Former Congressman Ron Paul expresses his view that gold prices are a reflection of the state of the U.S. dollar.
Not surprisingly Ben Bernanke further mystifies the issue by stating that nobody understands exactly how gold prices are formulated.
Although Bernanke is right when looking at short-term fluctuations, from a bird’s eye view he isn’t telling the full story. Paul rightfully points out that gold is a good long-term identifier of the value of a currency.
In theory gold’s value never changes in comparison to the goods and services you can buy with it. So for example a quarter from 1964 or earlier would buy you roughly a gallon of gas. Being composed of precious silver and copper, that same quarter will buy you a gallon of gas today. If you’re still skeptical or curious, this video explains why precious metal is a true store of value in much greater detail.