Each week on How I See It, Ted Ohashi discusses current business themes from an experienced yet fresh perspective. This week, Ted looks at the decline in price of precious metals, and some of the possible reasons behind it.
Date Published: Feb 21, 2013
Hello. My name is Ted Ohashi and this is How I See It
For some time now, I have been puzzled by the price of gold and silver. Why are precious metals prices declining? Then a small light bulb went on.
President Obama and the leaders of major developed nations are playing a delicate game. They are trying to support faltering economies with Government spending. Where does a Government get money to spend? One source is taxation. But raising taxes runs counter to the goal of keeping their economies propped up.
So they have chosen another option. Borrowing.
Of course to succeed, borrowers must convince lenders of two things. First that they will be able to pay back the loans. Second, they must convince lenders the currency they receive when they are paid back will be worth something.
As long as they can keep selling their story, people will keep lending them funds and they can keep their economies afloat until a true economic recovery begins.
But if they lose the public’s confidence, it will all come apart like a cheap suit. And the one thing everyone knows is that it is hard to restore lost confidence. Better not to lose it in the first place.
One of the key economic indicators of a declining currency value and lack of in paper money would be an escalating gold and silver price.
Assume for argument’s sake that the price of gold quickly rose to double its current price. That could start a run from paper money. It could trigger a panic. People would dump their paper money to buy gold, silver and other real assets.
World leaders will do almost anything to prevent this from happening. If I was President Obama for example, I would try to continue the balancing act for another four years. That way it will be the new President that bears most of the blame for a currency crash if and when it comes.
I believe no one is bigger than the markets. Unless the money printing stops, gold, silver and other real assets will prevail in the end. But it might take longer than many people think.
I’m not sure exactly what it is that world leaders can do to prolong the belief that paper is worth as much as gold or silver. But I’m sure they have some tricks up their sleeve and we won’t find out what was going on until long after the fact.
From the offices of Investmentpitch.com, I’m Ted Ohashi.
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