The reasons involve currencies, banking, and monetary history. These are complex areas, unfamiliar to most. Everyone knows how money works on an everyday level, but most people are surprised at the way the money system works at the high-finance level. The current money system has some systematic problems and is likely to undergo great stress in the next few years. These stresses will effect the financial lives of everyone—many will lose, some will profit.
Here are the fundamental reasons to invest in gold soon (in summary form):
- Gold is more than just another commodity, it’s a currency. It is THE currency that evolved in the marketplace over the last 5,000 years.
- Gold and silver are the only currencies not created and controlled by governments. All of today’s other currencies (dollars, euros, yen, pounds, renminbis, rupees, etc) are ‘fiat’ currencies, which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws).
- Governments always end up creating too much fiat currency out of thin air. All fiat currencies in the past have ended up worth very little, collapsing into hyperinflation or threatening to. All of today’s fiat currencies have been fiat currencies for less than 34 years (all government currencies were convertible to gold until 1971).
- The rate of creation of fiat currency accelerated markedly in 1995, leading to today’s worldwide bubble in asset prices. In September 2003 the rate started to slow, suggesting that the bubble might end soon.
- In the pain of the post-bubble period, governments will come under pressure to return to backing their currencies with gold.
- Returning to currencies backed by gold is practical. Even the possibility that it might happen will cause the value of gold to rise considerably.
- Today’s fiat currencies are unfair. For example, because the US issues the world’s reserve currency, the rest of the world sends the US real goods and services and just receives bits of paper or electronic bookkeeping entries in return—many ships travel to the US full of goods, but return half empty.
- Governments and central banks have been suppressing the price of gold since 1995 by lending and selling their gold. They won’t be able to keep it up forever. Then the price of gold and silver will soar.
- The pressures of enormous debts will increasingly tempt the United States to inflate the US dollar so much that it will become almost worthless, in order that the debts can be easily repaid in near-worthless dollars. Gold will gain as the falling US dollar destroys trust in fiat currencies.
- The finance industry and governments have promoted fiat currencies at the expense of gold in the public’s mind for decades. From here, the investing public’s attitude to gold can only become more positive.