Washington, DC -- (ReleaseWire) -- 02/12/2015 --On October 29th, 2014, Alan Greenspan made a statement that continues to reverberate, even more that three months later. The ex-Fed chief was speaking with Gillian Tett of the Financial Times at the Council on Foreign Relations, and when Tett asked Greenspan's thoughts on whether gold is currently a good investment, given the potential for turmoil in the markets, he responded with an unequivocal "Yes," and then went on to make the following statement.
"Look, remember what we're looking at. Gold is a currency. It is still by all evidences the premier currency where no fiat currency, including the dollar, can match it. And so that the issue is, if you're looking at a question of turmoil, you will find, as we always have in the past, it moves into the gold price."
This is an amazing quote from Greenspan, the maestro, who personally started quantitative easing, the printing of money that led to the financial cataclysm that we're in today. It's a sudden epiphany. Now his message is that gold is the smart place to put money these days, given its value as a currency outside of policies conducted by governments, which is why central banks put fiat currency into gold as assets. An asset that has no rate of return, no dividend, no interest. An asset that incurs costs for storage and insurance.
Why are the central banks doing it? Because a question mark is hanging over the value of paper currency, fiat currency, and its credibility going forward. That is why banks are holding billions of dollars of gold, which does not pay interest or dividends on their balance sheets.
The free market rules, which are supposed to be the guidelines on assets in the marketplace, are based on the law of supply and demand. And when there is demand and the supply is limited, the asset class should increase in value. At least that's how it should operate. However, in this day and age very little is fair, especially in the financial markets, and that's certainly true of gold and silver. The price of gold is found in various places, and this single price, usually called the spot price of gold (or the spot price of silver) is supposed to represent the value humans have placed on this ancient metal of kings. But in the last four years, this consensus pricing mechanism has only been an illusion of solidarity.
For example, silver. One in every four ounces of silver that the planet earth will bring out the earth this year will move through the COMEX's six storage warehouses. The COMEX, located in New York, is the primary market for trading metals such as gold and silver. The COMEX system has gone from moving perhaps one million ounces of silver per week to moving nearly one million a day. Yet, silver's price continues to drop. Why is that? More importantly than ever, we must keep a clear focus on the implications of this mis-priced action. It's all a game of ounces in the end, especially for the banks that hold it, as they must bring enough physical metal to delivery on their exchanges, both to the investor and to the industrial user. The moment that metal is not delivered to any client, big or small, will be the precise moment that this game of price manipulation ends. The physical gold shortage is similar. We're experiencing the worst shortages we've seen in over a decade, which again begs the question as to why the price of paper gold continues to drop.
However, we may have seen the beginnings of a sea change during January. Gold ended 2014 at $1,183.90, and silver at $15.56. By the end of January, gold was at $1.278.50, silver at $17.19. That's a nearly 8% increase for gold and around 10.5% for silver. 2014 was a big year for gold in the news, with the Swiss Referendum on repatriating Swiss gold and increasing gold reserves, which ultimately failed to pass, but acted as a conversation starter for many. It is crucial for investors to be aware of gold and silver as assets with value to their portfolios, and equally crucial to be aware of the underlying policies that have in effect been artificially manipulating the prices of these precious metals.
All data sourced through Bloomberg
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com. She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
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