Banking Direct: Gold is great when times are tough

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Gold is great when times are tough

For thousands of years, gold has been the store of value, the medium of exchange and the revered metal used to adorn us as jewellery. For decades, it has been frowned upon by central banks and economists as a barbarous relic which should be consigned to the dustbin of history. The thing is...it seems to be making a comeback!

In the last 10 years, gold has soared more than 3 fold from under $300 per ounce to, at around the $900 per ounce today. What has caused this massive shift and is it likely to continue? Well, paper notes haven’t held their value well over a long period of time. Paper currencies have been coming and going for hundreds of years. In fact, with the introduction of the Euro, Greek coins were replaced by the British pound as the earth oldest currency still in active use.

One of the reasons the British pound remained in place was due to the use of it in the empire. One of the reasons that Gold is making such a comeback is that the paper currencies of most major economies are today being debased by the increases in the money supply, which went into overdrive after the dotcom bust in order to avoid a recession. It is this monetary expansion which has led to the increase in the price of gold. More accurately, the price of gold isn’t increasing; it's just that the value of currencies is decreasing, as they have been doing for a long time.

With the huge bailouts all over the world taking place right now, this looks set to continue. This should be great news for gold, which unlike other commodities, hasn’t fallen back considerably from 2007 highs. The reason is that gold is a safe haven during times of trouble, such as the ones we are in now. That and the fact that an ounce of gold was able to buy a quality suit and a nice pair of shoes in Roman times...the same is true today and will be true in the future, unlike any paper currency.

Gold is popular because governments can’t print more gold. Expect it to go up in price