Do gold or silver deserve a spot in your investment portfolio? The answer to that is not for me to say, but I may be able to provide you some thoughts with which to provoke your cogitation. Every investor has their own unique goals and aspirations when it comes to securing wealth, and so one size does not fit all.

Some historians speculate that metal was first used as money as early as 5000 BC. The Persians, 600-300 BC, were using silver coins as currency. And of course we all know that around 200 BC the Roman Empire developed the silver denarius as currency. Paper money was first invented during the Tang Dynasty ~600-900 AD. The people called it fly money because wind could blow it away, unlike it’s heavier brethren. And furthermore they soon realized that inflation could also blow it away. However, it took a few centuries for the paper money concept to work it’s way west.

So there’s a long history of people using different forms of money to facilitate business. The one overriding factor to all these is meddling by the government for their own purposes. Control over and expansion of the popular currency allows expansion of the government. At this juncture one must question what is government. This famous quote gives one pause: “Give me control over a nation’s currency, and I care not who makes the laws.” (Baron Mayer Amschel Rothschild). The only time a government contracts instead of expands is when an Empire collapses. And they all do, given enough time.

Inflation is defined as expansion of the money supply. Price increases of goods and services are a reflection of inflation in the money supply. As the money supply expands, the dollars you hold in your wallet becomes worth less, and will buy less goods and services. Hyperinflation is an acceleration of inflation. Currently the IMF projects that the 2018 inflation rate in Venezuela will top 1,000,000%. That would qualify as hyperinflation! Deflation on the other hand is contraction of the money supply. Currently the Federal Funds Rate is slowly being ramped up. Interest rates are rising. This will contract the money supply while it becomes more expensive to borrow. The great depression was created by an economic contraction and intentional raising of interest rates. Every inflationary period is followed by deflation.

OK, now consider the public debt in the USofA. We are rapidly approaching 22 Trillion dollars of official government debt. That’s the official number, one can only imagine what the real number is. Just like one can only imagine how little gold is really in Fort Knox after all the leasing and re-hypothecation shenanigans that have been going on over the years. Keep in mind here what a Trillion is. A football field cubed, filled with pennies, is one trillion pennies. A stack of 1,000 dollar bills, laid flat to flat, is 60 miles high, or long, as the case may be. Can you imagine driving for 22 hours at 60 MPH past a row of thousand dollar bills? When’s the last time you saw a thousand dollar bill anyway? This debt is going to default, probably into hyperinflation. There’s no way to avoid it. As inflation metamorphoses into hyperinflation the people lose faith in it, and they look to any means to preserve their wealth. Bad money chases out good, and good money gets hoarded.

As noted above precious metals have a long history of being good money, one that will preserve wealth in times of strife. Central banks around the world have been on a gold buying spree lately. Maybe they understand the Golden Rule. He that holds the gold, makes the rules. How to best plan for our survival, financial and otherwise, as this credit expansion cycle grinds to a stop and reverses into a credit contraction? Those that have ‘money’ available when there is blood flowing in the streets will be able to buy up assets for pennies on the dollar. Chances are fiat (unbacked by tangible assets) currencies will lose value, as hard money gains value. There is a generational transfer of wealth coming. Which side do you want to be on?

It’s very likely that cryptos will play a part in this coming wealth transfer. The technology is as disruptive as the internet was. My crystal ball is still fuzzy on how that one plays out, but I do have a little stake in EOS, just in case. And I do like the fact that the silver/gold ratio is 83/1 which is outside the historical norm. And amazingly enough there is less silver above ground than gold. And Comex warehouses are all but empty. To all appearances silver is currently a screaming bargain. However, compared to the quantity of the money supply on a worldwide basis, gold also appears to be on sale. I suspect that 2019 might see the metals prices swing a bit towards a more realistic valuation.

Food for thought! And hey, if you have any questions on this topic please fire em off in the comment section below and I’ll do my best to give an accurate response. I’ve been a student of money and markets for at least the past 30 years and have devoted much of this period my life to the study.

Photo by the author.


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Discussions

    1. Smitty Post author

      Thanks for the comment AD. Any paper money (or fiat currency) has never lasted more than 300 years. We are in a whole new ballgame now what with a connected world, and every country in massive debt. I’d say that fiat currencies surviving even 10 years is wildly optimistic. The process is unfolding as we speak.
      Cheers mate.

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  1. Cloud blade

    Good and silver is the most real thing,
    When a catastrophe occurs,
    All electronic money, banknotes, are waste bad money,
    Only real gold and silver can be exchanged for bread.

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      1. Cloud blade

        Many friends said,
        When a disaster occurs,
        Electronic money can buy bread,
        I am very hesitant Electronic money?
        I think gold and silver is right with can buy bread.
        Electronic money do not good say,
        of course, It’s best not to come to disaster!

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  2. VG

    I’ll have revisit to rate this. Excellent write up. Those poor countries that tried to repatriate their Gold recently learned how much is left. And the countries that did get portions of their Gold back figured out it wasn’t actually their Gold they put in. Then you got the Chinese drilling into their bars only to find Tungsten inside. Big moves will come one day and I hope to be on the right side of it.

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  3. Smitty Post author

    To delve into all aspects of the money story would take a bit more room than I have here. Of course the price is repressed. If the price were let free it would clearly show the true value of all fiat currencies, not just the fast fading US petro dollar. Which is why I say 2019 might see some price swing. World reserve currency status is going away quite rapidly, relatively speaking. Supply and demand is a natural law. The price will reflect reality at some point.

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  4. BizarreEconomy

    I hope you understand that metal prices are not real. They are 100% suppressed to extreme degree. All stocks are in the same spot. There is no price discovery right now. Metal prices should be few times higher by now. But central banks just trade paper silver, paper gold and they can trade millions of derivates if they want….just to lower the price….

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  5. Cahlen

    I’m planning to stop using the banking system altogether soon, and keeping metal in my possession serve as a decent alternative. I can buy it with cryptocurrency and turn it into cash in any city. I’d love it if you’re r right about the market change in 2019!

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    1. Smitty Post author

      You have a great plan, pretty much what I do. Only thing I trust the banks for is to rob me. And yeah, the market has been dropping, my guess is there’s still plenty of room below.

      (1)

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