All that glitters is gold

Gold is golden right now. It eems like only a few short weeks ago I penned an article revolving around the price action of gold and silver. My, how time flies when you're having a good time, and gold and silver prices are definitely partying it up. Up more than $1,000 an ounce in just a handful of weeks, gold is reaching new heights seemingly every day. The price increases of both metals hit high gear in the last six weeks or so and only time will tell if the meteoric rise continues or takes a breather and corrects a bit. On Oct. 17, prices finally took a break and backed off their relentless rise. Silver mirrored gold rise and its price finally broke through its January 1980 high of $50/oz. Doing the quick math, it took silver 45 years to recover where it was way back then. Half a century! Why now are both metals soaring, you ask? There are many theories and some cold hard truths as well. Rising prices are brought about by the simple fact there are more buyers than sellers of the available supply. It's true that a dwindling supply can also cause price spikes, but in the grand scheme of things, this is not the case at this particular point in time with gold and silver. The gold market is not very large compared to many other markets. At gold's current price, the total gold market sits at around $1.2 trillion. For comparison, the U.S. stock market tops the $62 trillion mark while the global stock market is valued at about $127 trillion. Meanwhile, the silver market sits at about $3 trillion. So who is buying all this silver and gold and driving prices into the stratosphere? The rumor mill points a possible finger at central banks of the world. Central banks are the banks of entire countries. They control the currency of each of their nations with the exception of the countries that use the Euro. The Euro is controlled by the European central bank, which encompasses 20 countries. Needless to say, if central banks are scooping up gold and silver, it can supercharge the markets of either metal due to the sheer size of their bankrolls. Keep in mind, central banks can print as much money as needed or desired. Even if the number of central banks buying the metals are few in number, the fact they can print as much money as they want makes a central bank a powerful force. Even one central bank buying gold could drive the price higher. The more central banks that start to accumulate the metal, the faster the price rises. Whereas an individual investor buying spree would certainly move the metals, a central bank buying spree has the possibility of fueling an inferno of price rises. Why would the central banks of the world want gold or silver or both? Simply put, gold and silver cannot be printed willy-nilly like paper money. Since the beginning of time, gold has been the money of kings. It's often called the only "real" money. It cannot be manufactured at will like paper dollars. Its store of value has withstood the tincture of time over many thousands of years and its long-standing store of value has never been duplicated nor questioned. Keep in mind the more paper dollars are printed, the more they lose their value. Conversely, when paper currencies lose their value, gold goes up in price in those very same currencies. And since central banks everywhere have been printing paper dollars for decades, gold's price has been steadily climbing in response. Now that gold is on the menu for central banks, the race to print paper currencies to buy gold is on. It's not rocket science. It's economic science. Print paper and buy more gold. And the more they do it, the higher the gold and silver prices may go. As always, what goes up can go down, so caveat emptor is the warning of the day. This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a BA in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. insurance services. Email: news@moneymanagementradio.com