Why your Portfolio needs Gold and Silver

Lets get this straight. I’m a big Peter Schiff/Ron Paul/Marc Faber/Jim Rogers fan, so if you don’t think we’re on the verge of a currency crisis, then you will disagree with much of what I am about to say. In fact, much of my information is from these sources.


Deflation/Inflation Debate

In 1971, Nixon ended the Gold Standard, which meant the dollar was no longer correlated to a specific amount of gold. From this point on, the U.S. was able to print money freely. By circulating more paper dollars, the value of the U.S. dollar has fallen consistently. This is OK in moderation, but the gigantic stimulus packages dished out since the Bush Administration in 2001 have helped create a false sense of financial security amongst individuals and corporations nationwide, while at the same time, decreasing the purchasing power of the dollar.

Remember, inflation is expansion of supply of money and credit and deflation is the contraction of supply of money and credit. Many people who feel we are in the midst of a deflationary period argue that because an astronomical amount of credit has been destroyed through defaults on mortgages and other loans, the value of the remaining dollars in circulation has increased. While this may be true, the amount of stimulus packages authorized by the Obama Administration is helping to offset this effect. We simply have not felt the effects of the printing of money yet, since the majority of stimulus has been given to the private sector, not the general public (like 2001). When the money begins circulating, it will increase the prices consumer goods.

With our national debt around $14 trillion, our government cannot raise interest rates because it will make the payments to our national debt too high, unless we DRASTICALLY decrease spending. Pretty much, we are not going to be able to pay off our national debt. The Chinese are beginning to realize this, as they have redeemed about $100 billion worth of treasuries in the past year.

Once inflation picks up speed and other countries follow China’s lead, the value of the dollar will plummet, which is why we need…..



Gold/Silver

These two precious metals have been associated with wealth for centuries. If countries are no longer going to use the dollar to back up their currencies, the prices gold and silver will skyrocket.

While ETFs like GLD are great for traders, long term investors should look at PHYS, GTU, CEF (60% gold 40% silver), and SGOL. These funds are actually backed with PHYSICAL gold. PHYS takes it one step further by actually allowing you to redeem your stock for ACTUAL gold. That’s right, you will pay a premium (about 10% right now), but they will actually ship you physical gold. The same fund (Sprott) will also be introducing a similar silver fund soon.

I am not trying to predict the collapse of the dollar and our economy, but you need to be protected if we do endure a period of hyperinflation. Investing in precious metals is essential not to “get rich”, but to simply protect your purchasing power.

Brian