The Danger of Inflation
There's a tale about a man in Germany after World War II who rolled a wheelbarrow full of money down to a store to buy bread. It is said that when he turned his back, someone dumped the money out on the ground and stole the wheelbarrow. Perhaps this is an urban legend. In any case, it is the best example of how money can become worthless during times of hyperinflation. It is one of several reasons why you should always keep gold and silver in a safety deposit box, ready to help you in times of need.
Gold and silver coins are beautiful to look at,and seem like something that would only be found in a pirate's chest. So few people understand its true value that throughout the 1990s and early turn of this century, financial analysts on Wall Street often scorned anyone who bought precious metals. It was so bad, indeed, that during the 2005 Money Show in Las Vegas, one financial bigwig laughed off the topic of the rise in gold prices by saying that, "...a few goldbugs got lucky this last year because the price of gold went up" but that in the long run, investing in gold was a fool's game. Since then, the return on these metals have sparkled. Silver trekked from just under $3/oz to now over $10, making it the best return out of all of the main precious metals.
Most people living today can not remember a time when money was worthless. Yet In the Southern States during the Civil War, precious metals were desired. Picture the number of times homeowners would hear that the Union army was coming through the area. The homeowners would run out to their yard, dig a hole and hide their silver or gold. Soldiers became trained to look for the telltale signs of such activity and were known to dig it up after they came, leaving the homeowners destitute. After peace was negotiated, the Southern money was worthless, inflation was out of control, and metals were the only thing that could be used by private citizens to trade for food. It took a certain amount of time before the U.S. dollar circulated. In that time, stamps and metals were the same as money.
Skeptics roll their eyes at such comparisons. How could something like that happen here? they ask. Consider if terrorists suddenly and completely took over our government. Although such a scenario is unlikely, it doesn't hurt to be prepared. If our currency were suddenly declared worthless, what could buy milk at the downtown store? What would storekeepers trade? Consider how many countries experienced a coup in their government in the past ten years. How many people used a gold coin or necklace to buy something to eat when their home country's currency became unstable? Even if your country is considered stable, the unthinkable government coup could happen.
The biggest reason to own gold and silver is to help protect you against high inflation. The most recent example of this occurred in the past couple of years here in the United States. The price of oil went up to $150 a barrel, causing higher food prices. Gold and silver rose in value at the same time.
National Debt
At the same time that oil was on the rise, the United States began paying for two wars overseas and the federal debt began to get quite ugly. Because of that, people around the world began to sell their dollars and buy gold or silver. That led to the run up in the price of almost all precious metals. Anyone owning silver would have tripled their net worth over that time period. All of this is the perfect example of how national debt can fuel the desirability of metals and why you should own them.
Drawbacks
The only drawback is to know when to buy. Lately, that has been an issue. Although the price of gold seemed to have found a footing around $1000 or so, how it does in the future is entirely dependent on the government's ability to manage its spending. Since metals are not necessarily at a low right now, its hard to say how much any one person should buy gold or silver outright at this time. However, a patient investor can wait until metals are out of favor again, until people roll their eyes at anyone buying it. That's the best time to buy, a little at a time, and hold it patiently until the next financial storm makes you glad you are under its umbrella.
For more tips and advice, be sure to check out Bright Hub's Guide to Investing in Precious Metals.
