Is It Smart to Buy Gold Right Now?
Once upon a time, people used metal coins to exchange goods and services. But I’m not talking about the dimes, nickels, quarters and pennies that used to jingle in Americans’ pockets. I’m talking about the two most famous precious metals: silver and gold.
Silver and gold have been the standard for money for thousands of years. Their popularity and wide applications have solidified their place as the most used and widely accepted currency in the history of humankind.
Today, people trade paper bills with no inherent connection to these precious metals we once dealt with. What happened? When did money turn into green pieces of paper with numbers written on them? Is this change a bad thing?
Is it smart to buy gold right now?
Origin of Gold and Silver
The topic of money is one that can easily confuse people, and this isn’t by accident. Governments and government-controlled institutions use fancy terms and lofty expressions to turn easy money management into a disaster- just ask anyone in the banking industry.
To put it simply, money is a form of advanced bartering. When you go to the market to buy or sell something, you trade your objects for another product or service. Because you probably don’t have exactly what the other person wants to trade for, you use money, an implied, agreed upon value that can easily be exchanged. People accept money through barter because they can trade that money for what they’ll need later.
People have varying wants and needs, so everyone values objects differently. But since people around the world recognize silver and gold as valuable, it becomes the most popular medium of exchange. Its universal recognition of value sets it apart from other forms of money.
Think about how inmates in jail use cigarettes as money. Cigarettes are typically the same size and quality, are inherently valuable, and are divisible; 20 come in a pack. Even if you don’t smoke yourself, cigarettes are still valuable. You can trade the cigarette to someone else who does smoke.
Gold is Unpopular... For Now
Gold and silver are less popular nowadays, and are mostly looked at as “safe-haven assets”. When the economy shows signs of distress, people flock to these assets. The only thing that is certain during hard times is the value of gold and silver as currency.
Unfortunately, the dollars we use today have no resemblance to these precious metals. To have a successful currency, it must have inherent value.
Fiat Currency
Since gold and silver can be burdensome to carry around in your pockets, banks would pass out paper dollars to represent the gold you had stored at the bank. If you had a $20 bill, you could go to your bank and exchange it for $20 worth of gold. But those are the days of the past.
In 1944, the US convinced world leaders to attach their currency to the US dollar, which was then attached to gold. To get gold, you would exchange your Euros for USD, and from USD you could get gold. The government could only print as much money as they had gold in their vaults. Things seemed to be going smoothly.
In 1971, Nixon sent the world for a loop– the US government passed a law stating nobody can redeem their dollars for gold anymore. Since they were no longer obligated to vault a certain amount of gold based on the number of dollars in circulation, the money printer was was sent into overload. This essentially allows the government to print and spend unlimited amounts of money on whatever it wants. The USD became a fiat currency.
Fiat currency, by definition, is not backed by any form of commodity and is devoid of any inherent value. Because of Nixon’s decision in 1971, every modern day currency today is fiat.
To say that federal spending has spiraled out of control since then is a drastic understatement.
The laws of supply and demand determine the value that any one object can hold. Gold and silver are scarce, which contributes to their value as money.
US dollars, without inherent value, continue to decrease in value with every spending bill politicians pass. Some call this the inflation tax; the more dollars that are printed into circulation, the less valuable dollars become, and the more expensive goods and services become.
The worst part is the inflation tax doesn’t show up on your tax form. It’s an invisible tax that slowly erodes the amount of items you can buy with a $100 bill year over year. It’s the reason we can’t buy a giant bag of Swedish fish at the corner store for only a couple of dimes like our grandparents used to.
A Convenient Analogy
Imagine the economy represented as a person’s body- the market is filled with buying and selling of goods and services, and it happens automatically, just like your immune system. When you become ill you can either wait for your body to fight off the infection, or you can stimulate your body with medicine to make you feel better. If after a couple days you still don’t feel good, you take more medicine.
