By contrast, silver's value is tied to its utilitarian and industrial usage more than anything else. It's value is influenced by American debt but not inextricably so. Gold can go down in value while silver increases. As long as silver has an increasing utilitarian purpose/usage, it's value will or should continue to grow. Certainly, from an investment perspective, silver evaluation is not as nearly volatile as is gold.
The talk of the dollar "crashing" and becoming valueless is not a likely scenario, in our opinion.
Understand that the world's trading dollar is our dollar. On the world's stage, all or most commodities are traded in American dollars. You may have noticed the price of crude rising, of late, Part of that increase is due to the fact that the dollar is worth less and less as time goes by. As a result of this inflationary process, the price of crude has to increase in order to maintain the current value of oil. For example, if the dollar's decline is 10% in a given period of time, the price per barrel of oil will need to be increased by the same margin, so oil goes up by 10% -- not because of greed in the Middle East but because of an inflated value for the dollar. Understand that we did not just say "there is no greed in the Middle East." We are simply saying that certain percentage of increase is the result of a balance act between inflation and the need to maintain current profit margins.
From 2002 to 2008, a six year period, the dollar lost between 30 and 40 percent of its [2001] value. In 2009 that trend experience a respite but is in decline, once again.
The question of the moment is this: should I invest in gold, at this time? The answer? From what we read, gold will continue to increase in value for the foreseeable and near future. For that reason, gold will continue to be a profitable investment.
We are cautioned by those in the "know," that no more than 10% of your investment portfolio should be vested in gold. We think this is a very important consideration. Glenn Beck, a popular pundit for gold investment, tells his radio audience that if you have [only] $5,000 in savings, forget about gold investment. It does seem as if the mismanagement of interest rates [artificially keeping them at record lows], cheap credit offered to students and the "affordable" housing [this is what got us in the present mess, to begin with], the continued monetizing of our currency [printing addition dollars and selling them back into the economy via Treasury Bonds] and increased spending as measured against our GDP are factors that make gold investment a reasonable option .
And what if the dollars suddenly gets "healthy" and the price of gold begins its decline? Understand that the decline of gold values will happen.
If you bought gold at a value lower than its current but decreasing value, you may want to sell and take your profits. On the other hand, even if your investment is not profitable, the possession of gold as a hedge against economic collapse is a legitimate consideration. Gold, in spite of its cyclical value, is a good strategy for passing on your inheritance, as well.
End notes:
1. Definition of "securities." The term "security" or "securities" shall include any limited partner interest in a limited partnership, share, stock, treasury stock, stock certificate under a voting trust agreement, collateral trust certificate, equipment trust certificate, preorganization certificate or receipt, subscription or reorganization certificate, note, bond, debenture, mortgage certificate or other evidence of indebtedness, any form of commercial paper, certificate in or under a profit sharing or participation agreement, certificate or any instrument representing any interest in or under an oil, gas or mining lease, fee or title, or any certificate or instrument representing or secured by an interest in any or all of the capital, property, assets, profits or earnings of any company, investment contract, or any other instrument commonly known as a security, whether similar to those herein referred to or not. The term applies regardless of whether the "security" or "securities" are evidenced by a written instrument. Provided, however, that this definition shall not apply to any insurance policy, endowment policy, annuity contract, optional annuity contract, or any contract or agreement in relation to and in consequence of any such policy or contract, issued by an insurance company subject to the supervision or control of the Texas Department of Insurance when the form of such policy or contract has been duly filed with the Department as now or hereafter required by law. Note: this definition is taken from the Texas Securities Board here.
2. Understand that there are two broad based markets, "securities" as defined by the above and communities (raw materials, foreign currencies and foreign securities).
3. We have claimed that monetizing our currency is not a good thing, ultimately. The following comments are central to our claim. "Monetizing our debt" is "monetizing our currency."
Monetizing our debt is happening as I write this. When a central bank prints money in excess of the revenue coming in, we refer to this as monetizing the debt. It has the effect of debasing that country's currency.
Let's look at what our central bank is doing right now. Since Labor Day, the Fed's assets have exploded to $2.31 trillion dollars from $905.7 billion dollars. Add to this President-elect Obama's plans to add another $700-800 billion dollars to this already bloated balance sheet and you are creating the seeds of a new disaster.
The effects of keeping interest rates near zero and monetizing the debt at the same time will create a double whammy. We saw what happened when Greenspan kept interest rates near zero for too long and created the housing bubble that has burst into skyrocketing unemployment and ever-rising home foreclosures. The Federal Reserve has done this, plus monetized the debt at the same time. It doesn't take a genius to figure out that we are headed into one of the greatest inflationary cycles in history and creating a new and even bigger bubble.
Then, also, we are creating an additional problem. We have been dependent on other countries to buy our debt. With interest rates near zero, there is no incentive for them to keep doing this.
It seems that the Fed's goal is to inflate us out of the deflationary cycle we are in now. Comments found at Bloggingstocks.com.
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