Monday, May 16, 2011

The Long Term for Gold and Silver - The Fundamentals

in New Zealand dollars: $1902.77 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $44.92 per oz
Previous all time high: $48.58
per oz

We humans are a strange bunch when it comes to money. It can engender anxiety (no matter how much you have), or peace and calm (probably if we don't need it). The more you have though, the more life seems to revolve around it.

Perhaps this is why gold and silver bugs get unusually precious about what happens to their 'precious' (as Gollum would say).

So it's time again to reiterate the fundamentals as to why holding physical gold and silver is crucial and perhaps put you all at ease. This is by no means a comprehensive list. Here's two of the main ones.

1. We have high debt levels in the private and public sectors worldwide.

This is the main driver of the reason to own gold and silver.

Governments continue to print money to pay off their debt. As long as we have Central Banks and a fiat money system, we will have debt creation at a high level. Even now, the Federal Reserve in the US has been 'monetizing' 40% the US Governments budget deficit needs.

In New Zealand, we are now borrowing $380 million a week. Our Reserve Bank is also monetizing some debt, although that is difficult to prove, especially with all the jargon they use to confuse.

These debt levels are too high to manage. Debt cannot be repaid. In NZ, we owe around $40K each. We are in the same space as Portugal, Ireland, Spain and Greece; and we know where they are headed.

There will not be enough economic growth to repay this debt. Any Government that tells you so is lying. Here is an article today about NZ's debt levels. (More on this article in a future posting. It deserves analysis).

It is the same worldwide though. The US is printing money to devalue the dollar which devalues their debt. Default by stealth. Their debt ceiling of over $14 trillion is about to be hit.

Just as an aside, here is what a trillion dollars looks like:

$1 miillion dollar pile of $100 notes

$100 million dollar pile of $100 notes

$1 trillion dollar pile of $100 dollar notes (NB the pallets are double stacked)
See the man on the far left!

If we didn't have electronic money, there wouldn't be enough trees.

2. Gold especially, is money. It is best suited as a store of value (wealth preserver) and a medium of exchange.

Over 2,500 years ago, Aristotle first described the properties on money
  • - It is durable. It won't evaporate, mildew, rust, crumble, break, or rot.
  • - It is divisible. It doesn't lose it's integrity
  • - It is convenient. Gold allows its owner to physically carry his wealth. You cannot carry a parcel of land in your pocket.
  • - It is consistent. Only one grade exists for 24-carat gold. It is scarce and cannot be 'printed' into existence.
  • - It has intrinsic value. It is used for many industrial applications.

Silver, of course, is known as the 'poor man's' gold. It has most of the attributes of gold, but has one other important aspect from an investing standpoint. It is used in many everyday applications as a commodity. Electronics especially. Silver has been used as money throughout the ages.

To sum up then, if you own gold and silver in physical, allocated form with a reputable Custodian (no ETFs, no paper promises), then you have the best protection in existence for your wealth.

Look at it like this. Just last year one NZ dollar would buy 1/1630th of an ounce of gold. Today, that same dollar would only buy 1/1896th of and ounce.

So what changed? Not the gold.

Articles of interest:

The People vs. Goldman Sachs

One of the best articles of the year so far.
See article here

The Fall of the U.S. Empire and the Breakup of the Geopolitical Matrix

See article here
Casey Research

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001

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