There has been some speculation lately that we in gold bullion investing may well see a crash in the price of bullion coins and 24k gold bars by the end of the year.

The reasoning behind these predictions? The Central Bank Gold Agreement. This was basically a pact between banks from a number of countries to work together to stabilize the price of gold, which was hitting a low in 1999, when the agreement was made. The deal was renewed again in 2004, and is set to expire this September.

The people making these speculations are missing out on a very important part of making such predictions, though. If you want to look at the history of gold, you have to look at the economy surrounding the gold value, not just the gold value itself.

Gold was certainly stabilized by the Central Bank Gold Agreement, but why was gold at a low in 1999?

Simply put, very few people felt the need to buy gold, to buy bullion or make any sort of gold bullion investment. Ten years ago, we were not in a recession. The housing bubble hadn’t burst, stocks were still going relatively strong, and we hadn’t hit any record unemployment rates.

Compare that to today.

The Central Bank Gold Agreement helped to stabilize the value of gold, but we didn’t really see any huge jumps in the gold value until this recession was made official. It was really just the last year or so that we saw a record number of people looking to purchase bullion bars and invest in gold bullion for the first time.

Of course the fact remains that it’s very hard to make accurate guesses and predictions about the economy. Sometimes you can read the writing on the wall. You know that, if the CEO of a company is caught up in a scandal and is revealed to be stealing from investors, you’d better put your money on some other stocks. Most of the time, however, it’s a lot more subtle and complex than that.

If you want to predict where gold values will be at the end of this year, you have to look at the whole picture. The economy is still in trouble, and the people holding onto gold investments today are probably not ready to cut and run any time soon.

Some are even predicting a return of stocks as a viable, safe option, even suggesting that the stock market is likely to see a boom comparable to that of the early eighties. That would be nice, but it’s a hard prediction to put much faith into.

All of this is, of course, beside the point. If gold crashed tomorrow, it’s not the same as a stock crash. A stock crash might never recover, whereas gold almost invariably recovers from any drops simply because it is a real asset, a solid commodity that can be bought and sold, and that is exactly why so many investors are turning to gold as a way to stay safe in any economic weather, rain or shine.

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Stewart Lawson

April 5, 2009