While doing your research on gold in preparation to make a purchase, you will notice several market links between gold and other investable goods.
Posted by Adam King on February 28, 2012
Gold Research, Links to the Market, and the Law of Diminishing Returns
February 28, 2012 – While doing your research on gold in preparation to make a purchase, you will notice several market links between gold and other investable goods. Gold is the most independent of all markets, considering the precious metal’s relatively revered status as a safe haven commodity and the precious metal of choice for a store of wealth in history. However, gold still has some very important ties to other markets, and as you do your research you will probably encounter a few.
Every major corporation, large company, and investment firm has some money allocated to gold in their portfolio. We know central banks are buying gold like there’s no tomorrow and, though there is no legal requirement to publicly disclose exact changes in reserve, it would a safe assumption that these institutions are also buying gold at a great pace and volume in today’s market.
The reason for this stems from the nature of the other investments in those portfolios. The best example to illustrate the point and the increasing value of gold is real estate. The real estate bubble burst in this country between 2007 and 2008, and any investment firm with a big portion of their portfolio in real estate took the worst of the blows. So, would a company that had 60 percent of its investment in real estate have diversified or scaled back following the bursting of the bubble? In some cases, the answer is not only have they kept a ludicrous proportion of their investment in real estate, they’re increased their positions.
The law of diminishing returns is becoming a more well-known term in the circles of investors who research gold and follow links to financial sites. Essentially, the unofficial law stipulates that because, using the previous example, housing was one of the biggest bubbles of the last thirty years and these institutions need more bang for their buck now than ever due to the crash, they are keeping the recovery bubble going by artificially valuing real estate higher and pumping more and more money into the market. There continues to be a return on the investment, but even with more and more outlay, there is a diminishing yield.
In the end, it’s a game of Russian roulette. Eventually that real estate must return to real market valuation. When it does, the difference will be immediately visible in the gold market as money reallocates and the flight to the safest haven currency in the world continues and intensifies. Catch the wave and get to gold now. All gold research links the precious metal to the very investments that are most affected by the law of diminishing returns.
Stewart Lawson
Senior Staff Writer – Certified Gold Exchange
Categories:
US Gold Market
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