carey_jim

Two Moves to Make as the Fed Inflates the Commodities Bubble

As everyone knows, gold and silver were used to back the value of currencies in the past. But this led to the highly irrational policy of countries hoarding gold in places like the famous Fort Knox and determining the value of their currencies by how much of the "precious" metal they held.

Since there was (and is) no way to accurately determine the value of gold, not to mention to completely prevent the dangers that it (Fort Knox) might be destroyed by an act of nature or terrorism, debased by new discoveries and methods of production or confiscated in acts of war, most economists think basing the value of currencies on the amount of gold held by governments is not rational and their consensus was to abandon the gold standard and, if effect, to base the value of the currencies on the underlying value of the economy of each country.

This, of course, is just a long-winded way of saying that most economists don't believe that the value of gold and silver are more stable in value than other commodities.

I think we have to guard against our innate prejudices in favor of gold and silver that are based on historical, literary and even religious grounds.

Gold and silver are good or bad investments for the same reasons other commodities are good or bad investments. We need to examine those reasons and forget our prejudices.