Lisa Simpson
Jun 11,2010
In: Foreclosure

Fear is the Key to Gold Hoarding

The majority is spelling doom – everything will be wrong. This makes them think that the only answer is gold. Irrespective of what the trouble is – inflation or deflation, government loans or Europe sinking, the one palliative to all these multiple problems is gold. There has been consequently a scramble for gold that has increased its price to record levels. It shows how the apprehensions regarding the economy can shift from the fringes to the core of society – the mainstream.

Till now the gold hoarders have been dismissed as slightly cracked but today it is their day. Among the noted gold enthusiasts are Glenn Beck (commentator) and George Soros (financier). There are also many sober characters in Wall Street who are now hit by the gold fever. Their language may be different but they uphold the same basic idea that gold remains as before – the age-old shelter and refuge. This is especially relevant today as other stocks and national currencies are wobbly and weak.

Today individual investors around the globe are following their footsteps. In the USA mint there is a shortage of gold coins. In South Africa the mint stepped up production of the Krugerrand by 50% last May – it being the highest in the last quarter of a century. There is a sharp increase in demand in Europe.

One of the recent increases in demand of gold is the crisis in Europe and the subsequent fall in euro value. Gold’s value went up by $1,254 per ounce. The gravest concern is that even in America, government cannot go on borrowing; the reckoning day is near. The sale of the golden American Eagle (one ounce) went up three times last May in comparison to the previous month.

To clear debts governments generally print extra money. If they do so then inflation will kill value of dollar, euro and related paper currencies. This will cause the value of gold to increase. What was unthinkable yesterday seems possible today – if taxes are not going to increase and Europe is tottering then the sovereign debt will lead the country to the credit system’s collapse.

It is fear that is driving the gold lovers to buy more. But what is to be observed that a good number of respectable investors sitting in Wall Street are now among those who are afraid. David Einhorn who had been among the few to first foretell the doom of Lehman Brothers said, “Our gold position reflects our concern that our fiscal and monetary policies are not sufficiently geared toward heading off a possible crisis.”

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