Monday, May 17, 2010

Gold Traders May Have to Rethink the Sovereign Risk Appeal - Yahoo! Finance

Gold Traders May Have to Rethink the Sovereign Risk Appeal - Yahoo! Finance: "Suggesting gold is a perfect alternative to currencies is missing a few vital points. First, this precious metal is a limited resource. With a currency, a Treasury can increase or decrease the money supply to meet demand. When it comes to gold, the set supply means there is a chance for manipulation and simply a leveraged response to buying and selling. In the end, gold cannot be used to purchase everyday goods or most assets. Should there be a general desire to diversify or redistribute wealth, it could have an outsized effect on gold’s price. Furthermore, as its own store of wealth, gold is already extraordinarily expensive. There is no yield to be found in holding the metal; so investors will have to hope that it will at least hold steady to protect funds or appreciate to make some level of return. Given its leveraged nature and sensitivities to liquidity, losses could come quickly. At some point, rational investors will recognize there is substantial risk in holding gold as a safe haven."


Labels