There has always been a symbiotic relationship between investment and economic growth. Investors supply the capital that businesses need to expand and improve their operations, while businesses provide an opportunity for individual and institutional investors to increase their wealth. This mutually beneficial relationship has been the source of capitalism’s great resiliency and strength, allowing the system to bounce back time and time again from the depths of recession and depression.
But greed, hubris, and just plain stupidity have now taken the world economy to the brink of disaster, and this time there may be no coming back. Politicians, bankers, corporate executives, wealthy financiers, dishonest bureaucrats, and various types of middlemen who have made a science out of skimming off the top have left us perched precariously on the edge of the abyss. Hustlers in government, business, and the financial industry have scammed their way to wealth and power by turning the international economy into little more than a hyper-Ponzi scheme, and when the bill finally comes due, it could leave the existing system in tatters.
In the unique circumstances that define modern economic reality, there is now a great disconnect between investment and the creation of real wealth. This is why the stock market has been ascending continuously since the dark days of 2008, despite the fact that none of the internal contradictions that were responsible for that epic financial collapse have been resolved. In this pathological climate, investment strategies have been designed to make money off of money, while the old-fashioned method of accumulating wealth by funding the manufacture and production of goods and services that people wanted to buy has fallen into neglect.
But even now, there are still opportunities available to invest in things that are solid and real. And as always, one of the best and most reliable of all the investments out there is the most desired of all precious metals – gold.
Finding Safe Harbor on a Stormy Sea
Since the beginning of recorded time, gold has been the most sought-after form of natural wealth on the entire planet. Prized for its beauty, versatility, and rarity, gold has come to be universally recognized as the safest and purest form of money available. It is this quality that makes it such an outstanding choice for investment, and that is particularly true now, when other forms of money – such as currency and credit – have lost their credibility through oversupply and abuse. Governments, in collusion with the banking industry, have flooded the world with loose and easy money as a way to paper over the structural problems that plague the world economy, and as a result, virtually every nation on the planet is now drowning in a sea of debt. But whenever smart investors see that paper currencies are being debased in this way, they will almost automatically go flocking to gold, which is the one form of money that never loses its value, no matter what circumstances might arise.
Over the past several years, we have seen an extraordinary rise in the price of gold. As recently as the year 2000, gold was selling for a modest $272 per ounce. But as of May 2012, prices have surpassed the $1,500 per ounce barrier and are closing in on the $1,600 level, which would represent a six-fold increase in just a little over a decade’s time. While some of this increase may have been driven by the banker-sponsored crash/panic of 2008, it is worth noting that between 2000 and 2007, the price of gold more than tripled, which means that investors turning to gold have been reacting not so much to the events of the moment as to the underlying structural realities that have transformed the global economy into a virtual debtor’s prison.
No one should be scared off by the price of gold ($1579 per ounce as of this writing) because they think it is somehow over-inflated and is soon destined to collapse. It is the weakness of paper/electronic currencies – most especially the U.S. dollar – and the world’s reliance on debt to fund its economic activities that is responsible for the high price of gold, and these fundamental problems are not going away any time soon. In fact, thanks to the realities of compounding interest, the debt problem is guaranteed to keep getting worse, and the big bank/government alliance that has allowed this all to happen will have no choice but to continue over-issuing currency and credit in order to keep the game going for a little while longer. Investment experts who understand these realities are predicting that gold will easily surpass the $2,000 an ounce level in the very near future, and in truth that may be a pessimistic projection. So while costs approaching $1,600 per ounce may seem intimidating, this price is based on a very realistic assessment of where the global economy actually is, and most importantly, where it appears to be heading.
Like everything else involving finance and investment, the gold market has gotten a lot more sophisticated over the years. Basically, a variety of different arrangements have been designed to let investors buy, sell, and/or profit from gold without ever actually taking possession of the metal itself.
