Role of Precious Metals in the Current Global Economy
Holding gold as an investment has always involved being knowledgeable about the market, but today investors need to know more than ever before. Those choosing to invest in the precious metals market need to understand geopolitics and global geography. Columnist Louis Golino of Coin Week set forth some powerful points for gold investors to take note of, stating that being aware of the world around them is something that can make the difference between being a successful investor and one who gets less than spectacular results.
"But being knowledgeable about the precious metal markets is not simply a matter of understanding market fundamentals and related issues," Golino said. "It also increasingly means that investors need to study geopolitics and macroeconomic issues too, even if the connection to metals is not always immediately apparent."
This questing beyond the basics is something that investors in stocks are advised to do on a regular basis. Wealthy stock investors such as Warren Buffet have long placed a premium on excellent research and understanding the bigger picture. This is where gold investors can take a cue and dive deeper themselves, uncovering more of the inter-relationships between their commodity of choice and the many aspects of the global economy that it is tied to.
The growing crisis in the eurozone is of special interest to Golino who has written about it frequently in the past. This is an incredibly important portion of the global economy today and what happens in the eurozone is bound to have effects that ripple around the world.
As Golino explains it, "When the problems deteriorate in Europe, investors get worried about protecting their assets and seek refuge in the dollar and dollar assets, which drives gold down, and when things are going better, they feel more comfortable investing in gold."
This tendency of turning to the yellow metal when times are tough is one that has happened over and over throughout history. The euro, the dollar, and the yen are all major world currencies, but Golino puts forth that gold ends up being an alternative currency to them all for today's investors. Whether or not a new gold standard ever comes about, the fact that gold is being held to the levels that it is by both global financial institutions and private investors means that its importance as an asset remains high.
Central banks are viewing gold as a zero risk asset and have been increasing their holdings over the past 4 years - since the beginning of the global financial crisis. This is unlikely to change, according to Golino, because gold remains such a viable option for investors and far safer than cash.
Watching what is happening with Germany, a key player in the European Union and one with arguably the strongest economy remains important. Understanding these events and how they relate to one's portfolio holdings is also very important. In short, those investing in precious metals should make it a priority to learn about the world's economy today so they can make the best decisions possible for their portfolio and their lives.