Ask any mainstream financial pundit about investing in gold and you’re likely to get a similar response. “Gold is a barbaric relic.” They simply don’t understand the value or the purpose of gold. They seem to forget the fact that gold was a mainstream asset class up until the 1990’s before the tech boom. It’s amazing what is forgotten in just a couple decades. In fact, ask two gentleman that I respect immensely who take two completely different approaches to investing; Warren Buffett, and Dave Ramsey, and amazingly, you get the same similar answer; “investing in gold is stupid”. When it comes to gold, they just don’t get it. They’re all just talking their book.
The financial pundits would love to tell you the truth. They can see how much money is flowing into previous metals and other commodities, but they, along with many others are paid to get on air and talk up the market. It’s their job to try and make you feel good about the market. For Mr. Buffett, one can hardly argue with his track record in equities. Until I’m making on average of 24% year over year returns for 3 decades, I’ll give him the respect he probably deserves. As for Dave Ramsey, he has made the bulk of his investment returns and passive income from real estate. It should come as no surprise that his daily radio show advice, aside from getting out of debt is to pay cash for investment real estate on your road to riches. To a large degree, I actually agree with that but for slightly different reasons as you’ll see below.
I don’t fault them; they’re all speaking from their own unique perspective and besides, how do you fault two gentleman that have reached the levels of success they have and work every day to give back much more than they made in the process? The whole is certainly larger than the sum of all their parts.
What they are doing, however is missing the main point. The purpose of buying gold, or silver for that matter, is not to “invest” in gold or silver. The purpose of buying gold is to “protect” or “preserve” purchasing power and wealth over the very very long term. It’s about properly asset allocating approximately 5%-15% of your net worth into something with the inflation protection properties few things other than gold or silver offer.
You don’t have to go back in history very far to encounter numerous examples of the devastating effects of inflation on the savings and livelihood of the middle class and others. Inflation is our true thief in the night and it is absolutely imperative that you take deliberate actions to protect your savings from the non-stop money printing by the majority of world governments today. Inflation is already here.
Putting a small amount of your liquid savings into precious metals should protect the majority of your purchasing power over the very long term. This is not about “investing” and hoping for a quick double or triple in value. It’s about holding precious metals long term to mitigate the slow withering effects that inflation has on your purchasing power.
Undoubtedly, you have noticed the rising prices of just about everything you buy. Is a box of Cheerios more valuable today than the same box a year ago? Of course not. What you’re seeing first hand is the effect of inflation and the decrease in purchasing power of the U.S. dollar. It’s the continual and gradual devaluation of the U.S. dollar and its ability to buy real goods. The slow and gradual loss of purchasing power has been a long term trend ever since we left the $20/oz. gold standard in 1932. Since the end of the original gold standard, the dollar has lost over 90% of its value and purchasing power due in large part to the open and rampant easy money printing policies that began in ernest in the 1970s after the complete abandonment of the gold standard in 1971. It’s a simple economics 101 supply and demand equation. As the supply of money increases, its value will decrease. It doesn’t get any simpler or truer than that.
Lets step through a familiar exercise to demonstrate how a small amount of gold in your liquid savings can help to preserve purchasing power and family wealth.
In 1930, an ounce of gold was held at a value of U.S. $20. This meant that you could freely exchange your $20 U.S. gold piece for $20 dollars in printed Federal Reserve Notes (dollars). Why you would ever do that is a question for another day and another article, but I digress. That same $20 in 1930 would buy you a nicely tailored man’s suit at the time. A suit for $20; not a bad deal.
That same U.S. $20 dollar bill today, would hardly buy a decent silk tie. That same one ounce of gold, however is a different story. That same one ounce gold coin today, valued at approx. $1494 as I write this, could easily be converted to paper currency and purchase a very nicely tailored men’s suit with a fair amount of change left over.
The above example is precisely the reason everyone should have a small portion of their liquid savings in “real” assets, like gold, like silver, or yes, even real estate. Tangible, real assets, not fiat currency should hold value over the very very long term and “preserve” and “protect” your purchasing power. It’s not about “investing” at all. Leave that to the traders and we’ll stick to protecting our families from the real thief in the night; inflation.
For more information on asset allocation, please see a hypothetical portfolio by asset class below:
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| Model property of Momentum Trading Alert. |
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