Gold continues to amaze investors. It seems the price of this shiny metal is reaching new highs weekly. But what is actually driving this price? Is this yet another investment bubble? Is it different this time? I think you have to look at our current economic problems to understand what is happening better.
Global investors are beginning to worry about the US economy. Our government is flooding the world with dollars and treasuries. As a result, there has been a growing sense of urgency among many in the US and abroad about how the United States is currently being managed economically.
Gold is historically driven up in value during times of economic distress. Basically, it is an alternative to sovereign currencies. So when you see the price levels we are seeing now, you have to come to the conclusion that something is wrong. Investors are losing confidence with sovereign governments and their ability to manage monetary and economic policies. When you look at the levels of debt that many westernized nations are amassing, it isn't any mystery to see what these investors are concerned about. The current policies are simply unsustainable going forward.
What is driving the price of gold is a set of unique economic circumstances. Now that doesn't mean a short term bubble isn't forming. You can't expect any commodity to continue to reach record highs each and every week. But until these economic problems are solved and confidence in the system is restored, you can expect many investors to continue buying gold.