When clouds of uncertainty descend over the economy and traditional investments are in peril, physical gold shines even brighter. When fortunes are being lost on Wall Street, wealth invested in physical gold is preserved.
For proof one need look no further than the crash of 2008. This chart compares the Dow to the price of gold in the first critical years of the Great Recession:
The wealth of millions of Americans was lost to the recession. Nobody wants to go through that trauma again, and investments in physical gold are the best means possible to ensure that they won’t.
Despite every effort the government has made, there have been no real improvements in the economy. The warning signs are everywhere that another recession looms, one equally as severe – and potentially far worse – than the last.
Signs of Things to Come
The real tragedy of the recession is that those same signs existed long before the crash and much of the harm could have been averted. Those who perceived the signs and tried to warn us, however, were branded fools while those in power conjured up illusions of booming prosperity to preserve the status quo.
In truth, the recession was the inevitable outcome of the emergence of powerful new economies into a global system dominated by a single fiat currency. For decades the handful of nations in which global wealth had been concentrated believed themselves to be invincible. Only now are we seeing how wrong they were.
Failing Global Economies
The once powerful western economies are all in trouble, and for the same reason: sovereign debt. In the wake of WWII heavy debt was essential to reconstruction, and was warranted by the rapid creation of hard capital that it afforded. The law of diminishing returns soon came into play, however, as debt became a tool for economic growth.
The economics of debt is simple: its cost must be balanced by the wealth it creates. The debt crisis exists today only because we have borrowed more than we have gained. A monetary system based on hard currency, such as the gold standard, would not have allowed that to happen.
The existing system is based on fiat money, however, which itself is but an instrument of debt.
The Weakening Dollar
We have been conditioned to accept rising prices as nothing more than a fact of life. But because the value of life’s necessities is constant, rising prices merely reflect declining value in the basis currency. That is the essence of inflation: it takes more and more money to sustain a fixed standard of living. Currencies that have no correlation to any hard asset inevitably weaken and eventually become worthless.
With hard currency there can be no inflation. Gold has been proven to have astounding consistency in its purchasing power over thousands of years. As a medium of exchange, gold has survived when the currencies of every great empire have faded into history.
Such is the situation today. The dollar of a century ago is worth but four cents today. Further devaluation is certain as the government persists in its efforts to monetize its debt.
While monetization may at first appear to alleviate the debt problem, it does so by shifting the burden onto our creditors. Global reserves of dollar debt instruments are rapidly falling out of favor, and central banks around the world are turning back to gold.
Central Banks Return to Gold
Traditionally central banks have been net suppliers of gold, exchanging portions of their reserves for what they perceive to be more productive assets, primarily US debt. Over the past several years, however, that has changed as the dollar weakened. Today central banks are net consumers, and the World Gold Council has officially moved them to the demand side of the ledger.
The most significant implication of this trend for the individual investor is that there is increasing consensus among central bank managers that investments in gold are now more productive and far less risky than investments in the dollar. That has opened a brief window of exceptional opportunity for gold investments.
You Can Profit From Gold
Traditionally, profit is not the primary motive for gold investment due to the inherent risk in short-term speculation. When gold is significantly undervalued, however, there is potential for near-term profits.
Over the past decade, the return on gold investments has averaged nearly 19% – a respectable profit by any measure. However, those gains are less a result of gold being undervalued than they are of the dollar being overvalued.
It is in the best interests of central banks to keep the dollar buoyed on the foreign exchange while they systematically divest of the vast dollar debt they hold in reserve. Once that is no longer true, they will pull their support and let the dollar seek its true market value. The impact on the gold price could be astronomical.
By itself, the potential for enormous profit may not be sufficient incentive for some to invest in gold, but that potential only augments gold’s proven historical purpose.
Gold Will Preserve Your Wealth
Regardless of how the current economic crisis plays out, one thing is certain: gold will once again be called upon to stabilize the global economy.
No fiat money has ever endured. Never has wealth defined by fiat money survived. Real wealth is anchored by hard, tangible assets – not mere paper. Wealth exists only in its ability to sustain the quality of life desired by its possessor, and for that nothing created by man has ever come close to gold.
When not losing becomes more important than winning; when holding on to what you have means more than clamoring for more; when concern for your future wellbeing and that of your children outweighs your hunger for greater riches – then you are ready to invest in gold.
You may find in doing so that your wants are satisfied as well as your needs.
You can learn more about the power of gold by clicking here for your free copy of our “2013 Insider’s Guide To Gold Investing.” If you have specific questions or would like no-strings-attached expert guidance from a highly professional and friendly gold investment advisor, just give us a call at 1-800-425-5672.