Gold exchange-traded funds (ETFs), for example, allow investors to buy shares of gold representing somewhere between one-hundredth and one-tenth of one ounce of gold each. Larger investors are responsible for the handling and storage of the physical gold connected to the fund, but anyone can buy and sell shares in a gold ETF, which functions very much like a regular stock market. Gold certificates, on the other hand, do give their holders actual ownership of the precious metal, but instead of taking physical possession of gold, it is held in storage by the institution issuing the certificate, which in most cases would be a European bank. In this case, the investor is responsible for all buying and selling decisions, and if eventually he or she desires to cash in their certificate for real gold, that can also be arranged – at least theoretically.
For good or for ill, in recent years derivatives have been playing an increasingly significant role in the market, and this has also influenced the course of gold investments. In the precious metal version of these financial products, gold futures and gold options allow investors to set the terms under which they will purchase a pre-determined amount of gold at a set price at some point in the future, which essentially means the investor is betting on the price of gold either increasing or decreasing by that time. Strictly speaking, this is not actually an investment in gold, and neither are funds that allow investors to buy stocks in gold mining companies, which are another popular type of financial product. But, these are other possibilities for someone to consider if they want to get involved with gold.
The Best Gold Investment of Them All
While the above choices may appeal to some, the problem is that if society and the economy really do collapse or sink into a prolonged depression, none of these clever ways to profit from gold without actually having it in your possession will be 100 percent reliable. These alternative approaches to gold investment rely on a continuation of the status quo, because if times become chaotic, stocks of all types may become completely worthless, including those that are supposedly based on gold. And if by some chance you should happen to get caught holding gold certificates during an economic and financial meltdown, good luck trying to cash them in for the real thing.
In the final analysis, the only truly safe way to invest in gold is to do it the traditional way—by direct purchase. And while a safe deposit box at a local bank may be one possibility for storage, the only way to be absolutely sure that gold will be there when it is needed it is to keep it close by in a secure but easily accessible location.
Even though it will be necessary to pay a premium above the spot price of gold to purchase them (usually somewhere in the neighborhood of 5 percent), gold coins like American Gold Eagles, Canadian Gold Maple Leafs, and South African Krugerrands are a better choice than unprocessed raw gold. In addition to their pure investment value, gold coins would be much more likely to be accepted as actual money during a serious emergency, and if they are ever sold, it will be possible to get the 5 percent premium back again. Gold coins are usually available in one-ounce, one-quarter-ounce, and one-tenth-ounce versions, so even those with modest amounts to invest should be able to find something attractive they can afford to buy.
To Buy or Not to Buy? That is the Question
Those who start looking around for sound financial advice will have no trouble finding nattering nabobs of negativism who will tell them that gold is overpriced and that they will probably end up losing their shirt if they take the plunge into this part of the commodities market. But as a counterpoint to this pessimistic viewpoint, here are two things that every potential gold investor should know.
First, while it is true that gold prices have gone through the roof over the past twelve years, it is also true that during the inflationary slump that crippled the U.S. economy from 1973-1982 the price of gold quadrupled. What this shows is that the phenomenon of gold increasing in price in response to economic troubles is a real historical pattern, and not just a fluke or a one-time freak occurrence. So if more troubled economic times are truly ahead of us – and how can anyone paying attention to the signs think otherwise – there is no reason to believe that the bottom is going to be dropping out on gold anytime soon.
Secondly, while it was not really reported on very much in the media at the time, during the second half of 2011, central banks around the world were quietly and covertly flooding the market with gold through lease-and-sell arrangements that were designed to increase the liquidity of banks by trading gold for dollars (the dollar is still the currency of choice in the global economy, and the banking systems of other nations need a steady supply in order to keep things running smoothly). These central banks were so desperate to acquire dollars at a time when the supply was low that they actually leased their gold at unprofitable or negative rates, and with so much gold going up for sale at once, this inevitably meant a suppression of the world gold price below its real natural level. While the cash crisis has not completely resided, this discrete flooding of the market has now started to subside, which means that gold at the moment is just reaching an end of a phase where its price was artificially suppressed thanks to secret actions by powerful banks. The bottom line is that the price of gold is actually somewhat below where it should be at the moment, not above, which means that this could be the perfect time for investors to purchase the world’s most respected and honored form of money, just before it makes its next big jump in price.
©2012 Off the Grid News