It seems perverse to the man on the street how the global economy can be in such dire straits, yet the value of gold continues to be at an all-time high. So how has the eurozone crisis made gold more valuable? And why are some investors turning to metals and wine to preserve their fortunes?
The ever deepening Eurozone crisis is another kick in the teeth for investors who have already seen vast sums of their wealth wiped away since the global financial crisis kicked in. The main problem for investors is that paper value is becoming more and more worthless.
The merry-go-round of different eurozone bailouts will all need refinancing and it will all be done with newly printed money. The effect will be to obviously dilute the economy and decrease the value of money. This approach cannot sustain itself; it is like trying to put out a fire with petrol. The QE3 is set to pour another £75 billion of brand new money into the economy, yet when we have already seen £200 billion yield little results, is that extra amount really going to stimulate a recovery?
As a result alternative investments are becoming more and more popular with investors as they diversify their portfolios and invest in things from precious metals to vintage wines.
On the surface this seems bizarre, but the logic is simple. The difference is that these are tangible, they exist, they will not disappear overnight. If you have a bottle of vintage wine and put it in the cellar overnight, it will still be there in the morning. Yet if you plough your cash in to the markets, it can disappear in the blink of an eye.
Precious metals are a fantastic way to hedge against inflation. By April 2011, silver had rebounded to reach a 31 year high hitting $49.21 per ounce due to economic concerns about inflation and uncertainty regarding bailouts in the Eurozone. The continuous increases in the money supply will always lead to a continuing increase in the costs of goods and services. For example if you had 1 oz of gold (value of $35) in 1970, you could have purchased a tailor-made suit. The same amount of gold today will still buy you a tailor-made suit. However, $35 today probably wouldn't cover the cost of the buttons.
As the uncertainly surrounding the global economy continues and the Eurozone stumbles from one bailout to another, precious metals are fast becoming the most effective way of preserving wealth and continue to appeal to investors who are simply turning paper money which is backed by nothing, into real money that is gold and silver.