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An excerpt from Follow the Money Weekly Radio with Jerry Robinson – 10/30/10

To hear the entire program, click here.

Transcript

Why Gold and Silver Will Go Up From Here

There seems to be a major disconnect in the financial world today about what drives the prices of hard assets. This ignorance has been displayed through some well intentioned financial “experts” who have gone on record saying that gold and silver prices are in a bubble and have reached their peak. Typically, these financial prognosticators point to the fact that thus far, investors who have bought gold and silver have done so out of fear and that once the economic recovery takes hold, the metals will fall as investors relax and go back to more sane investments like mutual funds. While I agree precious metals prices have risen dramatically over the last several months, I feel that many of those who dismiss gold and silver have done so to their own peril. The Christian financial personality, Dave Ramsey, for example doesn’t just think that gold is overpriced… he thinks that owning it is a dumb idea.

It’s understandable that many financial commentators don’t understand gold. Heck, many investors do not understand even how to go about buying precious metals. This is because we all live in a “paper” economy. In this paper economy, the government with the help of the large banks and financial institutions like mutual fund companies make all of the rules. These rulers are proud of this “paper” economy that they have created where all money and all assets are paper and are easily controlled. Gold and silver come out of the ground and are not made of paper. They cannot be printed and therefore they are viewed as overly simplistic to the modern financial mind.

Lately, however, investors have been awakened to a new world of investing called commodities. Commodities include such things as wheat, rice, corn, sugar, cotton, gold, and silver, just to name a few. According to economics 101, supply and demand are in constant competition. People have unlimited wants (demand) on a globe that has limited resources (supply.) So when demand increases for a particular good or service, the supply of that good decreases which drives prices up. The supply and demand picture for many commodities are similar. As the global population continues to grow, and as the East becomes increasingly Westernized, demand for the most basic commodities are driving down supply, and thereby causing prices to rise. Apparently this concept of supply constraints and insatiable increasing demand boggles the minds of many financial commentators today. After all, in their “paper” economic world, if want something, you simply print it. Want to increase the supply of currency. Simple. Just borrow from the Federal Reserve. When a company wants to issue more stock, guess what, they issue more stock. When the government runs out cash, it orders more to be printed. In today’s wonderfully flawed “paper” economy, supply is never constrained as long as there is plenty of ink and paper. But in the real world, economic laws still rule. There is only so much accessible cheap oil in the ground. You cannot print more oil. There is only so much gold and silver that can be mined in a given year. You cannot simply print more. Maybe one day, commodities will become enlightened like their mutual fund cousins. But until then, expect the antiquated roles of growing global demand and supply constraints to continue to drive commodities, like gold and silver, higher in the coming years.

This is an excerpt from Follow the Money Weekly Radio with Jerry Robinson – 10/30/10

To hear the entire program, click here.

About Jerry Robinson

Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news.