I know that gold– and silver and mining stocks in particular– have not been performing up to expectations recently. Keep in mind, though, that they are still among the best of the best performers over the last 3, 5, or 10 years. And the fundamentals that helped to propel the precious metals higher not only haven’t weakened, they are actually getting stronger.
So here are ten fundamental reasons to own precious metals and related investments.
1. The central bank policy of holding short term rates at Zero is entering its fourth year. Inflation is still very much a policy goal of western central planners, whether or not they openly express it. Be sure to look up how high precious metals prices went during the 1970s inflation.
2. Other countries, like Iran, India, China, are trying to bypass the U.S. dollar to at least some extent. Purchases of physical gold by foreign central banks continue to increase. Private purchases of physical silver have increased dramatically over the last six years.
3. In case you are too bullish on China, there is recent data pointing to real estate and banking speculation reminiscent of pre-2007 United States. Gold and silver are crisis hedges and deflation hedges in the event that we enter a global depression. Remember what gold and silver prices did between the summer of 2007 and winter of 2009 (even though the ride was bumpy).
4. JP Morgan’s recent blowup from derivative losses reminding people that those losses (along with those of other banks) will likely be monetized at some point at the expense of the taxpayer and US Dollar holder. Wouldn’t you prefer a real asset to a paper one in this case?
5. Recent facebook pump and dump scheme once again revealing the attitude on Wall Street that retail investors are in fact muppets to be used and abused. When you couple this with the behavior of one of the world’s largest banks (JP Morgan) outlined in the last point, why would you leave all of your life savings in something that resembles a Vegas casino run by a combination of thugs who cater to bad drunks and even worse gamblers?
6. Google “bank runs” and Spain, Italy, or Greece and see what you find. Not good news for people claiming that paper currencies are true safe havens.
7. The MF Global mess, where client money was stolen and I am not yet aware that Jon Corzine or anyone has been held criminally responsible (as of May 2012). What does this say about the safety of brokerage accounts overall? I should also add that the MF Global heist did not do any favors to those who run the COMEX, where the paper prices of gold and silver are set. People understand that if you don’t hold it, you don’t own it. There is a lot of paper gold and silver out there– not so much of the real stuff. Those who think they own gold and silver may want to double-check. If they do, watch out if you are short silver or gold.
8. Remember the flash crash? Do you want the value of your investments being determined by computer geeks who have created a Frankenstein that even the smartest minds in the world can’t seem to control?
9. How about the idea that your home was a safe longterm way to grow wealth? A recent Gallup poll finds that a plurality of Americans now view gold as the best long term investment. Problem is, if tens of millions of Americans decided to act on that view and buy gold or silver in size, the price of the two assets could not stay where it is.
10. Don’t forget the quiet revolt not only against the unrivaled reserve status of the US dollar, but even against the idea that people should be forced to only transact in paper money here at home. There are several US states that may take the lead of Utah and make things easier on people who want to buy or sell with gold and silver. The remonetization of the precious metals may be a long way off, but change at the margins is what counts, and we now have it. There are also not so well publicized stories about banks possibly designating gold as tier one capital. This is important because in my mind it is an admission that gold is cash after all, in spite of all the propaganda to the contrary. But if gold is cash, why do so few people actually own it??
I’m sure there are other fundamentals behind gold and silver, but I like nice round numbers. Even though the mainstream media may not truly get it, many voices on the internet do get the basic rationale behind tangible asset investing.
Speaking of the internet and investing, maybe facebook can open an online bullion dealership and spread the word regarding true money. I might even buy a few shares of the company if they did.