Faith Based Economy

When we look at our respective economies, one thing that has become clear to us is the fact that the economies in the current era are ‘faith based’ meaning that since we use ‘fiat currency’ the value of the currencies that we hold are based on what is printed on these papers, with nothing to back them up.

Even the value of precious metals (spot price of gold in particular) and the economies that bear on us are inversely related. The stock for instance is supposed to reflect a country’s or region’s value of the businesses that correspond to these markets.

When a country struggles due to recessions, inflation or even lack of confidence the currency begins to weaken causing depreciation in the associated stock market which in turn makes investors look for other investment derivatives. It is partly due to this inverse relationship that gold is acknowledged as the real standard of value across the planet by almost everybody. Gold has been a standard for global exchange for centuries due to the fact that the precious metal maintains its value from country to country and is free of the systematic risks that stock markets are subjected to.

According to the Melbourne Gold Company, when market decline rears its ugly head, stocks and currencies start to decline on the same tangent and become less desirable, however gold and other precious metals become attractive and if we observe the law of demand and supply, and increase in demand causes an increase in value. The currencies of the world (more particularly the US dollar), gold prices (spot gold price), stock prices and crude oil prices are all considered asset prices with almost similar characteristics with regards to asset price inflation, market sentiments  and market momentum.

These commodities are without doubt correlated to one another and respond to the slightest changes in the business cycles of the world. Since the value of all these commodities is in fact determined by the free markets, they become crucial indicators of collective expectations of investors and governments for that matter of the state of the world economy in the near future. This simply means that whatever investors feel the economic future of the world could turn out to be is presented via the value of these assets/ commodities.

However, it has come to everyone’s attention these days that gold is the most important store ‘store vale’ and gold is without doubt a critical component of the global economy as can be seen in its value which remains constant or increases over time as currencies become less tangible. One primary reason investors prefer to invest a significant amount of their money into gold is due to the fact that gold’s overall value never depreciates, despite high inflation levels.

Gold is considered to be by many as a safe haven that investors could rely on when markets become volatile and uncertain. However, investing in gold is a long term objective and those who intend to make ‘quick money’ should refrain from investing in physical gold.

For more info on gold investments, visit http://www.melbournegoldcompany.com.au/.