Five Reasons to Invest in Gold
Including gold coins and bars in the portfolio will help you protect your assets from a whole series of risks. Here are the five main reasons to keep adding to your long-term gold holdings.
The third party risk
Paper fiat money is not backed by anything but debt and the population’s belief that the debt will eventually be paid. If the debtor defaults (which can happen to a company, bank, or the whole state), the money will be gone forever. Whoever keeps their assets in the fiat system (including in the stock market) is constantly facing this risk. By contrast, owning physical gold in the form of coins and bars is invulnerable to third party risks.
After the Gold Standard was abandoned in the early 70’s, central banks started printing money in massive amounts. Governments use this money to wage war, deliver on the costly campaign promises, subsidizing dead or dying industries, bailing out banks – in short, on paying for the expensive fixes to a never-ending series of crises.
Such actions have systematically devalued fiat currencies, and the rising price of gold is a sign of this depreciation. Real valuables, such as gold and silver, retain their purchasing power across many decades. An example: between 1970 and 2018, the average annual inflation rate in Germany was 2.7%. The price of gold in euro kept growing by 7.7% a year throughout the same period, and the growth even sped up in the past three years.
The debt crisis
Our debt-based paper money system cannot survive forever. Although interest rates and the official inflation have been low in the past few years, the combined effect of compound interest and a rapid growth in the retail and state debt will eventually lead to a collapse of the monetary system. Gold, however, will help you protect your wealth during the transition period from one currency to another.
The monetary policy
The zero interest policy currently pursued by many central banks encourages a gradual expropriation of money from investors. This is because anyone who keeps fiat money in a bank account keeps losing a bit of their wealth every day due to the negative real interest rate. Some European banks are already charging a fee for storing money in an account. You need another way to store wealth if you wish to hold onto it in the long term. That’s why gold and silver should be present in every portfolio - they are free from the third-party risks.
$10,000 worth of gold fits into a matchbox. In case of a serious crisis or an emergency you can easily carry it with you. Gold is also highly liquid, and you can convert it into money in any country.
An important note: anyone who buys gold for speculative purposes constantly faces short-term volatility risks - the price of gold is set at exchanges and constantly fluctuates. Gold alone won’t ensure prosperity, either. But as long as the risks we’ve described are present, you’ll sleep better at night knowing that you have a good amount of the physical precious metal.
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