Why Precious Metals Aren’t in a Bubble
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December 17th, 2009 by Prieur du Plessis, Investment Postcards from Cape Town
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The post below is a guest contribution by Dr Jeffrey Lewis, author of the Hard Money Newsletter Review and Silver-Coin-Investor.com.
Critics of precious metals investing have called gold and silver a bubble, further claiming that today’s higher prices will fade as economic conditions improve. Although gold and silver prices are much more expensive than they were even a few years ago, gold and silver are hardly near bubble status.
Scarce Ownership of Precious Metals
One of the most prominent reasons that gold and silver aren’t yet a bubble is that very few casual or institutional investors own physical gold and silver. A recent poll of professional money managers indicated that fewer than 30% have ever purchased gold for their clients. Ownership of gold is even rarer in the general populace, as investors have to go out of their way to buy physical metals.
The small percentage of precious metals investors could double, triple, or even quintuple before gold becomes a mainstream investment, pushing the price up several hundred percent in the interim.
Gold Isn’t Speculative
Unlike oil, dot com stocks and even real estate, gold isn’t bought and sold to make people rich. It isn’t sold as a get-rich-quick product. In fact, gold and silver are sold as get-rich-slowly products that help investors retain their purchasing power. The main purpose to buying precious metals isn’t to grow wealth, but to protect it. Even after the fear of global financial meltdown faded in the spring of 2009, gold and silver prices continued to head higher - not out of fear, but out of a desire to preserve wealth against inflation.
Metals Prices Haven’t Truly Grown
While the money supply has expanded tremendously since the early 1990s, gold prices didn’t begin their most recent rally until 2002, mostly due to a relatively strong economy. Therefore, the gains precious metals experienced in the last several years have not been true gains. Instead, gold and silver have caught up with where they should be. In fact, even with the money supply increasing 600% since gold last topped in 1980, gold is just a few percentage points higher than in 1980.
Rarity is Always Valuable
There is less gold and silver on the earth’s crust with each passing day. As precious metals are used in manufacturing, the amount in existence decreases, which subsequently increases the value of each gold and silver coin owned by investors.
Silver’s supply decline has been steeper than gold, with much of the past decade’s mining products being used in the technology and photography industries.
Now or Never
While precious metals aren’t currently in a bubble, it’s impossible to deny that they might soon be. With so many investors realizing the only way to safeguard their assets from inflation, deflation, and economic calamity is physical metals, it is certain that the price of silver will continue to rally. From the everyday collector to the institutional investor, precious metals are now on the radar as a safe and reliable investment. Rather than wait as precious metal prices trend higher, protect your assets by purchasing gold and silver coins today.
Dr. Prieur du Plessis is an investment professional with 26 years' experience in investment research and portfolio management. More than 1,200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns, including his blog, Investment Postcards from Cape Town. He has also published a book, Financial Basics: Investment. Prieur is Chairman and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and a number of foreign countries. He also serves as Honorary Consul of Slovenia for South Africa, actively developing economic, cultural and scientific relations between Slovenia and South Africa. Prieur is 54 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily. Read more from the author/contributor here.
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Tags: Dr Jeffrey, Fact Gold, Financial Meltdown, Gold, Gold And Silver, Gold And Silver Prices, Gold Prices, Hard Money, Institutional Investors, Jeffrey Lewis, Last Several Years, Metals Prices, Money Newsletter, Money Supply, oil, physical gold, Physical Metals, precious metals, Professional Money Managers, Purchasing Power, Recent Poll, Silver CoinPosted in Markets |
December 31st, 2009 at 1:08 pm
great site on gold and silver thanks!