Why should everyone invest in Gold?
Here are the fundamental reasons to invest in gold soon (in summary form):
1. Gold is more than just another commodity, it’s a currency. It is the currency that evolved in the marketplace over the last 5,000 years.
2. Gold and silver are the only currencies not created and controlled by governments. All of today’s other currencies (dollars, euros, yen, pounds, renminbis, rupees, etc) are ‘fiat’ currencies, which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws).
3. Governments always end up creating too much fiat currency out of thin air. All fiat currencies in the past have ended up worth very little, collapsing into hyperinflation or threatening to. All of today’s fiat currencies have been fiat currencies for less than 34 years (all government currencies were convertible to gold until 1971).
4. The rate of creation of fiat currency accelerated markedly in 1995, leading to today’s worldwide bubble in asset prices. In September 2003 the rate started to slow, suggesting that the bubble might end soon.
5. In the pain of the post-bubble period, governments will come under pressure to return to backing their currencies with gold.
6. Returning to currencies backed by gold is practical. Even the possibility that it might happen will cause the value of gold to rise considerably.
7. Today’s fiat currencies are unfair. For example, because the US issues the world’s reserve currency, the rest of the world sends the US real goods and services and just receives bits of paper or electronic bookkeeping entries in return many ships travel to the US full of goods, but return half empty.
8. Governments and central banks have been suppressing the price of gold since 1995 by lending and selling their gold. They won’t be able to keep it up forever. Then the price of gold and silver will soar.
9. The pressures of enormous debts will increasingly tempt the United States to inflate the US dollar so much that it will become almost worthless, in order that the debts can be easily repaid in near-worthless dollars. Gold will gain as the falling US dollar destroys trust in fiat currencies.
10. The finance industry and governments have promoted fiat currencies at the expense of gold in the public’s mind for decades. From here, the investing public’s attitude to gold can only become more positive.
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- Gold is more than just another commodity, it’s a currency. It is the currency that evolved in the marketplace over the last 5,000 years.
Gold was the main currency in most of Europe, Asia and the Americas for most of the last few thousand years, up until 1971. Silver was also widely used, though to a lesser extent.
Gold evolved independently as money in the world’s main civilizations, because it is:
1. Rare
About 5 parts per billion of the earth’s crust. Difficult and expensive to mine.
2. Indestructible
It does not tarnish or decay.
3. Compact
If all the gold ever mined were made into a solid block whose base was the size of a football field, then it would be about 1.5 meters (5 feet) high.
4. Malleable and divisible
You can easily reshape it, flatten it, and divide it into tiny pieces.
5. Hard to find
The amount of mined gold has increased only slowly, rarely more than 2% per year.
Until 1971, US government currencies were backed by gold. You could, at any time, exchange a unit of any of the world’s main government currencies (such as a dollar, a yen, a pound, or a rupee) for a prescribed amount of gold. Currency notes were just certificates for various weights of gold. For example, from 1934 to 1971 you could exchange 35 US dollars for one ounce of gold.
Progressively from 1913 to 1971 US governments withdrew the right to exchange government currency for gold. For example, from 1944 to 1971 a non-US currency unit (such as a yen or a pound) could only be exchanged for US dollars, and only national governments could go to the US government to exchange those US dollars for gold.
In 1971 President Nixon of the United States broke that nation’s promise to always exchange 35 US dollars for an ounce of gold. Since then the world’s government currencies have been ‘fiat’ currencies (see point 2 below)— they are not defined as a weight of gold, they have no connection to any commodity or anything tangible, and they are only worth what someone else is prepared to trade for them. The fiat currencies now ‘float’ against one another, with their relative values going up and down with economic trends or fashions.
The only significant use of gold today is for investment, that is, as a currency or a store of value. This includes jewelry—the fundamental purpose of gold jewelry is to store something valuable in your personal safekeeping. Gold has some non-investment uses such as in electronics, but the amount of gold used in these ways is relatively tiny. Almost all the gold ever mined is still in use today. Silver is different—the industrial uses of silver (photography, utensils, medicinal, electronics) outweigh its investment use, and much of the silver ever mined has been effectively lost because it is hard to recover.
