You have most likely seen the commercials; “Buy gold! Protect your finances!” Have you ever given it serious thought? You should. Having gold and silver in your financial portfolio is one of the best ways to protect yourself from inflation and the erosion of the U.S. dollar. This is by no means a cheap investment, but it could be the smartest investment you can make in today’s economy.
There are several factors that contribute to the value of gold and silver. First, they have intrinsic value. Gold and silver have been used as currency for over 5,000 years. They have never been valued at zero, and never will be. Unlike a regular stock, which is simply a paper promise, these precious metals have value to them that you can physically own. The fluctuations of the stock market do not as adversely affect the precious metals market as regular stocks.
It is important to remember that precious metals investment is a mid to long term strategy. If all you want are quick gains on your investment, this market is not for you. You must be prepared to hold on to your investment for at least 3-5 years, or longer, before selling. This is not an investment for gains; this is an insurance policy for your portfolio. When inflation comes (and it will come), owning gold and silver will give you protection for your finances.
How will this inflation come? Several factors determine that at the rate our government is operating, inflation is inevitable. We have a nearly $17 trillion (as of June 2013), nearly $90 trillion in unfunded liabilities (Social Security, Medicare, Obamacare), and the Quantitative Easing Program from the Federal Reserve. The Quantitative Easing, more commonly known as the stimulus package, pumps in $85 billion a month into the stock market buying bonds, attempting to grow the market. However, these gains that the stock market has achieved are all false, and do not reflect the true state of the economy.
Unemployment is not at an all-time low; our GDP is not at record levels, and nearly 50 million people are on food stamps. Do you still think that our economy is strong? Look at the market the week of June 17. In this week, Ben Bernanke and the Federal Reserve met to discuss the state of the economy and the future of the Quantitative Easing Program. In a press statement, Bernanke said that the Fed might plan on eventually ceasing its stimulus program. In two days, the DJIA dropped over 600 points. Keep in mind, this drop came after Bernanke said that they “might” eventually stop the stimulus. There was not an actual event that caused this mass-selloff of stocks.
Now, how does gold and silver protect you from all these issues that are coming down the road? History tells us that gold and silver excel in times of inflation. These metals will always keep their value, because there is only a limited supply of it; one cannot simply print more gold or silver. As the U.S. dollar has lost more and more of its buying power, the value of gold and silver has skyrocketed. In 2000, the average price of gold per ounce was about $279.06. In 2012, the average price increased to $1,810 according to Goldman Sachs. In 2013, the price has (as of June) dropped to around $1225 per ounce. The rates of inflation and debt that our government is creating can assure us that gold will never go back to the prices seen in 2000.
Famous economist Harry Dent is predicting up to a 90% correction in the market. Needless to say, that will be a catastrophe. A correction is being predicted because the market is being manipulated; yes, you read that correctly, manipulated. How is it being manipulated? You have already read how: Quantitative Easing. Once the stimulus is no longer being used, the true condition of the market will rise, and the prices of gold and silver will skyrocket. Keep in mind, that is not just me speaking; that comes from many famous economists. Look it up for yourself, the correction is coming, and it will hurt.
If I have sparked your interest in gold and silver, here is some advice: Plan on investing in pre-1933 gold or silver. Normal bullion purchases are a great investment, no doubt about it. However, transactions over $10,000 must be reported to the federal government under the Patriot Act, and all bullion purchases are subject to the confiscation rule declared by President Roosevelt in 1933 (private owning of gold and silver was outlawed). This executive order was reversed by President Nixon, and citizens could own gold and silver again.
When you buy pre-1933 precious metals, the transaction does not have to be reported to the federal government, no matter what the cost (a private transaction), and any pre-1933 holdings are exempt from confiscation by law. If the federal government ever decided to confiscate private holdings, pre-1933 metals would not be confiscated, by law.
When you have this pre-1933 gold and silver, you now have what the precious metals business calls the “double play advantage.” You will have the intrinsic value of the pieces, and you will have the numismatic value, or the rarity factor. You will not be solely at the mercy of the precious metals market, unlike bullion. These pieces have historically outperformed bullion, and always will because there are two factors that determine value. Considering the double play advantage and the exemption from confiscation, buying pre-1933 gold could not be a smarter move in the precious metals market.
Keep in mind, investment in the precious metals market is not cheap. Be prepared to put in a few thousand dollars minimum. It may seem like a risky investment, but any kind of investment does involve risk. What makes the small risk worth it is the fact that you will own what you purchase, and what you hold will always have value. If you have considered market investing, I, and many renowned economists recommend gold and silver, because of its security, its value, and the historical record of the precious metals market.
Follow Seth Connell on Twitter @theRealConnells.