02/24/12 Have you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe you’re nervous about a big drop in price again? I decided to go directly to the source to address these concerns: Gold himself. He put his arm around me and asked me to tell you a few things…
I hear that you’ve had some worries about me. I understand. Your world is a very uncertain place right now. And when it comes to money, it looks as though your leaders don’t understand some basic monetary principles, making things even more unsettling.
But I want you to know that the problems you’re experiencing are actually nothing new. I’ve seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you’re safe with me. That’s a bold proclamation, but I’ve provided monetary protection numerous times throughout history — too many to count, in fact. I’ve served all kinds of people over the centuries, from kings and counts to serfs and servants.
To put your mind at ease, let’s review my core characteristics, along with some history, to show how I can protect you against the monetary danger that’s likely to worsen in your near future. We’ll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we’re done, I think you’ll feel much better about my ability to help your portfolio withstand whatever is thrown its way.
Enduring Characteristics
Let’s start with the basics. I have some characteristics that no other matter on Earth has…
I cannot be:
- Printed (ask a miner how long it takes to find me and dig me up)
- Counterfeited (you can try, but a scale will catch it every time)
- Inflated (I can’t be reproduced)
I cannot be destroyed by;
- Fire (it takes heat at least 1945.4 degrees F. to melt me)
- Water (I don’t rust or tarnish)
- Time (my coins remain recognizable after a thousand years)
I don’t need:
- Feeding (like cattle)
- Fertilizer (like corn)
- Maintenance (like printing presses)
I have no:
- Time limit (most metal is still in existence)
- Counterparty risk (remember MF Global?)
- Shelf life (I never expire)
As a metal, I am uniquely:
- Malleable (I spread without cracking)
- Ductile (I stretch without breaking)
- Beautiful (I am the ultimate accessory)
As money, I am:
- Liquid (easily convertible to cash)
- Portable (you can conveniently hold $30,000 in one hand)
- Divisible (you can use me in tiny fractions)
- Consistent (I am the same in any quantity, at any place)
- Private (no one has to know you own me)
I am internationally accepted, last for thousands of years, and probably most important, you can’t make any more of me.
And by the way, don’t fret about those who say I’m not as good an asset as an income-producing vehicle. They misunderstand my role. I’m not trying to be a stock, for example. My function is as money and a store of value, so the proper comparison is to your dollars, or what you call Treasury Bills (of similar nominal value). And here is where I excel and serve my purpose: since 1913, the US dollar has lost 96% of its purchasing power. I have lost none.
Remember, I am the only financial asset that is not simultaneously someone else’s liability. I don’t require the backing of any bank or government.
The History Lesson
Because I am eons old, I’ve observed something throughout history that you may not be aware of: government fiat currencies are a relatively new invention, and none has endured.
Eventually, they have all failed. Me? I’ve never been defaulted on or worth zero. Remember this the next time you have any doubts about my long-term worth.
You can rest assured that over time, I will hold my value. And when you near the end of your life, you can pass me on to your loved ones, knowing full well they will have something that cannot be devalued, debased, or destroyed.
What Color Is Your Money?
Like you, I’m concerned about the current state of fiscal and monetary affairs. It seems your government leaders have boxed themselves into a corner. They’ve incurred too much debt and are spending too much money. It’s important that you understand some lessons from history about this kind of behavior so that you’re certain of what I can do for you.
The common denominators that lead to the downfall of every fiat currency are the two big Ds: debts and deficits. With that in mind, consider the following:
- Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they have exceeded 80% of GDP. US government debt will exceed 100% of GDP this year.
- Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” By some estimates, the US will hit that ratio this year.
- Peter Bernholz, a leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” Next year’s US budget deficit is projected to be $1.3 trillion.
The solution many of your leaders are pursuing is to create more currency units. The US monetary base has exploded 205.8% during the last three years, while my price is only up 65.8%. This fact, alone, implies that my price in dollars is likely to climb much higher.
This is also the reason why I’m not in a bubble, as some have tried to claim. It is your central banks and bond markets that are in a bubble. The fact that my price is rising is a warning that what your leaders are doing is unsustainable and potentially dangerous to your currency.
Think about this: the US has debt backed by debt, based on debt, dependent on debt, and leveraged with debt. You can, for example, buy a bond (i.e., lend money) on margin (i.e., with borrowed money). This is not a sound way to run financial markets.
Meanwhile, the warning bells continue to sound regarding Europe’s debt crisis. In just the past 30 days:
- Moody’s cautioned that it may cut the triple-A status of France, Austria, and the UK; and it downgraded six other European nations including Italy, Spain, and Portugal.
- Standard & Poor’s cut the triple-A status of France and Austria, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia, and Slovenia were downgraded.
- Fitch downgraded Belgium, Cyprus, Italy, Slovenia, and Spain, and stated there was a 50% chance of further cuts in the next two years.
- Standard & Poor’s downgraded 34 of Italy’s 37 banks.
- Moody’s warned just last week that it may cut the credit ratings of 17 global financial institutions and 114 European ones.
The European crisis is far from over; and the path of least resistance for politicians is to create more currency units. This action can and will have clear and direct consequences: currencies will devalue, and inflation — perhaps hyperinflation — will result.
