You might have heard of the run-up in silver and gold prices and thought of it as an arcane matter, largely of interest to metals traders. Unfortunately, it’s not. The rush for precious metals should worry us all. It reflects a new and possibly disastrous danger on the horizon.
The price of silver has reached new highs, and currently sits at around $71 an ounce—a gain of close to 140 percent for the year. Gold too is increasingly pricey, now over $4,300 an ounce. Why? The answer, in finance-speak, is that the economy is becoming more correlated. Translated to everyday English, that means we have fewer sources of financial protection if matters, either economically or politically, were to go very badly. And so precious metals are stepping into the hedge and protective roles that were once fulfilled by the U.S. dollar.
It used to be that if you were worried about the future, you would move into dollars as the safe haven—in finance terms a countercyclical asset, which stays resilient when higher-risk assets fall. But if the United States’ own government and policies are unpredictable, and its economy is volatile, you will look for some other hedges instead. Chaos in the U.S., and particularly in the White House, is pushing investors to find alternatives to the dollar.
