Why You Should Own Precious Metals
Everyday I am more convinced inflation will be the most destructive force in the New Depression. Both the European Central Bank and the Federal Reserve Bank are prepared to print as much money as necessary to fight deflation. Unfortunately, they don’t seem to realize that deflation is actually good for the economy. The reason is because it brings prices down, making it easier for unemployed people to afford necessities. Since people are still able to buy the things they need, eventually the economy gets moving again. (Here’s a more detailed explanation.)
Instead, the central banks have been printing on an unprecedented scale which has resulted in a sort of tug of war between inflation and deflation. However, I believe inflation will win this tug of war because of the Fed’s insistence on doing whatever it takes to stop deflation. We’re already seeing the effects of this in the prices we pay at the grocery store. That’s why I believe owning precious metals is more important than ever. And now that there’s talk of QE3, gold and silver prices are only going to go up.
During most disasters (earthquakes, hurricanes, etc.), cash is king. With the power offline, stores have no choice but to accept cash. This is why I recommend you have some of your savings in cash rather than in the bank. The same is true of a sudden economic collapse. If the food trucks aren’t moving and the banks are closed, people will rush to the stores to buy up whatever is left, and most of those stores will only take cash.
But what if neither of these scenarios occur? What if prices slowly get higher and higher until one day you realize food is taking up most of your monthly budget? Imagine food is five times as expensive as it was a couple years ago. That won’t be a problem if you own PM’s because your gold or silver will also be five times as expensive. You could stop at a pawn shop and sell a few silver coins on the way to the grocery store. This is exactly what Fernando Aguirre did during the hyperinflation in Argentina ten years ago.
Here’s another situation where PM’s might be more useful than cash. Let’s say hyperinflation has gotten so severe that your country’s currency is practically worthless and many people have resorted to barter. You own a chicken coop and have some surplus eggs. Your child is sick and you desperately want to trade those extra eggs for medicine. But the only person you can find with the type of medicine you need doesn’t want your eggs or anything else you have. He needs a new water filter. Now you have to find someone with an extra water filter who also happens to want eggs.
You can see how complicated things can get in a barter society. That’s why people naturally start using currency anywhere trading is done. But if people don’t trust paper money anymore, they’re going to use something they can trust. Some people might use bullets. Others might use salt or spices. But I believe everyone will trust the value of gold and silver. Why? There are limited quantities, they can be divided into various sizes, they’re portable, and they’ve been considered valuable for as long as anyone can remember. In the example above, you could just give your neighbor a few silver coins in exchange for medicine, and he could use those coins to buy the water filter. This saves everyone a lot of time and stress.
However, if you do decide to buy precious metals, don’t fall for some of the scams you might have heard about on the radio. They claim that if the government confiscates gold (like it did in 1933), they won’t take numismatic coins. Therefore, you should spend double for the same amount of gold simply because it’s a collector coin. This is completely false. If the government decides to confiscate gold, they’ll take all of it. I higly recommend you check out goldscams.com.
Next week I’ll talk about how to keep your gold safe from the government and looters.