With the current correction putting the price of gold down 13 percent from recent highs, it is important to remember that gold and silver pricing occurs on a real basis, not on a dollar basis. The price of gold and silver, like most everything, oscillates on a dollar basis on any given day. We’re currently seeing gold in the $1,640 range and silver is just under $32 an ounce as of posting.
I can remember when gold was $1,200 an ounce and silver was under $10. However, despite these vast gains, many investors lose sight of the dimensions when a correction occurs. Gold has only shaved off 13 percent from its recent highs. That only qualifies as a correction by 3 percent. This is nothing considering the 300 percent increase in price of silver or the 30 percent increase in the price of gold since the prices I just quoted, which all occurred within a period of 36 months.
Regardless, for investors who still get a little uneasy, allow me to calm your nerves. When we consider the prices of gold and silver, we are considering two factors. The price of the metal itself and the value of the dollars we measure it in.
Currency traders will be very familiar with this way of thinking. Neither currency in a pair is a real value item, so both are basically floating. This means the value of both changes. Forecasting the change is how currency traders make their money.
Gold and silver are much more fundamentally sound than any currency in this sense. The prices of gold and silver are projected over time and are a reflection of how much the US dollar will buy. Gold and silver supplies to above ground markets actually change very little over time. The value of the dollar has been changing a great deal and there’s where we have the price differential.
When seeing a correction in the price of gold, remember that the value priced in dollars is only one way of stating it and the fundamentals at work place gold and silver among the best investments of our time.
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