Since the removal of the gold standard back in 1971, the shiny yellow metal has taken backstage from the financial world. Many people do not think gold an excellent investment; in fact, governments consider gold a hindrance.
However, with uncanny levels of debt serviced by governments all over the world, one may ask, is now an excellent time to consider gold as a good investment?
Technically, gold isn’t an investment, but in today’s strange financial world, the fiat monetary system is looking to fail miserably. Take the value US dollar; for example, $1 in 1913 is worth $25.94 today.
Alternatively, from another perspective, $1 today is worth $0.04 compared to a dollar back in 1913. In a little, over a hundred years the dollar has lost over 95% of its purchasing power, think about that.
History of Gold
Gold used to be the international monetary standard until 1971. In 1971 Richard Nixon removed the gold standard, and the US dollar no longer backed gold. The US dollar became what is known as a fiat currency. A fiat currency is a currency that is supported by nothing of value; the only value it has is government decree.
After the removal of the international gold standard in 1971, the price of gold began its ascend. It went from $40 in July 1971 to $677 in January of 1980, an increase of 1,592.5%. Not bad for a nine-year run.
Although gold dropped from its $677 highs, it eventually made a new high in 2011 rising from $265 in January of 2001 to $1,825 in August of 2011, an increase of 600%. Still not a bad 10-year bull market run. Looking in hindsight, I would say that gold was a good investment in the 70s and 2000s.
Furthermore, the bull market for gold has is only beginning. Currently, the world is trapt in a debt bubble. To stabilize the fiat monetary system governments need to raise interest rates to remove some of the currency in circulation. However, no country in the world is willing to raise rates to normal levels of at least 5%.
If governments were to normalize rates, their country or perhaps even the world will enter a worldwide global recession that would be on par if not larger than the great depression. Of course, this is the last thing the world wants to experience.
Avoid Paper Gold
For the big time investors who do invest in gold, they usually buy the paper trades, rather than the physical trades. Buying paper gold is not worth it, due to the risk involved.
There are numerous accounts that there are as many as 100 gold paper claims to the same ounce of gold available on the COMEX. If every investor were to call in their request, only a small few would receive physical possession.
Its no secret that the paper supply sets the price of gold; however; the paper supply of gold does not correspond to the physical amount of gold. Therefore, the real cost of gold is understated. If there are genuinely 100 paper claims to 1 ounce of gold, then the price of gold should be 100 times its current price, roughly $120,000 per ounce.
Sounds unfeasible right? Well, maybe not. Bitcoin a cryptocurrency that has no intrinsic value managed to rise to $20,000 in the guise of gold 2.0 or digital gold.
If fool’s gold can reach the amount of $20,000 imagine how high can the real gold will rise once the world plunges into a monetary crisis. Of course, to reap these benefits, you’ll have to own physical gold.
Gold Mining Stocks
There are other ways to invest in gold outside of buying physical bullion or bars. Gold mining stocks are a great investment option. When the price of gold goes up the value of gold mining stocks can go up even more, perhaps even ten times more than the amount of gold.
Think about it; if gold is going up 60% or 100% a year, investors are going to want to own the sources of gold, the mines. Owning the gold mines will be more valuable than owning the gold itself. Ask yourself your what’s more valuable the product or the source of the product?
Can you imagine if gold rose another 600% in 10 years while mining stocks rising 6,000% in the same period? That’s a substantial amount of money, and right now mining stocks are at their lows.
Gold A Good Investment
Given its track record, I’d say gold is a good investment, as it has gone up as a hedge against inflation. The value of gold today is still the same as it was 100 or 1,000 years ago. Like all investments, you can lose money on gold.
However, there’s one thing that’s for sure; gold will never go to 0 because it will always have intrinsic value. Gold’s inherent worth comes from the use of Jewelry and electronic purposes, in fact, its the greatest semi-conductor in the world. Moreover, it’ll be the most excellent investment against the inflationary failed monetary fiat system, along with its little silver brother too.