Why Invest In Precious Metals Now?
Gold is the world’s oldest international currency and has played a role in most countries’ currency systems for well over two thousand years.
In a fiat money system, money is not backed by a physical commodity. Instead, the only thing that gives the money value is its relative scarcity and the faith placed in it by the people that use it. Generally, a fiat monetary system comes into existence as a result of excessive public debt. When the government is unable to repay all its debt in gold or silver, the temptation to remove physical backing rather than to default becomes irresistible.
Generally, a fiat monetary system comes into existence as a result of excessive public debt. In a fiat monetary system, money is not backed by a physical commodity, such as gold. Instead, the value of money is based on perceived scarcity and public confidence.
As investors the world over lose faith in their government’s ability to contain the financial and economic crises, many are calling for gold backed currencies.
When adjusted for inflation, gold remains well below its all-time high. An ounce of gold at $875 in 1980 would be worth $2,115 to $2,200 today.
Gold is renowned as a hedge against inflation. The most consistent factor determining the price of gold has been inflation – as inflation goes up, the price of gold goes up.
Gold production has declined by a staggering 110.7 million ounces since 2007, falling to its lowest level in 86 years.
Worldwide gold demand is skyrocketing. Large institutional investors, such as hedge and pension funds, are now making large allocations to gold.
China’s demand alone was up 26% in 2007, taking over the U.S. as number two consumer in the world. Soon, they’re expected to overtake India at the number one position. Hong Kong demand is also up 15%, Saudi Arabia 15%, Egypt 12%, UAE 7% and to top it off Russian demand hit an annual record up 11%.
The Indian central bank recently purchased 200 metric tons of gold from the IMF, pushing gold near record highs. This development suggests that central banks are now looking to become net buyers of gold rather than net sellers. The Indian gold transaction is the largest single central bank purchase in the last 30 years, and is the equivalent of 8% of global mine output.
Gold cannot be created by the government. People who saw their wealth disappear in the great inflation of the 1970s know that holding lots of paper money can be devastating.
Today the United States government is inflating its money supply, attempting to pay for wars, Wall Street bailouts, social programs, infrastructure build outs, and green-energy boondoggles. Under these circumstances, it’s vital for investors to own a piece of tangible wealth.
To protect your wealth from the government, we recommend you buy physical gold.