U.S. Gold News recently sat down with Dr. William Chittenden, Department Chair and Associate Professor of Finance at Texas State University. Dr. Chittenden discussed recent news and developments in the gold market. Well highlight excerpts of our Q&A session with him over the next few weeks. This first installment focuses on the fundamentals behind gold and why investors and collectors should buy gold.
U.S. Gold News: It’s often said that precious metals are a good investment because gold, silver and platinum have never been worth zero and therefore offers a strong hedge against stock market losses or inflation.
As people consider adding precious metals to their portfolios, what can you say might be some of the benefits of physical gold and silver ownership?
William Chittenden: The benefit of owning a hard asset like gold is that you have the physical asset. Gold has intrinsic value, unlike a stock certificate. Besides being used for jewelry, gold has numerous industrial and commercial uses. As long as it is relatively rare and people want it, gold (and silver) will have value.
USGN: For over 5,000 years people have understood that owning gold meant wealth. But there is no longer any paper money in the world backed by gold. The U.S. went off of the gold standard back in 1971, Switzerland was the last to leave the gold standard. Why do people still view gold as currency in the modern world?
WC: Gold is a great equalizer. It is not dependent on any governmental body. Regardless of what a central government might say about its [currency] exchange rate, gold will tell the truth. For example, [on June 10th] the gold price in U.S. dollars was $1,386.06 and the price in British pounds sterling was £893.26. Thus, the dollar/pound exchange rate should be $1386.06 divided by £893.26 which equals $1.55/£. A quick check of exchange rates show the $/£ [dollar to euro] exchange rate to be $1.56/£, so these markets are in equilibrium.
In our next post we’ll discuss how the economy and politics affect gold prices and whether the fundamentals supporting gold investment have changed.
Read Part 2 of the series, How the economy affects gold prices.