Today, I want to look at precious metals in general. Not just gold, but silver, platinum, palladium and even some of the lesser-known platinum-group metals, such as rhodium and indium.
We are living through one of the greatest financial crises in history - possibly the greatest. The contraction in credit has forced selling in everything.
Many were under the illusion that precious metals would be safe in such a scenario. But they haven't been. Let's look at why.
Gold is maintaining its purchasing power, unlike money
The key thing to remember is that this is a financial crisis - a crisis of money. Of all the precious metals, gold is the only purely monetary metal. Yes, it has some industrial use - but a negligible amount. Gold's use in jewellery has derived from its monetary function, which is to store wealth.
Money has two functions: one is to be a medium of exchange, the other to store wealth. Gold has long since been useless as the former (although, technically, sovereigns are still legal tender) but as the latter it has acted soundly. Yes, it fell against the yen last year, but so did everything. Yes, it was volatile against the dollar, but in the grand scheme of things, gold is maintaining its purchasing power, while money - be it the yen, the dollar or the euro - is falling.
Some currencies have been weaker than the dollar. One ounce of gold now costs 110,000 Icelandic krona, for example, up from around 40,000 in 2007. To be honest, I'm surprised it isn't higher.
Britain has similar, though currently less extreme, problems to Iceland. This has been reflected in the price of the pound against gold.
Silver is more vulnerable than gold
Silver, too, is a monetary metal. As many of you will know, the words 'silver' and 'money' are interchangeable in some ninety or more languages: 'argent' in French, for example; 'plata' in Spanish; 'pound sterling' once meant a pound of sterling silver. But, historically, silver's role as money was less as a store of wealth and more as a day-to-day medium of exchange. That role has now expired.
