This was originally done for a column I write elsewhere, but I thought I’d add it here as gold (and silver) is one of the few ways people can hedge themselves against the crony capitalist disaster we are witness to.
Undoubtedly you have seen the commercials for firms that would like to sell you gold bullion. If one listens to a conservative radio show today one is likely to hear at least 2 or 3 in an hour.
If one visits certain popular news websites one will see still more ads.
Don’t forget QVC, even they have gotten on the gold bandwagon.
Everybody’s doing it so why not join in?
Under normal circumstances the above would be great indicators of a time to exit a market. Once the “dumb money” starts to come in it is only a matter of time before there is a swift downdraft in the market. Usually it is a permanent downdraft. Think of the real estate market in 2005-2006.
But we do not live in ordinary times, and gold is not an ordinary investment, such as stocks, bonds, or real estate.
Though it is an investment vehicle, it is also money itself.
Now Nick, you say to yourself, gold isn’t money. I can’t go to the grocery store with a doubloon and pick up my organic apples. Safeway insists on a credit card, cash, or a check. I’m going to be pretty hungry with nothing but gold.
This is true, even today. Times are going to have to change quite a lot before the check-out person asks us if we will be paying in gold or silver instead of with a debit or credit card. Indeed this day may never come. I hope it doesn’t.
If it did come that would mean that we were suffering through a currency crisis. That would be catastrophic for American life. We would see things we could never imagine. Such as paying for groceries with precious metals. And that would be about the best of it.
Sound far fetched? Perhaps. But the reason gold has been rising as it has is largely the result of a dollar that is dying, or more accurately, is being killed.
Over the past 2 years the Federal Reserve has been devaluing the dollar in effort to deal with the current economic crisis. It has done everything it can to weaken the once respected dollar. Since 2008 the Fed has printed gobs and gobs of money in a foolish attempt to jumpstart the economy and save the big banks. Now the economy is again stalling and their only answer will be to print more funny money. That means that every dollar in your bank account will be made that much less valuable as the money masters do their thing.
How does one deal with this fact as an investor when interest rates are next to nothing? How does one protect one’s nest egg? How does one keep pace with this central bank created inflation if the normal vehicles such as stocks, bonds, and real estate no longer work? Simply, one “hedges” with gold. Silver is a good choice too.
Gold stays valuable. It has been a steady store for 6000 years.
The amount of gold that bought a sword in bygone Peking bought a sword in Renaissance Italy also. Indeed it would buy a similarly crafted new sword in America today. No one really knows why this is, but time has shown that gold is an excellent store of wealth.
So despite the dollar price rise in gold, which as of this writing is around $1800 an ounce, and the ads you see for gold coins, which indicate “dumb money coming in, gold is an important option for any investor looking to make their way through the uncharted waters of today’s economy.
Nick Sorrentino 9-8-2011