To begin with I would like to make it clear to all readers that I am not a financial advisor, and this is not a book to try and convince you to buy gold and silver. However, I have done extensive research on the gold and silver markets and I would like to at least educate others about this subject.
When governments around the world print excessive amounts of money as is happening today, the value of those paper currencies goes down.
As you can see in this chart the gold price in red has risen significantly since 2001, while the dollar in blue has fallen significantly.
Historically, there have been hundreds of paper fiat currencies in existence, and all of them have eventually gone to zero. The U.S. dollar is a fiat currency, and it too will suffer the same fate.
The way it works is that when
governments print more money it
devalues each dollar in circulation,
thereby allowing you to buy less for
your money. In a situation like today
where the government is printing
literally billions of dollars, which is
the definition of inflation, our dollars
are falling in value.
Gold is a hedge against inflation.
Gold can't be inflated like paper can.
There is not some magic gold faucet
that the government can turn on to make more gold. There is a printing press though, that can be used and abused at will.
Actually, it's much simpler to inflate money today. Governments don't even need to print the money. A government just simply has to enter extra zeros in a computer and "wah lah".
Gold and silver are considered honest money. They keep economies stable because gold cannot be inflated.When excessive amounts of dollars go into circulation without a relative increase in goods and services, you are losing money holding those dollars.
Taxation vs. InflationGovernments usually fund their operations in three different ways.
1. They tax the citizens outright.
2. They issue government bonds, or
3. They print the money.
In our current situation, the government wouldn't dare tax the citizens outright to bail out Wall Street banks, which should have been left to fail.
Bonds are not desireable when a currency is falling because you are still holding paper. People have gotten smart and are wary of government bonds.
After all, why would you want to loan your money to the government for 5 or 10 years during a period of high inflation. The dollar may not even be around for that long.
The last means of funding is to print the money. That means your dollars are falling in value fast and the price of gold is going up fast.
You want to hold gold and silver because it is stable. It will never fall in value, even if the nominal price goes up or down.A good example to use is from Roman times when it cost one ounce of gold to buy a toga, shoes, and a belt. In 1930, a one ounce gold coin would buy a nice men's suit, and today a one ounce gold coin can still buy a nice men's suit.
So, the value remains almost the same over thousands of years. Will your dollars still buy the same amount of goods in 10 years? I'm leaning towards NO!