When you decide to take medicine, you aren’t letting your body fight off the infection naturally, so your immune system response weakens. The next time you get sick, you’re going to rely on the medicine to keep from becoming even worse. At what point do you break away from the medicine and work on improving your natural immune system again?
The US economy is sick, and the only thing keeping it alive is consistent injections of printed money.
Consequences of Money Printing
The enormous size of the US National Debt is the result of reckless spending on money-sucking government programs. Nobody ever talks about paying the debt back, because everyone knows it will never be paid back.
You may be wondering, with the surge of so many dollars in the US causing inflation, why hasn’t the price of gold and silver gone up? After all, assets rise in price as inflation starts creeping up, right?
The prices of gold and silver are being suppressed so people don’t panic when they see its price creeping up. The price of precious metals act as the thermometer we use to measure our body’s temperature. The government doesn’t want people to know how messed up the economy is, so they manipulate the price to stay lower.
Inflation
The price of gold and silver in terms of US dollars is only a fraction of what it should be! Inflation has been cleverly manipulated to be portrayed as lower than what reality is.
The way inflation is measured in the US is by a metric the government uses called the Consumer Price Index (CPI). The CPI is supposed to track the amount of money it takes to buy essential goods and services. What’s interesting to note however is that the CPI number conveniently excludes food and energy costs, citing that those prices are “too volatile” to track. Humans need food to survive and need energy to productively live their lives, so what’s the real reason these metrics have been cut out of the CPI?
How Can I Start Investing in Gold Right Now?
It’s not too late to start investing in precious metals. Not only can you rest assured by investing in what have been the safest assets in all of recorded history, but you’re also investing in metals with explosive upside potential! It’s quite literally the least risky move you can make, and simultaneously the greatest discount on precious metals you may ever see.
Below I describe a couple ways you can start investing in precious metals today.
1. Investing in gold/silver mining companies
This is the riskiest, but also highest potential upside to profiting off of what will be a dramatic rise in precious metals. Mining companies’ assets are literally in gold, silver, and mining equipment- it’s hard to go wrong investing in these companies.
Companies only mine gold and silver when it’s profitable to do so. When the demand for gold and silver explodes, these companies will be positioned to take enormous profits.
If you want to put money in a precious metals mutual fund, take a look at the EPGFX.
2. Buying physical gold and silver to be held by a third party
This is a good option if you don’t want to hold precious metals on your property but still want possession of them. You will have to pay a storage fee, but the metals will be safe in a vault away from anyone or anything. GoldMoney is one of these companies.
3. Buying coins and bars
This is the safest method of owning precious metals, simply for the fact that you’ll know exactly where it is at all times.
Beware of collector coins/bars though. This is much more costly as opposed to straight bullion or coins. Unless you care about what edition the coin is or whose face is on the front, just buy .999 (99.9%) silver or gold bullion.
APMEX has already begun to see shortages of silver coins. Another place to check out is SchiffGold.
Additionally, coin collector stores should have what are called “constitutional” coins. These are coins (quarters and dimes) that were made before 1964 which contain 90% silver. The appeal of these coins is ease of use and convenience. Look at reviews of the coin shop you’re visiting to make sure you’re buying from a reputable dealer.
Recap
I know I’ve put a lot on your plate, and it may be hard to digest at first.
To alleviate some scrolling, I’ll break down the above into bite-sized pieces:
Money is a form of advanced bartering.
Gold and silver have the longest track record of being stable money in human history.
All paper money today is fiat currency, which holds no inherent value.
The US has printed massive amounts of dollars since 1971, and especially the last decade, making the dollar more worthless than it already is (this is the definition of inflation).
The price of gold and silver hasn’t budged in response to the amount of dollars in circulation. This sets up potential for massive profits in the future once the true value of silver and gold is realized.
Investing in gold and silver is easy. Simply buy stock in mining companies, have a third party hold your metal for you, or buy some coins.
I’m not a financial advisor, and this is not financial advise.
