Cheat Sheet Q&A - Why isn't gold performing better with the Greek\Euro crisis?:
Today's entry: Hi Brian, I know you're not a fan of investing in gold but I still believe you'd provide objective information on this subject. With the Greek crisis and Euro uncertainty I'd think that gold would be significantly higher yet it still isn't heading higher. Isn't this uncommon? Don't people default to gold when there is economic turmoil?
Bottom Line: There are two factors that affect all commodities including the price of gold. Supply and demand (the one we're all taught) and the value of one's currency as it relates to value against other leading world currencies (this impacts buying power). It's perception as the go-to during times of economic turmoil is highly overstated.
The US left the gold standard in the early 1970's, meaning that there is no inherent tie between the two. The price of gold as of this entry is at a quarter despite the Euro mess. It's price as of this entry is $1168 per ounce which is down from over $1300 per ounce one year ago in US dollars. That's a decline of 10%+. However if you were holding Euros gold would actually have appreciated against your currency by greater than 10% over the past year (because the value of the Euro is down more than 20% over the past year). In other words it's complicated.
Unfortunately opportunist that are trying to sell you gold don't explain (or perhaps even understand) these dynamics. They simply want you to buy it under the premise that tragedy = higher gold prices. That will\would only happen if the balance of supply vs. demand in conjunction with the value of your dollar results in that outcome.
You cited that I'm not a fan of investing in gold. That's true. The reason is that it forces you to be a speculator in order to benefit from the investment (you can only benefit if the price of gold is higher at a later date vs. what you paid for it). Aside from economic fact I also question the premise of gold retaining great value if whole economies were to crash. If the US economy collapsed would you rather have food and water or gold? But that's for another day.
