The Case for Investing in Gold – Mises Institute

by Tomas Salamanca posted in Economics, History, Politics.

The last two years have been disappointing for gold investors and what happened this week to the yellow metal epitomized the frustrating price movement. After the Fed startled the markets by announcing that it was going to continue with its current rate of bond purchases, gold shot up from just under $1300 an ounce to $1370. But late Thursday, it started to back off somewhat from those gains before falling sharply on Friday.  It ended the week at $1325, virtually unchanged from the prior week.

How can that possibly be?  It has, after all, become more evident that the Fed is politically hindered from turning off the money spigot. If gold can’t stay elevated on that development, what hope is there going forward that it will resume its decade-long uptrend and eventually overtake the  2011 high of $1900 per ounce? And so why bother investing in gold?

Yet the case for investing in gold does not depend on the market’s reaction to the Fed’s latest doings. For a trader in gold — someone looking to profit from taking a position over a period of days or weeks — it certainly would.  An investor, by contrast, has a longer time horizon — years, if not decades. For the investor, whether or not to buy gold necessarily entails forming a judgement about the larger and more enduring forces that impinge on its price. Is our politico-economic system, in other words, congenitally disposed to the cheapening of the currency?

Those who invest in gold basically answer yes. And they have very solid grounds for that stance. In the democratic polities that prevail today in the developed world, politicians have very strong incentives to run budget deficits. For the way to maximize votes is to spend money on benefits for the public and then to simultaneously minimize the taxes levied to fund those benefits……

Full article: The Case for Investing in Gold