After not paying attention to the metal markets for a while, I took a look what gold and silver was at today. My eyes went wide as I saw gold soar past $1100 and silver at near $18. I got to thinking why that is and came up with many interesting theories. There are a ton of reasons why metals soaring. But there will only be one end result.
With the dollar on the brink of getting weaker (in my opinion), people and institutions are hoarding metal to hedge against the dollar. Now I can see how that is a wise thing in their opinion but I think gold has no reason to be this valuable. I think silver is a better bet because it is a deplete-able resource (I realize they use gold too, but not on a scale as silver is used, a lot of consumed silver ends up in landfills). Gold is mostly sitting around in vaults while silver is being used up.
I always like to think about what something is really worth. In this case I imagine there being no currency all of a sudden, and all we had was metal to pay for stuff, or stuff to trade for other stuff. Do you honestly think an ounce will buy you $1100 worth of goods with no currency in tact? I doubt it, in fact it would be better to score real assets that would actually have some workable value. Gold sitting in your pocket wont really do you any good, unless you trade it for tangible workable assets, in which case it would take more gold than current day value to ounce ratio because I don’t think you will be able to buy that much value ($1100 worth), it may even take 2 ounces of gold to buy that much value.
Gold taking a nap in a vault
I doubt we will have any chance to test that theory any time soon, and maybe I’m wrong, but I do believe gold is overvalued.
I’m sure the gold bugs out there like Robert Kiyosaki must be selling right about this point, to lock in their gains. Hell, they may already be holding it on the house. All the suckers who jump in now may find themselves poorer in the future. You just don’t buy in a frenzy when everyone else is buying.
Silver has historically traded at something like 1/16 of gold, well right now that ratio is totally screwed. If gold is going to stay at this price, then we better start buying all that silver.
Be greedy when everyone is scared, and be scared when everyone is greedy. In this case, and at this rate, soon you will have Taxi cab drivers telling you to buy gold.