Gold and Alleged Economic Recovery

Gold and Economic Recovery

I get tired of hearing the supposed connection between the increase in price of gold and the alleged economic recovery we're in. Headline after headline connects the two as if there is a relationship between them, and in fact there isn't any.

For the sake of this article, we'll pretend there is an economic recovery, even though there isn't, so we can learn something important here.

First of all, some seem to think because of the sovereign debt crisis in Greece, people and institutions chose to go to the U.S. dollar as a place of safety over gold. That couldn't be further from the truth.

There were actually exception to that assumption, as gold on some days moved up with the U.S. dollar, showing many investors felt gold was the safer of the two.

The reason investors fled to the U.S. dollar most of the time during that period of uncertainty was there isn't enough places in the gold market that kind of money can be placed quickly. At times like those, even though the dollar is weak, it looks better than other currencies, and gold can't seem compete with that type of volume.

Concerning the idea gold is going up because of renewed belief the economy is improving doesn't even make sense. Those writing that nonsense evidently aren't able to distinguish between the sovereign debt crisis and why gold and the dollar reacted like they did.

They write as if they think the sovereign debt crisis in Europe is similar to the economic crisis we've been going through. While there are some similarities, there are a lot of differences as well.

The point is the European sovereign debt crisis is something different, and gold will be treated differently (at least for now) if another country is close to defaulting on its debt.

But in the current economic crisis and response of central banks and world governments to it, gold is set to flourish because of extraordinary debt, the continual printing of money, the resultant debasing of the currency and the need for a place of safety for our capital, or even to have an alternative currency if things completely break down. Oh yeah, there's also that little thing called inflation in the mix.

Those are the factors mainly affecting the interest in investing in gold commodities at this time, not the dubious idea an alleged improved economy is what is driving the interest in gold, Again, it simply doesn't make any sense to make that statement as it has been being made over the last couple of weeks.

If the economy was truly improving, gold would become less interesting and less attractive to investors, and would most likely go down in price as a result; at least under normal circumstances.

But the enormous amount of printed money out there is unprecedented, and it is no longer business as usual, and we're swimming in waters we've never treaded before. That makes gold a solid investment choice for years to come.