The price of saffron has risen steadily from about $5.12 to $7.26 per gram in the last 2 weeks to $8.20 to $8.50 per gram today. Its strength has not been offset by fall in the prices of gold and silver. It has risen as a consequence of the fall in the price of oil and the fall in oil prices. Gold prices have collapsed about 15% but the real value of the gold will not even be affected. There is a difference between the true valuations of the gold and the gold price. It is the difference between the ‘real value’ of the gold and the ‘total value’ of the gold. This difference is called price volatility. According to some, gold is so volatile that in the future its prices will fall so dramatically that it will collapse. According to others, gold is worth more as a hedge against inflation and deflation. Why is this? Gold can serve as an asset that can trade at a higher price than gold itself. To put this more fully, gold is useful to investors and savers since the ‘real value’ is higher than gold itself. According to the view that gold has a high price volatility, all assets that have a high price volatility have a high true value. However, in reality, gold is much more variable than that. In the past, gold only really fell when we were entering the global economic crisis. Today, when the global recession appears to be over, gold prices are probably about 10% higher than they would be if we were going through an economic recession. This is the real value of gold. In reality, this is also why I have bought silver futures (with gold futures) and that is why the price of silver has gone up since January, 2009. It is the true value of silver that is changing and so you can have it at its original price and in the past it fell with the fall in the price of gold. The value of the real value of gold (not just the price of silver) is not set by the rise in the price of gold.
2) I understand the idea of silver as a hedge against inflation and deflation. Is this the right way forward? While gold has been shown to be very stable against inflation and deflation, silver is unstable and subject to the whims of the market. The following three charts show the price of silver versus the price of gold over the last 20 years:
Silver against the price of gold in the chart shows an upswelling of demand
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