A long time ago if you wanted something you either traded the products of your efforts for something that men produced by the efforts of others of equal value or you exchanged a metal that held its value for something you desired of equal value. If both parties to the transaction agreed, then an exchange took place.
Gold was rare and people were always willing to trade for gold. Gold didn’t disappear like smoke, it could be halved and quartered, it didn’t tarnish or erode. It was heavy to carry around in any large size, so owners sought convenience by storing it. They received warehouse receipts that said they owned a specific amount of gold and they could exchange their paper for their gold. Gradually, they traded the paper signifying ownership for goods of equal value produced by the efforts of others and the new owner could exchange the paper for Gold. Gold was money. The gold receipts were money.
However, some enterprising storage owner noticed that most of the gold never was retrieved by the owner. It just sat in the vault day after day, year after year. Ayn Rand wrote “Those pieces of paper, which should really be gold, are a token of honor – your claim upon the energy of the men who produce.” To produce phony documents is immoral.
Dishonest storage owners thought, “Why don’t I print up some phony warehouse receipts and use them for my needs. They will never be presented all at once and I’ll always have enough Gold to cover any receipts presented to me. To produce documents that say they are good as gold, but are not, is fiat money and takes no effort to produce. Just paper and ink. Almost all currencies in the world today are fiat currencies and depend on the confidence of the owners for their value. If the citizens lose confidence in their government, the currency falls and, like Zimbabwe or Germany, can become worthless.
That’s where we are today. Only the confidence that you can exchange your fiat paper for something of value keeps our fiat currencies trading. Many are catching on to the immorality of our money. They are buying gold in some form to protect their purchasing power. And why not? Since the forming of the Federal Reserve in 1913, the U.S. dollar has declined in value 97%. Do you ever watch an old Western and some cowboy buys a ranch for $1000, We look at each other and say, “How much is that in today’s dollars; $50,000; $100,000?
The stock market has been on a tremendous run since the housing crisis took the S&P to 676. It is up almost a 1000 points. Gold since it bottomed in 2001, is up 467% and that is after a correction from $1900 to $1100. The stock market seems overvalued, and the bargains are in gold.
Gold is Real
Gold is physical, gold is tangible. It’s something you can touch. Gold you can hold. You can’t print more gold like you can with cash.
Diversifying your investment portfolio with a healthy percentage of physical gold can act as a hedge against economic instability and your investment volatility.
If you’re planning your retirement and are considering adding gold, doing so with a self-directed Gold IRA is an excellent option for first-timers. Starting with a small percentage of gold in your portfolio will help balance your holdings and reduce the risk of over-exposure to stocks, bonds and mutual funds.
Let’s start by examining the reasons investors purchase Gold in the first place. These reasons are not independent from each other and often intersect, but serve to give us a general understanding of the Gold investor’s mindset.
So Why Invest In Gold?
- Wealth protection: Gold is used as a portfolio diversification strategy to mitigate risks, reduce volatility and provide insurance against tail-risks.
- Wealth accumulation: Although more often a strategy associated with Silver, the investor’s long term view is that prices will go up and there are profits to be made.
- Currency collapse: There are those investors who are certain the paper monetary systems will collapse and that real Gold and Silver will be needed to purchase goods and services. There is a significantly larger base of investors who do not feel this will actually occur, yet buy Gold as an insurance policy.
Financial advisors generally view Gold as a wealth protection strategy. Gold provides stability for a portfolio, much like an insurance policy, since its low correlation to
the equity markets makes it an excellent diversification asset to help mitigate risks. Advisors prefer alternative assets, like Gold, that have a low correlation to stocks and are highly liquid (in forms smaller than kilo Gold bars).
Gold is Highly Liquid
Exter’s Pyramid of Liquidity shows the liquidity (ability to convert to cash) of assets in a from top to bottom: Top being the most illiquid assets, bottom being the most liquid, which is physical gold.
Why Gold Now?
- The stock market is at an all-time high, a massive cyclical correction is predicted
- Gold prices are 30% lower than all time highs
- Russia and China are hoarding gold in preparation for the debasement of the US Dollar