Once again, I encourage you to use me to protect some of your wealth.
How Much Is Enough?
Given the state of your monetary system, you should accumulate me (and silver) on a regular basis. Just buy some every month and put it in a safe place. After what I’ve witnessed throughout history, and based on the current path your government leaders insist on pursuing, I suggest using me as your savings vehicle instead of putting dollars in a bank.
If you don’t own enough of me when these fiscal troubles really accelerate, I fear you will regret it. I’ve warned many in the past about the dilution of nations’ currencies, and those who didn’t heed my warnings experienced severe financial pain. Excuses won’t pay the mortgage nor feed the family when the effects of currency debasement hit your home and pocketbook.
Make sure you own enough of me to make a difference to your portfolio. This means having more than a couple coins or a few shares of GLD, the latter of which is only a proxy for my price.
How do you know if you own enough? Ask yourself:
- If inflation returns, or even hyperinflation hits…
- If the economy is flat…
- If uncertainty and fear continue around the globe…
- If stock markets languish…
- If the amount of spending from the world’s governments proves futile…
- If government interference in the economy continues to increase…
- If the value of the US dollar takes a major fall…
- If the world enters a recession or depression…
- If you wonder if you have enough “safe” money…
…would you feel that you own enough of me?
Buy a sufficient amount so that as your currency continues to lose value, your portfolio won’t. If you do your part, I promise I’ll do mine.
Your monetary friend,
Gold
—
Regards,
Jeff Clark,
for The Daily Reckoning
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“it is the blessing of the lord that makes rich, and he adds no sorrow to it.”
proverbs 10:22
Gold is the only honest currency. One of the most important functions of money is that it is a store of value. No fiat currency is a store of value. Therefore, savings in gold is essential in the current economic and financial scenario.
Just to see the impact of currency on gold prices, I tried looking at 12 year returns of gold in different currencies. The results speak for itself…http://www.economicsfanatic.com/2012/02/best-and-worst-of-currencies-in-gold.html
Gold may be the only “honest currency”.
But they won’t accept it down at the grocery store.
They don’t accept Treasury Bills or Bank of America shares at the grocery store either.
The prophecy for this time, made between about 1918 and 1925, was that this financial crisis would be a calamitous time (a time to break down), far worse than 1929/33. The authorities will deceive its subjects into believing that they can solve the problems of the financial crisis but everything they will do, will have no effect.
One of the consequences will be that everything including gold will lose its value.
While prophecies shall fail for we know in part, much of what was prophesied has become true so far, but as is as often the case, much slower than would be anticipated.
While always having been a supporter of the suggestion to hold physical gold only (and not shares in gold mining stocks), with some estimates of debt topping $1.25 QUADrillion and only a few $TRIllion so far, being created (ie QE or “printed”) to address the problem, the prophecy seems more attractive at the moment: wait until everything loses its value and hold cash (but not in the bank).
I am not suggesting that we start using gold as currency. Yes, we can ensure our savings don’t lose value if we keep our savings in gold.
Further, a gold standard backed currency might still be a good idea than the fiat currency. We have to remember that the purchasing power of money matters and not the amount of money in hand.
Timely, fiat currency has little remaining shelf life. No contemplation for a printer to reel out an additional piece.
Yes, the original promise to pay or deliver 1 oz (or whatever) of gold to bearer should have obtained. That would have ensured that money did not become a re-distributor of wealth in a socialistic state.
The creation of money for bailouts and to meet debt obligations is so much like directors that have had the unissued shares in a company placed under their control, issuing them for no value to their mates, adding no value to the company, to the detriment of the minorities through dilution: as a minority shareholder you just want them to be placed in jail for theft of value of your entitlement.
Gold speaks. Wow. I can hear it shouting from the Mountain tops. Buy me, buy me. I will make you happy. I will bring you love. All the problems of the world will be solved and especially yours. Dream land is here.
Great overview as to the history of Gold and Silver and straight from the horses mouth.
A clear and concise presentation showing the importance of Gold and Silver both as monetary and industrial metals.
Unfortunately, their markets have been and are stuill being manipulated by the big banks and CME with regulators turning a blind eye.
This will not last forever and when the free markets are free of the manipultion then prices will soar.
Now is the time to accumulate Silver and Gold at surpressed prices while we can.
Find out how to buy Silver and Gold at Direct Dealer Cost at:
http://www.BestPriceOnSilverGold.com
Hi Jeff, I liked the title! I was almost sure I’d see something like this line in the article:
“most important, you can’t make any more of me.”
I recently discovered this isn’t true! Gold can be literally transmuted:
“Using fast neutrons, the mercury isotope 198Hg, which composes 9.97% of natural mercury, can be converted by splitting off a neutron and becoming 197Hg, which then disintegrates to stable gold. This reaction, however, possesses a smaller activation cross-section and is feasible only with un-moderated reactors.”
So, in fact Gold can be made. Maybe THAT’S what the Iranians are REALLY up to! (insert big smile here).
Good article.
The original promise to pay or deliver 1 oz (or whatever) of gold to the bearer should never have been removed. It was the only thing that ensured our money did not become a re-distributor of wealth in a Capitalist state.