iridium and palladium are usually refined via proprietary chemical process that is a highly guarded trade secret. Usually a batch of beige - colored mud (ore concentrate) is added with a “secret” chemical mixture to obtain the pure metallic platinum and its metal siblings.
A lesser known metal that is more useful expensive, and rarer than gold is gallium. The main user of gallium is the electronics industry where it is used in making semiconductors with high switching speeds and “solid state” night-vision goggles. Without gallium, the green-tinged Paris Hilton Sex Video would not have been possible. Yet gallium plays no part in backing the value of our paper currency.
So what does this all mean? Being closeted –but fiscally challenged – philanthropists that we are. We do believe in charity –only during those times that we are practically overflowing with money. We’ve read “The Politically Incorrect Guide to American History” by Thomas E. Woods, Jr., Ph.D.. And the part of that book that really speaks to us is about how charitable giving grew at a faster rate during the 1980’s, described as “the decade of greed” (after the movie “Wall Street”?). Statistics had shown that charitable giving during the 1980”s really grew at a faster rate than it had during the previous 25 years. A really “scary” proof to the saying that: “greed is good”. Because of this, its now in the best interest of major charitable organizations like Oxfam and the UN Food Programme for us to “become rich”. With skyrocketing grain / staple crop prices due to the hastily set-up biofuel industry, the United Nations Food Programme's food / grain purchasing power has been drastically reduced. So they need more money just to maintain their existing / basic programs.