Nations on a paper currency which is backed by nothing but their economies have never worked and they will eventually fail. Currently every developed nation in the world is operating under a paper currency within this type of system.
In the American constitution there is a reason our founding fathers mentioned gold and silver. A major factor that resulted in our American Revolution and subsequent separation and independence from England was the Colonists did not want any part of their central banking system.
A central bank is an institution that issues currency, regulates the supply of money and controls interest rates. What differs it from a commercial bank is that it has a monopoly on printing national currency even to serve its own interests.
From the 1700’s until 1913 a few banking systems came and went according to who was in office. President Andrew Jackson was an adamant opponent of central banking and in 1835 he helped the US become debt free and with a surplus.
In the early 1900’s congress tried to introduce central banking once again even though the public was against it. So as politicians often do, they simply changed the name to the Federal Reserve, and along with powerful bankers they created fear and the need for the Federal Reserve by claiming that all the banks would soon go bankrupt. They also encourage people to remove their money from banks. This run on the banks wiped out a lot of smaller banks.
This crisis created by politicians and bankers paved the way for the acceptance of the Federal Reserve to become a reality.
The Federal Reserve is a privately owned bank which is outside of US jurisdiction. This means it can basically do whatever it wants. It prints money and loans it to the US government with interest.
Then in 1971 under administration of Richard Nixon, the Federal Reserve no longer needed to have an equal amount of gold to print money. Up to this point all U.S. dollars were required to be backed up by an equal amount of gold.
Since 1971, every dollar printed has been backed by thin air and thus a great reason for the rise in the national debt.
Due to this tenuous and eventual collapse of paper currencies is the main reason you need to buy gold.
For the first time since the 1970’s countries and central banks are buying gold and the demand is rising.
China and India are buying gold like crazy. In 2010 they consumed 52% of the world’s gold. In a recent cable that was leaked by the WikiLeaks website revealed that China’s purchasing of gold was to weaken the US economy.
The lesson to be learned is that if countries and banks are purchasing gold at such a quick pace there must be a reason. You need to follow their example and make gold a part of your retirement and investment portfolio.
Historically, gold has demonstrated that it can hold its value in real terms. According to the old adage, throughout history an ounce of gold has always bought a man’s quality suit. The point is further illustrated with a similar analogy by The World Gold Council. Back in 1971, $25,000, which is the equivalent of 700 ounces of gold, was enough to buy an average family home. Today, $25,000 would hardly pay for a mortgage down payment on the average home. However, 700 ounces of gold today, which is valued at approximately $875,000 would buy a pretty nice home and more.
In his seminal work, The Golden Constant, Roy Jastram provided statistical evidence in support of gold’s ability to act as a hedge against inflation. He completed a detailed examination of the English and American systems between 1560 and 2007. He concluded that despite some intense fluctuations, gold has held its value over time. The significance of this finding is that indeed, gold is an effective means of protecting wealth.
Admittedly it would be unwise for anyone to invest their entire portfolio in gold. However, it is worth considering gold for diversifying your investment portfolio. Gold tends to have a low correlation to “risk” assets due to its “safe haven” characteristics. In other word, it tends to go up when stocks and bonds go down. The significance of this reality is that gold can play an effective role in lessening overall losses during business cycles which are heading downward.
History shows that in severe circumstances, as we saw in 2008-2009 when confidence on the world’s financial system was pressed, many investors fled to a “quality” asset – gold. They sold out of what they considered high risk investments and invested heavily into gold. The ensuing jump in gold’s price to more than $1,900 per ounce proved to be an effective strategy in preserving the value of their investment portfolios.
Those financial advisors who advocate a role for gold in a portfolio generally recommend an allocation of somewhere between 5% and 10% to provide insurance against similar downturns in the financial markets.
In today’s environment, the argument for gold playing a role in one’s investments is further strengthened on numerous macroeconomic and geopolitical fronts. Many knowledgeable commentators see significant risk in the strength of the Chinese economy, protectionist trade policies, Brexit, and emerging tensions with North Korea and in the Middle East. Any of these fronts have the ability to shock the markets into a significant downturn. Thus the need for gold in your portfolio.
Fortunately for the average investor, gold is no longer confined to large institutions and wealthy private investors. Gold is readily available, from bullion coins and bars to Exchange Traded Funds (ETFs).
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