Gold Bubble But made of steel

Monday 25^th April-2011 Silver was trading @ its all time high (75000/kg approx), and so was gold, speculations and sentiments were high in anticipation of the future course of Bull Run or a steep correction. Analysts gave a note of pause and caution as they foresee a correction happening which they were anticipating to happen since the rally started.

Silver has given returns like never before in the past one year or so, the price use to be around 23000/ kg almost a year and half ago and since then it has almost tripled. With this sudden rally people believe that it is a bubble and will burst one or the other day; I also see it as a bubble but bubble of steel J which means it is not going to burst.

The reason of sudden spurt in the prices of gold and silver is not only because of the consumer demand of the precious metals having gone up, but there are other factors that are fuelling the demand. Crude is constantly trading at a price tag of above 100$, globally inflation is a cause of concern and precious metals are viewed as a hedge against inflation.

It’s not that the gold and silver are rising in prices, but the fact is that the US dollar is slowly losing its place as the world's reserve currency. If the dollar were to be dumped as the world's reserve currency, severe inflation would result, since the purchasing power of the dollar and dollar denominated assets will diminish rapidly.

History has stories to tell that hard assets, especially gold, silver, and land retain the monetary values in times of severe inflation, hyperinflation, civil unrest, and war, and that’s why people buy gold and silver for this exact reason.

Gold and silver or for that matter any precious metal is not to be treated as stock and equities, rather they are to be treated as insurance; when the currencies are loosing shine.
We need to think; if this would have been a bubble then why the central banks around the world would be buying so much of it.

Image source: www.imageafter.com