Many analysts and investors offer answers to questions regarding why gold prices are so high.
In their attempts to respond, analysts like Russ Koesterich, Global Chief Investment Strategist for BlackRock’s iShares ETF business, initially begin with clarifying the reasons that do not explain high price of gold. As inflation rises, investors will pay a higher price for gold. However, as Koesterich points out, many developed countries have had lower inflation over the past decade. It was during this same decade that gold prices have reached their ultimate highs. High inflation cannot be the sole cause of the increased value of gold.
You do not have to be an economist or an investor to realize that we are in a time of high deficit and debt. This concern causes investors to rely more on gold and other non-fiat commodities. As the dollar continues to lose value, investors tend to move their finances into more stable and profitable sectors. This is an easily understood and logical explanation for the high price of gold. Yet again, it is not the final answer accepted by analysts.
Koesterich delves a bit deeper into his explanation by discussing the level of real interest rates and the effect they may have on gold prices. When real rates are lower, the opportunity cost of owning fiat-based assets is also low. Investors are more likely to move their finances away from low opportunity cost assets where the chance of profit is much lower and the chance of loss is much higher.
In an interview with The Gold Report, Bob Moriarty explains how gold will continue to hold value, as the fiat currencies of the world disappear. According to Moriarty, gold cannot be priced based on the value of the dollar. This would imply that there is a possibility for the dollar to rise and fall. Analysts like Moriarty would not defend this position. They believe fiat systems in general are on their way out, in general, and predict a return to a gold Standard.
It seems that most analysts, regardless of their reasoning for the high price of gold, expect this precious metal to remain valuable. Countries all over the world are reserving their gold to protect their assets in the event of fiat collapse. If these analysts are correct in their predictions, we just may be paying for goods and services with gold instead of paper money in the very near future.