Did you know that gold and silver have been money in the world for over 5000 years? For 5000 years people have used gold and silver to protect, an increase in many times, their wealth. We as humans subconsciously associate gold with the best of the best and something that is really valuable. I mean think about it, you win gold price in sports. Sayings like ”sitting on a gold mine” and ”he who has the gold makes the rules”.
Gold has withstand everything throughout history. It has seen stock market crashes, currency collapses, earthquakes and everything else that you can think of in the past 5000 years. And time after time in history gold has come out as the winner.
Gold is a very good place the store your wealth over a long period of time. If you would have had $100,000 in lets say 1970 and invested them in gold they would be worth $3,428,571.4 today ((100000/35) * 1200). That is a 3,528% increase! And when you buy gold you don’t really have to think to much about it. But mainly because of inflation your investment will keep rising and it is a perfect way to preserve and increase your wealth.
Just look at this chart here that show gold price from the 1920 until now. Gold has gone from around $20 til around $1200 in that time period. But it has started to skyrocket just in the past 40 years. Find out why below where I will talk about my top 3 reasons why you should invest in physical gold (if the chart doesn’t do it).
#1 Hedge yourself against inflation
Have you noticed how the price of everything keeps going up? And fast too. If you just think about say 10 years ago how much more a $100 bill would have gotten you at the grocery store then today. Or how much more gas for your car you could have gotten 10 years ago with a $100 bill then today. Prices are going up much faster then our incomes, that’s the reason a lot of people feel like they can’t get a head. Feels like they are almost getting poorer for every year.
A big reason for that is the inflation that we are having today. But rising prices is not inflation, that is just a symptom of inflation. Inflation is:
”Monetary inflation is a sustained increase in the money supply of a country (or currency area)”
Because our government and financial sector keep printing more and more currency (increase the money supply), the value of the dollars that we already own becomes less valuable and therefore we can’t buy as much goods and services as we use to. So it’s actually not prices going up, it’s the dollar going down. Think of it as a valuable hockey card (represents the dollar). One of the reasons that the hockey card is valuable is because there isn’t that many of them out there. If you would find a way to print a lot of the same hockey card the value of the card would go down right? A lot of people would have this hockey card so it’s nothing special anymore. Same goes for the dollar. When we keep printing more and more of them, they loose value.
Here is a example of prices in Canada. They are almost exactly the same around the world. If you would look at the same data for you country and come up with your own numbers please let me know in the comments below :).
1995 the price of bread was $1.27 for a loaf of bread. So $100 would have gotten you (100 / 1.27) 78.8 loafs of bread. In 2015 the price of bread was $2.84. So $100 would have gotten you (100/2.84) 35.2 loafs of bread. That is a decline with 55.3%!! If you would have saved your wealth in dollars you would have lost 55.3% of your purchasing power compared to bread in 15 years. That’s more then HALF.
If you instead would have had 1 ounce of gold 1995 that was worth around $530 you would have gotten (530/1.27) 417.3 loafs of bread. And in 2015 when 1 ounce of gold was worth around $1465 and bread was $2.84 you would have gotten (1465/2.84) 515.8 loafs of bread. That is an increase by 23.6%
Here is two more examples with gasoline and eggs. But take almost any product you know and the same results will happen. The dollar (the paper) keeps loosing more and more purchasing power every year because of inflation. Why should you take that hit?
#2 Bet against the debt bubble
You might have realized how much debt we have in the world at the moment. There is constantly talks about countries like Greece, Spain, Italy, UK and US (to name a few) that have serious debt problems. Americas national debt is now around 19 trillion dollars. Let that sink in, 19 TRILLION! A lot of the people in these countries are also highly indebted. Look at student loans, credit card debt and so on. There is a mentality today that you can just keep on borrowing money with no consequences.
The reason that this is possible is because 1971 the president of the United States, Richard Nixon, took us off the gold standard. Up til 1971 the government could only print paper dollars (currency) as there was physical gold in the vaults. If you wanted to expand the money supply (inflation) you first needed to purchase gold and put that in the vault to back up these paper receipts. Once this constraint was lifted in 1971 the governments around the world could technically go deeper and deeper into debt by just printing more money. The mentality of paying off your MasterCard with your VISA.
It should be very logical that this can’t go on for every. Our monetary system today of paying our bills by borrowing more and more money every year is obviously not sustainable. Think if you would act exactly as the government. To pay for a new vacation you borrow money, to pay for a new car you borrow some more money. Then to pay of the interest on your existing loans you borrow that money too. This can only work for as long as people are lending you money, but sooner or later they will wake up to this reality and say ”Hey! Time for you to start paying back some of the money you borrowed before we lend you any more.”
Have a look at this chart which is the national debt of the United States. I chose US because there is a lot of data, but almost every single country in the world today will have the same graph. Governments and institutions around the world are trying to solve all their problems by just borrow more and more money. If you think that this trajectory of the graph is sustainable and that it can go on for every you have not read history. Because this has happened multiple times in recorded history and it never ends well.
