As gold passed the record $1900 USD mark this week, there were many articles, comments and commentary, both pro and con regarding what is generally termed "the price of gold". and "where the price of gold is going"!
The so-called "price of gold" is quoted in U.S. dollars and the comparison with the USD is what mostly makes headlines, even though countries as diverse as China, India, Russia, Brazil and Argentina are taking bold steps to increase their gold holdings. What many people are missing is that "gold" is the "price" of those fiat currencies.
For instance, if you had $1900 in U.S. cash in a safe deposit box, the price of that cash this week is one oz of gold. Given the macro environment, and the massive soverign debt of many countries (and in particular the U.S. and the eurozone countries) it may well be that, in a year's time, the price of that stash of cash will be only 1/2 oz of gold.
Gold is currency in these troubled times. It is the most stable currency in these troubled times. Gold's poor cousin, silver, is also currency in these troubled times. If you are still thinking of gold and silver as commodities in this environment, you are missing a huge economic shift in global sentiment.
Gold Does Not Have a Price. It Is the Price!
I have read many positive, bullish articles about gold and silver ETFs such as the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV). The problem with these (paper) investments, when this trade gets even more crowded, which it will, is this. The Chicago Mercantile exchange data indicates that gold and silver (paper) futures contracts traded on the Comex, reveal that about 100 times more paper gold ounces trade on this exchange every year than all the physical gold that exists in the world, and somewhere around 160 times paper silver ounces trade every year than all the physical silver that exists in this world. If that is the case, and the CME says it is, then how can these ETFs possibly have enough physical gold or siver on deposit to cover all redemptions, if and when they occur?
These are scary numbers, if you own these ETFs. Personally, I do not want to be holding these ETFs if there is any kind of panic in the future. I prefer physical gold, physical silver and the miners who have plenty of gold or silver in the ground.
To say gold is in a bubble right now is to say that money is in a bubble. Gold is money. Gold is the price. Will the price go up and down short term (ie: pullbacks) yes, of course prices change over time. But make no mistake, gold is the price of fiat currencies. That is the ground breaking change you must now wrap your investment mind around.
I believe silver is under valued today. Putting some silver bars in your safety deposit box right now may be one of the best invesments you will make this year.
Gold and silver miners are now mining money. Pure money! The cost of mining this money is printed in fiat currency. Does this not make gold and silver miners under valued? You bet they are! That is why I have been buying them this summer.
I like miners with plenty of gold in the ground, good production rates, more than one producing mine, solid management in mining friendly jurisdictions under stable governments.