Two Ways to View Gold – Right and Wrong
By: Nick Barisheff There are two ways to view gold – right and wrong ways that is. The first is the Western way, viewing gold through the lens of fiat currency training. This view sees gold as a wealth-gaining asset that can be traded like any other asset class or commodity for currency gains.
The second view is how the world’s major gold buyers, at this time, see gold. The Chinese, Indians and Middle Easterners see gold as a wealth-preserving asset that serves the purpose of money. The second group will ultimately be responsible for driving gold into the five-digit range. Many of these people have had direct experiences with the damage to one’s wealth a currency crisis can cause. The most aggressive buyers, the Chinese, experienced 4,000% inflation per month between 1947 and 1949.
If gold were a commodity it would be in a bubble, but it is not. Gold has been money for over 3,000 years, and still is today. Although never officially recognized as such, gold trades on the currency desks of all the banks and brokerages, and is held by central banks. Since 2009, central banks have become net buyers of gold. Pension fund manager Shane McGuire makes the point in his book, Hard Money: Taking Gold to a Higher Investment Level, that gold and silver are really the newest asset class, not the oldest, since, until 40 years ago, they were officially money. Many readers will remember a time when silver dollars were exchanged in stores at face value.
To step outside the fiat mindset, we encourage you to think in terms of ounces of gold rather than dollars – a task that is much easier to do when one owns gold. We encourage you to ask questions like:
- “What is the risk in ounces of an investment?” and;
- “How many ounces can I expect to gain in return?”
This perspective gives us a single most important insight into gold’s true behavior, as it tells us that gold is not rising in value – currencies are losing value against gold. This means that gold, as money, can appear to rise in value as far as currencies can fall.
In light of this, we can look at three features of gold’s rise that tell us why it is not only NOT in a bubble, but unless current monetary policy is drastically changed, it will almost certainly rise to $10,000 an ounce and beyond.
These features are:
- The loss of purchasing power of global currencies
- The inflationary effects of money creation
- Irreversible trends that will continue to cause gold to rise
All Things Considered – John’s Commentary:
Don’t buy gold to make money, although you most probably will. Instead, trade in some of your dollars that are virtually guaranteed to do nothing but decline in value and buy gold. Gold will rise for no other reason than currency decline. It is that simple. Add the central bank purchases, international geo-political events, and gold only now being viewed as a asset class and we could easily see $10,000 gold. No exaggeration, no hyperbole.
Unless you are very, very bullish on the U.S. and international economic picture, you would be very foolish not to have insurance to protect your net worth from significant decline. That insurance is gold and silver.
Quote of the day: “Gold is not a financial asset to be compared with dot-com stocks or Miami condos, and it is not a commodity like pork bellies or crude oil. It is the ultimate currency for the truly sophisticated wealth holder in a time of substantial unreserved credit promotion.” – Paul Brodsky (Fund Manager)