Like I said, before Richard Nixon took us off the gold standard every paper note had to be backed up by physical gold reserves in the vaults. The thing making a piece of paper (dollar) valuable was the backing by gold. You could go into any bank and slap down a $100 note and get physical gold in return. After the gold standard the only thing backing this piece of paper is trust. We have a trust in our money that it’s valuable and that I can keep this piece of paper in my wallet and then buy food, shelter, clothes etc with it. That is the only difference (except that the dollar has a bunch of security features to keep us from counterfeiting it) between Monopoly money and paper money. We trust in the paper money and in our government that the piece of paper has value.
This is called a fiat currency. It’s a piece of paper that is not backed up by anything tangible more then the trust that it is valuable. The definition of fiat currency is:
Inconvertible paper money made legal tender by a government decree.
In recorded history there has been around 5000 fiat currencies and they have one thing in common. They ALL went to ZERO! It’s a 100% failure rate. No currency that has existed that was not backed up by anything tangible has survived. Simply because the trust in the value of the paper disappears when the government keep on printing more money to pay the bills. The trust disappears because when you print that much money prices rise even faster then they do normally. People do not want to hold their wealth in these paper notes because for every second of every day it is loosing purchasing power. You can buy far less gas, bread, eggs and other goods and services by holding the paper so you start to look for alternatives.
Throughout history there is really only two ways that a fiat currency will end. There is the honest way where the leaders say ”We are bankrupt. If we can’t borrow more money we can not pay back any of the money that we have already borrowed.” This has huge consequences because you need to raise taxes and cut spending in order to try and service the debt without borrowing more money. You can no longer spend as much money on education, healthcare, military and so on. At the same time as you need to take even more money from your citizens, making them even poorer. Politicians doesn’t like to take this route because it makes them tell the hard cold truth to the people and there is a very slim chance that you get reelected if you tell your citizens that you have bankrupted the country.
The second option is usually, if history is any guidance, what they will do. They will ignore the problem for as long as possible. Telling you that everything is fine and that the debt is under control while they just keep on printing like it’s going out of style. This is kind of an exponential function as well as you can see in the chart of US national debt. You have to keep on borrowing greater amounts all the time to pay for your expenses plus the interest on the loans that you have already made. Like I’ve kept saying all along. It’s not rocket science to realize that this is not sustainable and 9/10 times it will end up bringing the country into a hyper inflation.
Hyperinflation is extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless.
So if we should listen to what history has to say then the course that we are on today in the world economically leads to either a default or hyper inflation. And throughout history our leaders tend to take the ”easy” way out of ignoring the debt problem until we are in a hyper inflationary mode. Although this is not for sure there is a very strong possibility that we will see hyper inflation in the world. One of the absolute best assets to own in a hyper inflation is physical gold bullion. Let’s see what history has to say about it. One of the best studied hyper inflation is that of the Weimar Republic (old Germany) between June 1921 and January 1924. During this time period gold went from 1000 marks (equivalent of dollars) to 100,000,000,000,000 marks. Yes that is a real number. There are stories about people in Weimar Republic buying a whole block of real estate for a few gold coins. Look at the chart below from Casey Research about gold prices during the hyper inflation in Weimar Republic. Completely mind blowing.
#3 Gold is a safe haven
As I’ve said physical gold bullion has been a store of wealth for over 5000 years. It has withstand everything that you can think of and still kept it’s value. You can have your wealth in paper assets such as stock and bonds but you are running a big risk that you can loose your wealth. Look at what happened as recently as 2008 during the great recession when the stock market lost around 50% of it’s value. One day you woke up and your entire life savings and investment where cut in half. I’m not saying that your portfolio should consist of only physical gold and silver but it should be a core in everyone’s portfolio as a safe haven. Money that will keep it’s value.
Physical gold is also money that is outside of our current monetary system. If our banking system fails or hyper inflation happens then what should you use to buy food and shelter and all the other necessities for your family? Physical gold is something that you will hold and in case of an emergency where you can’t access your paper dollar you can use the gold to provide for your family.
Take for example the financial crisis in Cyprus (a island outside of Greece) that happened in 2013. The banking system completely collapsed in kind of the same way as it did in United States in 2008. People were lining up to try and take money out from ATM’s in order to buy food. The payment system with credit cards was not working and you were only allowed to take out around $80 a day (if you could get to the front of the line). When this happened a lot of merchants started to accept physical gold as a payment for their goods and services. You could fill up your tank with some physical gold. So gold is also an insurance policy that if something should go wrong and you no longer have any way to get a hold of cash. You can use your physical gold in order to survive.
I’m not saying that you should put all of your savings in physical gold, even though there is nothing wrong with it, but I hope you understand now why it is so important that everyone should own some physical gold. And if your like me who believes that physical gold will be the investment of a century and will see gains of the same magnitude as in Weimar Republic, then you should definitely acquire physical gold right now. Please leave a comment if you have any questions or if you just want to talk about gold investing.