Does Owning Gold & Silver Make Sense?

This world is dominated by paper, fiat currencies conjured seemingly at will by central banks around the world. The one thing that all fiat currencies have in common is that their intrinsic value always, without exception, eventually spirals down to zero. Gold, the yellow metal, and silver, the white metal, on the other hand, have been considered money for roughly five millennia. Due to their relative scarcity and unique physical properties, they serve as a store of wealth, a medium of exchange and a unit of account. This is a short exercise in investing in your personal education on what money is versus currency and how these precious metals compare.

What are the desirable properties both these precious metals possess? Durability, Conductivity, relative softness and pliability, along with being relatively heavy. They both are considered, unofficially these days, real money, and will, in my opinion, insure against the cycles of financial crises we all to often are experiencing in today's world. As a saver or investor, you need to realize that more and more, the rest of the world is shunning the US dollar as a world's reserve currency. If you have bullion, especially as an American, you will have protected your retirement.

The characteristics that make these precious metals valuable and a long trusted store of value lie in the fact that both the yellow and white metals are portable, durable, divisible, and fungible or interchangeable. Both, whether in coin or bullion form, are considered to be real money as opposed to currency, whether it be in paper, or more and more a cashless, electronic form.

For a bit of a history lesson relative to money, August 15, 1971 stands out as a significant date because it's when the United States ended the US dollar's convertibility into gold. Fiat currencies, such as dollars, euros and yen are only backed by the good faith and confidence in the sovereign that issues that particular paper. In essence, most of what the vast majority of people consider to be money is really currency, again, with zero intrinsic value.

If you delve into history and compare the US dollar to the yellow metal, using the inception of the Federal Reserve as the benchmark starting point, specifically December 23, 1913, you'll find that the US dollar has lost over 96% of its value to date. These precious metals are consistent in that they don't change. What occurs is that fiat currencies decrease in value by comparison over time. Remember this, both the yellow and white precious metals are money, while the fiat currencies are DEBT! Keep that in mind.

It is my belief that precious metals will reassert themselves as money with a vengeance and while I can't finger the exact date that will occur, I'm confident that it will happen in the form of a crash. The crash will manifest in the form of dollar and other major fiat currencies hitting bottom in their devaluation race. Whatever the final trigger, it will serve as the most massive transfer of wealth in history.

As a safe haven, the white precious metal is growing steadily in appeal. The yellow precious metal remains a hedge against turmoil in the markets. Both of these precious metals are insurance policies against the eventual coming demise of fiat currencies, but remember the saying: "If you don't physically hold it, you don't own it."

The yellow metal is in higher demand as an alternate currency, money rather, by central banks, investment banks and individual investors. It has limited industrial uses. The white metal has myriad valuable industrial uses in electronics, solar power, semiconductors, it even has antibacterial properties, and other important uses.

The historical ratio between the two precious metals has been roughly 15 to 16 to 1, measuring hold much of the white metal it takes to purchase one ounce of the yellow metal. Market manipulation and other factors have moved that ratio to roughly 75 to 1 in the yellow metal's favor.

Another reason to physically possess both of these precious metals is because as fiat currencies devalue, your physically held precious metal simply commands more of the fiat currency in exchange. Your wealth is preserved, a plus in favor of both the yellow and white metals.

Countries are, more and more, creating bilateral agreements which bypass using the US dollar as a medium of exchange. In the international arena, China and Russia for example, are establishing their own precious metal-based currency exchanges that bypass the Federal Reserve Note, the US dollar. This really is a not so subtle hint that perhaps you should own either or both of these precious metals. Further, individual US States, such as Arizona, are recognizing precious metals as legal tender. Yet another hint that owning and storing these precious metals ourselves is very likely a good idea.

For working people, the white metal is much more affordable. Don't consider it a second best commodity, consider it more marketable than the yellow metal when it comes to the more common items needed for survival and small transactions, like grocery shopping for instance. For larger transactions, the yellow metal is preferred. The typical working person can accumulate the yellow metal in tenth ounce sizes, while acquiring the white metal in one ounce sizes. Keep this point in mind, each type of these precious metals has important uses in their own right and you should physically possess, in either coin or bullion form, each of these forms of money.

So which is better? I physically own both and store them away from banks. I'm taking a hint from the Chinese and Russians. They, and other countries, are using both gold and silver as hedges and safe havens against the risk of US dollar denominated assets for which the value is being inflated away as money is being printed in waves of so called quantitative easing. Investing in the white metal is easier and is growing in appeal as a portfolio protector. The yellow metal remains king as a store of value in the face of massive money printing by central banks.

Investing in these precious metals requires some appreciation of the history of money. The markets for each of these precious metals is volatile and being actively manipulated, so it's definitely not for the faint of heart. What's for certain is that you must physically own at least a small portion of both in your portfolio as a defense against the increasing instability we are observing across the board with economies worldwide.