Gold prices continue to rise due to bad economic news globally. In May gold reached a record of $1,518.10 an ounce. Is gold going to continue to rise and is it overvalued? Gold is not an investment but a tool for speculation and wealth storage. As investors have been weary of the equity markets and with the expectation that debt market rates will increase investors are moving their money to gold and silver.
Gold is overvalued due to the global economic crises. To start, Greece is bankrupt and talk of a second bailout package seems very likely but European officials are saying it is not certain that this second package will happen. Even if the second package is granted, it is far from certain that Greece’s economy will recover. Along with the Greece crisis the US economy is growing slow and equity markets have been declining since April 29th. The slow growth has also been affecting China’s growth since China sells a large amount of the goods they produce to the US.
Gold might have a high price now but investors are weary that as global markets improve gold prices will drop. One sign that also points to gold being overvalued is that silver’s price has not been increasing as fast as gold. Silver is similar in that it can be used for speculation and wealth storage but it has not been increasing drastically like gold has. Gold has been increasing due to investors looking for a quick gain and the more gold prices have increased the more investors desire to invest as prices continue to increase. Investors that are now buying gold are either taking great risk in speculation or are poor investors since they will be buying high and selling low.
Gold may continue to rise and as markets worsen but markets will get better as investors start to forget the past credit crisis and as other global crises cool down. From the evidence presented earlier in this post gold is clearly overvalued. Due to such an overvalue gold is clearly an irrational exuberance.
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