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Epic gold battle or marathon?

Everybody likes a David versus Goliath story. The little guy wins against the big guy contrary to how things usually work out.

The same is true with outsider versus insider in politics. When the outsider wins against the insider who supposedly has everything wired, it is contrary to expectations.

So consider gold versus government and/or Wall Street.

This is often portrayed as the plucky little guys against the giants.

But is it accurate?

It certainly was prior to 1974 when gold bullion ownership was legalized after 41 years of being illegal.

Coin collectors who owned gold coins prior to 1974 were definitely the little guys.

The big versus little narrative was certainly accurate prior to the Reagan Administration’s decision to stop regular intervention in the foreign exchange market.

But it has been less and less true since then, which is now 34 years later.

The U.S. government began selling gold bullion coins in 1986 with the advent of gold and silver American Eagles. Platinum Eagles arrived in 1997.

Government policy is to sell as much precious metal to buyers as they want even if execution is often less than perfect.

Wall Street took longer to embrace gold. It was limited to gold mining shares for many years, but the arrival of Exchange Traded Funds, which grew rapidly in the financial crisis, put gold and silver in the mainstream.

But even before these ETFs existed, financial reporting regularly covered precious metals. There were even attempts to mainstream coin investment in the 1980s, which was treated like another hard money option.

Now likely as not, precious metals respond to conventional financial market cues.

If it looks like the Fed is raising interest rates, precious metals tumble.

If it looks like the Fed won’t raise rates, they rise.

The market reactions are rational calculations of investment carrying costs and investment alternatives.

When the economy looks like it is getting weaker, as recent indicators out of China show, silver particularly goes down because its price has a large component of industrial demand in it.

This morning, the price of an ounce of gold was 77.47 times that of silver on the Kitco website ($1,130.30 and $14.59, respectively.)

When the economy is thriving and inflation is heating up, the ratio is much lower.

Precious metals have become conventional. They are mainstream.

But that does not alter the basic reason for owning some precious metals.

Precious metals do rise with the price level over time. But they also move in fits and starts just like the stock market.

There are exciting up trends and hair-raising down trends. But in the truly long haul, prices end up higher.

But as a conventional asset class, tales of slow-moving, long-term up trends in precious metals are not nearly as exciting as an epic battle that is over quickly.

Buzz blogger Dave Harper has twice won the Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

• If you enjoy separating fact from fiction, you’ll want to check out Fascinating Facts, Mysteries & Myths about U.S. Coins

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One Response to Epic gold battle or marathon?

  1. schnauzer says:

    Nice article Dave. Good point on the slow moving upward swing of silver. That is what silver is all about. If you like it, then get yourself some. But don’t expect to get rich overnight. You gotta be patient. Very patient. Get it, stash it away and wait. And wait, and wait. Takes time for the cream to rise to the top.

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