How China and Russia are Driving up Gold Prices Today
If there is one thing that seems to be the eternal financial truth, it’s that whatever happens in the market, we always turn to gold to be safe. That doesn’t only go for private investors, that goes for bigger institutions as well, such as hedge funds, banks, and central banks. The shiny metal has always been precious to us, and it continues to do so as we consider what is driving up gold prices today?
The People’s bank of China is aiming at having a 4000 tons of gold reserves. Right now they are barely at 1500 tons. The way they are creating the storage is through producing and domesticating the output. What this is creating is a skew in the supply of gold. This is the main reason behind the rally in the value of gold over the past year. There is also a similar story in Russia. As in all basic Supply-Demand economics, when supply is short the prices will go up and the central banks are trying to improve their balance sheet simply by increasing the value of their Gold stock.
Gold stores value
Hedging against inflation is a simple concept. The idea is to keep the value of your portfolio constant, or growing. One has to remember that in finance we don’t care about the numbers as much as we care about the value. Purchasing power is the name of the game. Imagine for a moment that today $100 will buy you a TV, but tomorrow the same $100 will only buy you the remote. Although your portfolio size remained the same, your $100 is now almost worthless. When you talk gold, 100 grams will buy you a TV both today, and tomorrow. In addition, if things continue as they have been, you’ll also be adding a surround sound system in a week.
Through all ages mankind has loved gold. The ancient Egyptians used it in their tombs, kings of old built their castles filled with it, and Vikings would fill their ships to the brim with the most precious of metals. The real value of gold isn’t its alluring nature, but rather in the behavior of the real buyers. When we begin to understand how gold is used, we can also understand how the price may move in the future, and capitalize on it!
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