Tags: Gold | silver | debt | currencies

Why You Should Own Some Gold and Silver

By    |   Monday, 17 March 2014 06:53 AM

Recently, I got a reminder as to why everyone should own some gold and silver. What was it? It was an article that I read that talked about how much the debt of countries has grown.

The article stated that the amount of debt has surged 40 percent from mid-2007 through mid-2013. The global debt ran up from $70 trillion to $100 trillion.

That's huge! And it shows how shaky things still are. Oh we're not feeling it right now, but wait until the next recession comes around.

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If you think the last recession was bad, with the world carrying $70 trillion worth of debt, wait until you see what the next one is like with $100 trillion or more in debt.

Picture it like an individual. If an individual carries too much credit card debt, in good times, it doesn't come home to roost too badly. But let the economy slow and their employer has to cut back their pay or eliminate their job and all of the sudden the debt burden is a really big deal.

Now picture it to where they're going into the next recession and their personal debts are even bigger. Well, their risks are much higher too. The more debt, the higher the chance that their credit will be ruined or that they would face bankruptcy due to their inability to pay back the huge debts they've created.

Well, it's very similar when it comes to countries. Not only do their debt burdens haunt them, but investors shy away from them as well, just as bankers shy away from the debt-laden individual.

Foreign investors, all of the sudden, don't want to buy the bonds/treasuries of the country. Foreign investment in a country's stocks can be inclined to find its way out of that country and into other, more stable countries economically. And that could hurt a country's stock market.

And as money flows away from a country, it ends up hurting that country's currency, as the outflows of money causes their currency to slump. The weakening currency causes even more faith to be lost in the country and it becomes a vicious circle that ends up becoming worse and worse.

Well, as a country's debt grows and risks become higher and their currencies are punished, where does the money run to? It runs to gold and silver. Why?

Gold and silver is hard currency. It can't be printed. So as countries have printed more currency and taken on more debt, it makes gold and silver shine all the more.

Gold and silver, over time, have a very inverse correlation to each other. Gold and silver ownership helps one to retain their purchasing power, whereas those who only have devaluing paper currency will continually lose purchasing power like a slow leak in a tire.

At first, the leak isn't noticeable and by the time the driver has driven on the tire long enough to notice it, they've run the risk of ruining the entire tire. And so it is with Main Street America and the dollars in their wallets and purses.

They realize that their money doesn't seem to go quite as far and that they have to work quite a bit harder. But they just can't seem to put their finger on what the problem is. It's the slowly leaking tire — the eroding purchasing power of the dollar as the Federal Reserve prints up more dollars, thus diluting your purchasing power.

Additionally, when more dollars chase a finite amount of goods (food, gasoline, etc.), it runs up inflation, which causes the cost of living to go up quite a bit.

So, I know you hear politicians talk about how Wall Street is running up prices, but they could only wish to have that much power. The Fed is the one that holds that much power. They hold the power of the printing press, Wall Street does not.

And the Fed has been printing money ever since we came off of the gold standard back in 1971, which is around when the purchasing power of the average American peaked. That's why your parents or grandparents didn't have to work quite as hard as you're having to in order to have a similar lifestyle. Each of their dollars was backed by gold and couldn't be printed beyond the amount of gold our country had.

These days, each central banker outdoes the former one. Alan Greenspan printed a ton of money, but Ben Bernanke made what Greenspan did look like child's play. Janet Yellen will find some way to outdo what Bernanke did because they've got to try to keep the game going.

As global debts rise and currencies are diluted (particularly the dollar), gold and silver will shine even more. Well, unfortunately, I've got great confidence in the ability of governments to continue to run up debt and to influence their currencies lower. They've been very consistent at this. Sometimes they'll do it more than others, but they've been on the same trajectory for the last 30 to 40 years and I don't expect that to change anytime soon.

Therefore, I'd encourage you to own some gold or silver. Some people will own gold bars, while others will own gold or silver coins. Others will simply own exchange-traded funds (ETFs) that track gold or silver (GLD or SLV). Gold bugs, of course, hate these ETFs, but they do accurately track the movement of gold and silver and it's an easy way for the average stock investor to do this in their regular brokerage accounts.

Some investors will want to only have 5 percent of their portfolio in gold and silver, while others will ratchet up to 20 percent of their portfolio. But whatever form you choose and whatever percentage you choose is up to you. I'll not haggle over that with you. I'd just encourage some gold and silver ownership in some form and to have at least 5 to 10 percent of your portfolio in gold and silver.

We've seen gold and silver correct their excessively fast moves higher and now I believe these metals are ready for their next major launch higher. In fact, I believe it's begun already. But it's not too late to buy.

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Don't wait to buy gold and silver when it's totally obvious that the tire has gone flat. By that time, gold could be $2,000 an ounce and silver could be $40 an ounce. No, buy in while the tire is still leaking air and everyone doesn't realize what they should be doing yet.

God bless!

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.
Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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Recently, I got a reminder as to why everyone should own some gold and silver. What was it? It was an article that I read that talked about how much the debt of countries has grown.
Gold, silver, debt, currencies
Monday, 17 March 2014 06:53 AM
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