Big government has the Midas touch when it comes to creating a demand for investments in gold. The desire to invest in gold may be linked with the fact that as a commodity, it isn’t regulated by Big Government economic policy. Increasingly, gold is playing two roles, that of investment and economic indicator.
According to the CPA Journal, gold prices increased to $1000 per ounce on September 8, 2009, the highest level since March of 2009. Recently, investors seem to prefer gold over the U.S. dollar. This preference suggests that investors are concerned by the weakness of the American dollar.
The Gold Standard
To understand the merits of gold, the past should be examined. Once upon a time, precious metals were used to regulate currency exchange rates. Before World War I the world had a gold standard. A gold standard refers to wealthier countries having the capacity to redeem currency (such as the U.S. dollar) for fixed amounts of gold as needed.
Even poorer countries could participate using a silver standard with the same outcome. Whenever countries tried to print more paper currency than redeemable by precious metals like gold, their currency depreciated against other more secure currencies creating a system of regulation.
Gold Prices and Past Administrations
To understand why gold is rising, the economic policies of America’s past should be considered. The circumstances surrounding prior gold prices are indicative of the effects of Big Government intervention. By the time President Gerald Ford left office in 1977, gold prices were down. During President Jimmy Carter’s administration, gold was soaring.
By the end of Ronald Reagan’s presidency, the price of gold had reduced to $408. It dipped further to $331 once President George H. W. Bush left the White House. Prices continued to slide during the Clinton Era, and sunk even further by the close of the George W. Bush Administration. It can be assumed that the economic policies of past administrations affect the price of gold considerably.
Gold Prices and the Current Administration
To continue the analysis, consider gold prices during the current Obama Administration. According to a recent article in the New American, gold was at $1000 per ounce by early October. The factors surrounding this increase involve concerns that the Federal Reserve’s inflationary tactics have degraded the strength of the dollar.
The Wall Street Journal recently reported that gold futures were increasing slightly and trading in an opposite direction to the U.S. dollar in response to technical pressure. The dollar’s underperformance seems connected with increased gold buying since November.
Why Investors Like Gold
Investors are placing their trust in gold in the wake of an unstable dollar. Many are viewing recent developments in government spending and increased deficit as a call to invest in gold. It is likely that these measures are intended to ensure financial security should Big Government fail the people. Financial professionals seem to concur.
According to a recent article in Fortune, investor expert Chris Pia refers to gold as a logical investment when the market is uncertain and stocks are overvalued.
The Dollar’s International Status Declines
Other factors should be considered to understand current interest in gold investments. The increased demand for gold may be related to a disturbing news story from The Independent written by journalist Robert Fisk. In the article, it was reported that an alliance of Middle Eastern states were holding secret talks with countries such as France, China, Russia, Brazil and Japan to cease the system of purchasing oil in U.S. dollars alone.
The move would entail utilizing currencies such as the Chinese yuan and Japanese yen, gold, and the euro. In addition, there was conjecture of a new unified currency planned for the nations involved in the Gulf Co-operation Council including Abu Dhabi, Kuwait, Qatar and Saudi Arabia. The report claimed that the U.S. dollar would be phased out in 2018.
In response, the dollar began to dive in comparison to gold which began to skyrocket in value. At the conclusion of the day, gold had reached record highs. Despite vehement denials from international financial insiders that this was the new road for the U.S. dollar, the trend continued. By early October, financial analysts were predicting that gold would be inevitably valued at $2000 an ounce. Other predictions have been as extreme as $5000 an ounce.
If such an event should occur, the result would be catastrophic for the dollar and the American economy.
According to a prediction by Chris Pia in Fortune, the dollar is likely to take more blows. In addition to being overextended on funds from increasing sales, combined with interest on treasuries purchased with their dollars; China and other Asian exporters are concerned about U.S. inflation, possibly enough to expand into gold.
The Cost of Big Government
Even if all Americans aren’t financial experts, they have an awareness of the damaging actions of Big Government. Many Americans blame Big Government as the catalyst for increasing gold values and investments. As long as central banks like the Federal Reserve have the power to print money at their choosing, they will exercise this right only when their personal interest is in jeopardy. Without a gold standard, this authority is not held in check. Modern central banking ultimately serves only the powerful, and eventually hyperinflation occurs with national bankruptcy as the result. Eventually, widespread poverty, government instability, and the destructive capacity of civil unrest become the new order.
The growth of Big Government is fueled by central banking and unchecked government spending. The powers of central banking allow politicians and the powerful elite to fund government operations that citizens would otherwise refuse to pay taxes for. The typical American understands one thing well. Incomprehensible debt and widening deficits have led to an enormous burden for the American people. The cost of Big Government will be repaid by future generations.
Average Americans Turn to Gold for Financial Security
Americans also understand gold better than tech stocks, and feel it is a commodity they can trust more than relying on the actions of government. They also view gold as a way to maintain their purchasing power, which in dollar form is unstable. Gold will continue to play a significant role in future investments as long as current economic policies continue.
If nothing is done to rein in spending, reduce debts and stabilize the U.S. dollar, the icon of America’s strength and ingenuity will become in league with the I.O.U.