Fools Gold

Usually, when there is a gold strike in any part of the world, people would travel and flock to that area like moths to a flame. People flocked because they thought that they could change their fortunes or trade their current hardships for a life of luxury. However, it was unfortunate to find that it was only the finders who were the keepers of the treasures. In other words, it was usually those who were first on the spot, who were the ones that benefited from the gold strike, leaving the rest to pick up scraps and pieces of left over’s.  There were two kinds of people that made money: the ones who sold products and services to the gold diggers and the ones who sold a story. The second type of person was the one who sold hopes and fantasies to those who were looking for them. One of such stories was that pyrite was actually gold. If you don’t know what pyrite is, then here are some facts! Pyrite is a mineral that looks deceptively like gold in colour but is usually flatter and sharper in construction than the precious metal which is rounder and softer in shape. Pyrite is also duller than gold. Unfortunately, many people are blinded by greed and are unable to see the difference between the two. This is why pyrite is commonly referred to as fool’s gold. Over the past four years, the price of gold has nearly quadrupled as a result of hoarding and increases in prices. Prior to 2007, it is easy to note that gold only doubled its price within six years, again prior to 2007. So why has the price of gold skyrocketed the way that it has? The price of gold skyrocketed for two reasons; the first reason is that the two drivers of markets, fear and greed combined to fuel the rise in price of gold. What usually causes a market to move up is greed and what usually causes the market to move down is fear. In the case of gold, both these factors are in effect except that they are both moving the price of gold up. However, this doesn’t mean that the price of gold is going to keep rising! Like all bubbles, several factors will come into play to end the bubble. The problem is that we don’t know when these factors will come together to end the rise in the price of gold. The gold price hit an all time high in September of 2011 and the bubble burst as a result of profit taking. Many Financial experts have argued that gold is a safe haven in these trouble times and that investors should invest in the precious metal. Actually, food is the only safe haven but unlike food, gold doesn’t perish and you can’t eat it. They argue that fiat money is worthless. Really? Money backed by gold? The simple truth remains that there isn’t enough gold in the world to support the financial and economic and commercial activity that we are currently enjoying. Even if we took all the gold in the world and melted it into coins, we would still have to create paper money to support our transactions. These financial experts are playing on people’s fears and their greed only leads to more greed. Simply put, seeing the price of gold go up for no reason at all is usually a sign of greed. What we are witnessing is that fact that financial companies are buying and selling gold futures to each other, on a huge scale, and pocketing a commission for every trade.