Originally published on August 6, 2014
It's all about wealth preservation my friends. It's clear to see why it's important to have gold as an asset in your portfolio once you truly understand the properties of money.
If I walked into a store to purchase an item and proceeded to pull out monopoly money to use as a legal form of tender what would the cashier's reaction be? I'd most likely get laughed at. Why? Simply because it doesn't have any value, it's not widely recognized as a form of currency. Believe it or not, the same will most likely happen to the U.S. Dollar… For now, its value is retained through faith from both producers and consumers. People trust that it will have value today, tomorrow, and for years to come.
What happens if people lose faith in the dollar? Take a second to consider this scenario. Slowly but surely, places will stop accepting the dollar as a legal form of tender. You'll find yourself cornered and that's not a position you want to be in. If you haven't learned the reason behind this look here.
You need assets that preserve value, assets that encompass the properties of true money. That's when we turn to Gold.
"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper." - Hans F. Sennholz
Gold has an extremely long history, it's been utilized for centuries. Gold is valuable because it's a finite resource, it cannot be created by any means and it can't finance deficit spending on behalf of the government. It's a viable option to protect yourself against currency devaluation in times of inflation.
Now, here's where things get interesting. Obviously, from a financial standpoint, gold is a plausible store of value, but when you analyze its past performance in the last 20 or so years, it's clear to analysts that gold prices may soar once again. The gold market has bottomed and that makes way for a golden opportunity.
You have to understand with more than $60 trillion in U.S. Debt there is tension lurking in the air. With uncertainty growing exponentially, it's wise to have a strategic portfolio capable to ensure stability and potentially growth. Gold's value isn't dependent on the U.S. Dollar, meaning gold is a viable hedge against the dollar's continuing decline, a "Safe Haven" if you will.
Believe it or not, central banks aren't selling gold, they're holding onto it. China recognizes its tremendous value as well, after all, they're the number 1 producer and consumer of gold in the world. Additionally, when you've got political unrest in foreign countries gold tends to rise in price. It's a no-brainer. Buying gold at its bottom not only will preserve your wealth, but if a monetary collapse were to come to fruition you could expect the price to soar to new highs.
After the currency debasement in 1971, the price of gold overshot the amount of dollars being printed. It went from a mere $35/oz to $682/oz . If that same scenario were to occur today, it would be $24,000/oz. Printing more currency actually increased the cost of gold and with Quantitative Easing in effect today we could see gold increase in the near future. This is all speculation and by no means is this a prediction of mine; the past is not indicative of future results, however gold is a cyclical market and trends do occur. I'd say realistically we can expect gold to hover around $2000/oz within the next decade.
In a bear market for the dollar, gold begins to shine. People rush over to gold to protect their purchasing power and in return the price for gold skyrockets. You may ask how high it can really go and the answer is to infinity, there is no limit as long as the dollar continues to decrease in price and our government continues to print.
Protect yourself from financial inflation and preserve your purchasing power.
Disclosure: No positions