If you knew that the “unsinkable” Titanic was going to crash, what would you do?
The US Mint today states that there is “tremendous demand” for gold and silver, with current stocks of silver and gold coins sold out, and demand for gold and silver in November 2014 being 400% higher than Nov 2013. Their explanation by the US Mint (1) is that “collectors… view the current price as a bargain.”
OK, we can assume that the “bargain price” explanation to be true, however, the gold price had sat at around the same $300-$400/oz. levels for 30 years, and there was not a rush on gold during the 1980’s, 90’s or noughties.
From 2003-2011, the gold price surged by 400%-500%, before dropping back to around 400% levels (8) and people are now buying so much gold & silver at the higher prices ($1100-$1400/oz), that the US Mint *sells out*? Increase the price by 400% and it sells out? That’s the type of story you want to Google before sharing, as it seems so unbelievable. But it’s true.
People are buying gold and silver at rates so fast that the US Mint cannot keep up with demand, and at prices never before seen. The US Mint says it is a “bargain”. I would not consider a 400% price increase to be “a bargain”… unless, the end of the world was coming, or there was something else going on. What is really going on?
You may happily pay $100 for a loaf of bread, during a food strike, or a Zombie apocalypse, but not if you thought things were going to quickly get better. If you thought things were going to get better soon, you’d just go without, and wait…
One of the reasons why smart investors flock to gold and silver is if they suspect a “Titanic” crash is coming up, where both the stock-market and property markets take a dive, if they have fears over hyper-inflation, or the vanishing of a currency.
Point #1: Since history began, every single currency that has ever existed in the world, without an intrinsic value, has eventually been valued at $0.
Original coins made in Athens or Egypt 5000 years ago, were made of gold or silver, and could be traded or melted down and sold. In more recent history, we have government-issued currency, created from base metals or inexpensive paper, that can be traded but have little to no intrinsic value when melted down. The government-issued, unbacked currencies only have value because the government tells you that they have value, and if the people lose faith in the government, well… that’s when you get hyper-inflation and/or the extinction of the currency.
What happens to all of your money, when money is no longer “money”?
You remember hyper-inflation? In 1920’s Germany prices were climbing by almost 30, 000%, and people had to wheelbarrow bags of trillion-mark notes into stores to buy food. Aside from printing far too much currency after WW1, this situation was possible because the government dropped the gold standard in 1914. During the 19th Century, Germans held the “Gold-mark” which was a currency backed by real gold. In 1914, they switched to the “papier-mark“, which was a paper or fiat currency, without gold-backing.
Although being the bad guys for dropping the gold standard and running the printing presses at the mint far too quickly, the German government eventually saved the day, trashed the old paper marks (now extinct currency) and issued rentenmarks, a currency which could be converted into gold. (Remember that solution, it may be in the test.)
In 1998-99, when converting to the new Euro (an unbacked currency), the German National Bank acquired an additional $20 Billion worth of gold, bringing their gold reserves up to 3, 400 tonnes, or “more than enough gold to back a currency”, according to British PM Margaret Thatcher.
Ms. Thatcher’s comment hinted to a fear that the Germans may not be 100% behind the new Euro, and were preparing a stockpile of gold, should they need to issue a new gold-backed currency, in case the unbacked Euro failed or devalued.
[Remember Point #1: every single unbacked currency in the history of the world has eventually revalued to zero.]
Ms. Thatcher was also well aware that the US had dropped the gold standard in 1971, making the US currency not worth gold, but essentially worth the papier it was printed on. Since 1971, when the US dropped the gold standard, the purchasing power of US$1 has dropped to around $0.15, due to inflation.
Yes, your dollar “ain’t what it used to be”, dropping around 85% in value in real terms over 50 years. Meanwhile, the value of gold has risen; by about the same amount that the dollar has dropped.
You may not have known about Yugoslavia, who experienced inflation of 313, 000, 000% in 1989, and started printing 500 billion dinar notes. By 1990, the government had used up its own currency, and started to restrict citizens access to their own savings accounts (translation: government stealing peoples money, without “official” theft). After a terrible tragedy, which wiped out the savings of millions of people, the government saved the day by issuing a new currency to replace the extinct dinar; the new currency was pegged 1:1 to the new (gold-linked) German mark. Do you see the pattern?
OK, another example. China started using silver ingots as a medium of exchange in the year 202 AD, and continued happily using silver money for over 1, 000 years. Paper money was issued by the Chinese in 1375, but a few decades later, the paper currency was essentially worthless [Point #1] and the country again returned to using silver for stable money in 1436, for almost 500 years.
In 1910, when the Chinese started using the yuan, the currency was given a value of a multiple of the silver that backed it. In 1933, with the (non-gold-backed) USA and Britain suffering from the debt-fuelled blowout called the Great Depression, China was financially OK, due to its silver standard. China only dropped the silver standard when in 1934, the USA replaced its own US gold standard with the silver standard, and purchased so much silver from China that the Chinese could not keep up with demand nor back their own currency with silver reserves.
Within fifteen years of China dropping the silver-backed currency, the yuan was almost worthless and inflation was over 25 000% per year. If any Chinese economists read their history of 1300-1400, they (and their accumulated savings) could have been saved.
