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Why Gold is better than Today’s Stock Market

26 March 2007 - Features - Editor

Forget about dividends, you do not even earn interest! Stock market securities have clear advantages over gold. High Federal interest rates in the United States may even see you lose national capital in gold holdings, yet this precious metal has some undeniable strength as we approach the end of the first decade of the 21st century.

Chinese, Russians, and Indians have emerged as powerful economic communities in recent times. Each of these countries has a sizeable population, and has benefited greatly during the last years of the previous century. They have enormous natural reserves, and indelible cultural links with the past. Their economies have begun to catch up with the developed world, and geo-political developments are favorable for them as well. All these 3 societies share a common fascination for gold. The metal is not just a cosmetic attraction in these countries, but something common people buy as they grow their net worth. It is therefore safe to forecast that the demand for gold will soar during the foreseeable future.

Gold has been a traditional shelter during lean times. The aftermath of the Iraq war, postures by and against Iran, insecurity in Palestine, the defiant regime in North Korea, and assorted terrorist groups around the world, bode ill for security concerns. Inclement global weather, which has always been a periodic disrupter of world affairs, threatens to become more frequent as the effects of environmental degradation take hold. It is not possible to predict exactly when the stock market environment may face dramatic discontinuities, but it is only prudent to provide for related contingencies. Gold stocks will hold sway and safeguard accumulated wealth during the steepest falls in national economies on any account.

The collapse of the Bretton Woods agreement without any substitute regulatory mechanism in place, has led to a free-for-all in terms of currency and exchange values. This might not have been an entirely bad thing provided that national deficits had followed some uniform trend. However, while the Chinese have manipulated the renminbi in order to steal jobs from the West, and to dump their products in to all first world markets, the U.S. dollar has fallen far below the heights which the currency of the most powerful nation on earth should enjoy. Again, uncertainties about the true values of paper monies issued by governments will eventually gravitate towards holding gold, especially in economies vulnerable to inflation.

Finally, the demand for gold is inevitably linked to population numbers. The latter not only grows inexorably by the minute, but there is a swell in the middle-classes amongst emergent nations. There has to be a natural progression in the amount of gold bought as increasing numbers of people rise above subsistence levels. Mining for gold, on the other hand, is ecologically expensive and restrictive. The answer as to what happened when demand growth outstrips that of supply is too well known to mention!

Gold is volatile, just as with stock market indices and values. There will be times when you despair at the dead investment and rue a transient loss in real terms. However, a new dawn is also certain given time. Invest in gold for a portfolio of certain appreciation!

 


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