Amid the ongoing global crisis of confidence, investors around the world are re-discovering the fact that gold and silver have been used as money for thousands of years.
We are in a period where “black swan events” (see Nassim Nicholas Taleb’s book “The Black Swan: The Impact Of The Highly Improbable) are not just a singular rare occurrence but they seem to be appearing in flocks. The safe haven status of gold and silver has proven its value again as it has throughout history. Gold has always been the “barometer of fear”, when people become concerned about the health of the financial and monetary systems, as well as the looming threat of inflation, they always turn to gold.
Gold has always been the barometer for the quality of paper “fiat” money. Gold has no counter party, gold has no credit risk, gold has no liquidity risk and it is globally accepted and traded around the world. There are two basic human instincts that create the need for people to own gold; the first one is the need to feel safe and secure and the second one is the want of something of great beauty. These needs in humans are the same today as they were two thousand years ago.
The global economies and financial markets move in cycles.
During times of economic growth and prosperity, confidence surges. When people and governments feel confident their appetite for risk and spending rises. During these times the need for safety and security gets kick to the sidelines. After all of the “black swan” events of the last four years, safety and security are being sought out as we can see by the continued rise in both gold and silver. We believe that the rise in gold still has a long way to go and that the strong possibility exists that we will see gold used to back currencies to some degree or another in the future.