(Silverback gorillas have nothing to do with silver-backed currency, except that both are very strong)
There is much discussion about virtual currencies, such as BitCoin, NameCoin, LiteCoin, Ripple, and PeerCoin. Also known as “cryptocurrencies”, these currencies may try to operate underneath the radar of local taxation, however, the US IRS has classified them as “property” (not currency), so although you may avoid income tax, you will be liable for Capital Gains Tax (CGT).
The vast majority of these virtual currencies are backed by algorithms or digital paper, so their weakness could be similar to any other currency, and they could eventually revalue to zero. Digital currencies have only been around a few years, unlike gold & silver money or paper currencies, which we can judge based on thousands of years of human history.
A newly-issued virtual currency, the “no-fiat coin” is reportedly backed by gold and silver coins. The XNF is based in Germany and promises a tangible value to its digital coins, unlike BitCoin and other alternate currencies.
(Without gold-backing, you can guess that this dress, like a paper-currency, will not stay up very long)
Aside from issuing virtual coins with gold backing, the Germans (perhaps learning from their own history), have issued a summons to the US Federal Reserve. In January 2013 the German Bundesbank requested its own gold, 300 tonnes of it, back from loan to the Fed (7).
A few months earlier, the Germans had requested the Fed submit an issued record of the German holdings, and the Fed refused. (Imagine asking your bank for a statement of your own accounts, and they said “No”. Would that cause you some alarm?)
After the refusal, the Germans requested the return of all of their gold holdings held by the US Fed. The Fed was not able to comply with the demand immediately, and requested seven years’ grace to fulfill the withdrawal. The Germans agreed to the conditions (thankfully) and the German gold is set to be delivered in full by the Fed by 2020.
If you went to the bank and they could not provide you with your account statement, you may be upset and wish to withdraw all of your money. The bank may ask for some time to deliver, because they do not keep very much money on hand. This hints at the level of fractional reserve banking that occurs (a big topic for another day), or why, for very $100 you give to the bank, the bank can loan out $1000 to others.
This system works fine, until the day when too many people show up wanting their money back all at once, leading to a “run on the banks”, such as what happened in the USA in 1929, which lead to hundreds of banks closing, and the Great Depression.
As has been seen in recent times (GFC 2008, Lehman Bros, Bear Stearns and 49 more large established institutions (9)), banks are not immune from going out of business, and taking all of your money with them.
If you ditch all of your currency (paper-money) holdings, empty your bank accounts and store gold ingots, will you be safe from the coming recession?
We cannot predict the future with 100% accuracy, however, we can declare very likely probabilities, based on watching the past and noticing the patterns.
- Fact 1: Throughout human history, every single unbacked, paper-based or fiat currency has eventually devalued to zero. (Your currency will, in 99% probability, be no different, and become worthless over time.)
- Fact 2: Precious metals (such as gold & silver, or currencies that are 100% backed by these), have retained their value and purchasing power over thousands of years.
- Fact 3: Rising prices of gold, silver, oil or even houses and land, are more often a factor of the devaluation of the currency, rather than an increase in the underlying value of the asset. (ie. The price of gold has not so much increased, but the number of dollars needed to buy it has increased, due to the value of the dollar falling.)
To protect yourself against inflation and a devalued currency (such as has previously hit Chile, Germany, China, Nicaragua, Bolivia, Greece, Yugoslavia, Zimbabwe and Hungary in the 20th Century — and EVERY other nation on earth in previous centuries), you must hold assets that have proven to beat inflation, not just over a decade, but over a century or three.
Panic or Preparation?
Hoarding food in 1999, because of fears over the Y2K bug, may have been panic. In time, these people were proven wrong, and the value of their hoarded food was likely to go down as it decayed or went off.
Exiting the falling stock market in the 2001 crash may have been panic, especially if you had taken your stockmarket money and invested into property. The property market became a bubble and burst with the GFC, meaning that even houses and land went down in value.
Buying and holding gold and silver may be seen as preparation, rather than panic. If 6000 years of world history is not an accurate representation of what may occur next, and if the currency you are holding does NOT devalue, then you will still hold an asset which has been proven to rise in value over time, for millenia.
If, in fact, the currency does devalue, you may see a situation where gold prices approach or exceed $3000 or $5000/oz, giving you a hint that the currency is about to fall, fail or be replaced.
If a doubling of price sounds far-fetched, flick back to the gold prices in 2001 compared to now, and see where gold increased by 400% in less than a decade, due to devalued currencies and increased demand.
Learn from the mistakes of China, Germany, Zimbabwe and other nations, who ditched their gold for paper and lost fortunes. Could you take actions to demonstrate that you are smarter than your own government?
Find out how you can invest into gold or silver directly (with ingots or coins), or indirectly by holding a currency, stock or certificate that is 100% backed by the real asset. There are many sources online, and the most reputable ones will have an agreed and fully-disclosed buyback price, as well as a sell price.
NEXT MONTH: Once every 100 years or so, the government can take all of your cash savings and can also legally take your gold, as the USA did to its citizens in 1933 (10), and the Indians planned to do a decade ago (11). We will tell you what to do about this to protect your assets, 100% legally and 100% secure from the government, even if all of the banks go down and even if the government becomes bankrupt.
Stay tuned & subscribe now!
10) April 1933 — US Govt Exec Order 6102: all citizen-held gold must be sold to the US Govt for $20/oz. Following ‘readjustment’ of the $, gold was repriced at $35/oz. The Fed just made 175% on your investment, and you lost 42% to get it back. http://finance.yahoo.com/news/u-government-confiscated-gold-other-200818613.html