Is gold a safe investment in the current economic situation?
Global demand for gold has been on the rise and with good reason- the price of the precious metal has been consistently breaking new highs even though markets throughout the world remain weak (Lee, 2011). In the last decade alone, gold has achieved a 500% increase in value and more relevantly, it has soared from $1400 (an ounce) in January this year to a peak of $1920 (Prial, 2011). Thiru (2011) of Lloyd TSB, determined that gold has provided the best returns for investors in 2011 (as cited in Lee, 2011). However, distinguished private banks and investors remain cynical of gold’s invariable rise and have even deemed the asset as “the ultimate bubble that will eventually burst” (Soros, 2010; as cited in Conway, 2010). Despite the warnings of George Soros and Wells Fargo, the yellow metal continues to sustain its steady run and is, according to West (2011), looking stronger now than it has ever been in the last decade. This study aims to investigate the justifications behind gold’s rising value and will also consider the relevant refutations that discredit the commodity’s safe haven status.
The recent appreciation in gold prices can be substantiated on a wide array of merits, disapproving the claims that the commodity is artificially overvalued. Firstly, as affirmed by Spall (2008), gold retains its value even during inflation and consequently, has become a popular avenue for wealth investment in periods of great uncertainty. Early signs of global economic instability induced the European Central bank to heavily reinforce its gold position more than 2 years ago (Prial, 2011). And while the Euro zone truly faces a deepened fiscal crisis, gold is becoming even more attractive still.
Because most economies throughout the world remain weak, currencies such as the Swiss Franc, dollar assets such as US treasury bills and other investments that were once considered secure, have lost the confidence...
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