The price of gold in recent years has been soaring, and many people who know nothing about investing are buying gold, primarily out of fear that the future will bring surprising shocks for the value of their paper money.
Governments across the world, from Europe to China, are trying to solve their economic problems by offering banks enormous quantities of paper money, with the hope that this paper will encourage loans and thereby stimulate their stalled or stalling economies.
The overwhelming majority of the population of the world are completely unaware of the mechanisms involved in the pricing of goods and services and their behavior is almost always motivated by emotions such as fear or greed.
In Toto, we must admit that both governments and their populations are responding to fears rather than reason.
All governments have thousands of advisors who have extensive training in economics. These advisors; nonetheless, can predict the future no better than most businessmen, as we clearly see in history.
Economies of all nations, in spite of their erudite advisors, go through periods of success and failure, and economies can be charted as wavy lines, almost always going down.
Thus, the individual cannot rely on his government as a source of stability. The paper money that the citizen holds in his hand has historically, in all countries, lost its purchasing power over time.
And, yet, the individual citizen must protect the purchasing power of his wealth, because eventually, as he ages, his ability to earn new money will wane and eventually stop.
Most of us who worry about our future, plan for those days when we can no longer function as wage earners or businessmen, and we invariably wonder how we can invest our excess wealth; that wealth that we do not need for survival, in such a way that when we no longer can earn, we can draw on our investment for our survival.
We therefore come full circle to investment.
It is a means of protecting ourselves and our families when we can no longer work and earn sufficient capital to buy the necessities of a life style that we enjoy.
We are, in this article, avoiding a discussion of speculation or “trading” which a small percentage of the world’s population use as a means of earning a living.
HOW CAN WE PRESERVE OUR WEALTH?
Today, the study of history is incredibly easy with the use of the internet and all the search engines.
The “Preservation of Wealth” means the “Preservation of Purchasing Power.”
An investor who is holding a million Swiss Francs for ten years and then finds that the million Swiss Francs will only buy half of what it bought when he earned it, would become very sad.
Throughout the world today, all governments issue paper “Bank Notes” which are essentially, agreements by the government to pay the bearer the quantity of money that the note represents.
How that repayment is made is no longer specified. In the past, the bank note specified that the repayment would be in a quantity of gold or silver and, in some ancient countries, food or cattle.
We always remember that governments are not real things, such as trees or flowers. “Government” refers to a group of people who have obtained more than the usual power in controlling the citizens of the country. These people are constantly trying to retain and augment this power because it represents personal wealth.
The interest of every group of people designated as “government” is invariably and always selfish.
Therefore, since governments have the power to issue bank notes, they do so in quantities that serve their best interests, and not the best interests of the citizens of the country.
The result of this power to issue bank notes, not tied to real things, has been inflation and hyperinflation, across the world and throughout history.
We, as investors for our retirement, must remember this fact as we consider how we plan to invest.
Today, the price of gold has risen to approximately $2,000 per ounce. The cause of this rise is, like all things in the universe, multi-factorial.
There is a fundamental shift in the economies of the world: Asia is growing wealthier and the West (Europe and the U.S.) is growing poorer.
This shift is a natural result of the genetic and cultural make-up of the people of these two vast areas.
Westerners have rejected work as a necessary source of survival. They have abdicated and rejected the family as a basic unit of society; and, they have embraced unions and their governments as the primary source of their financial and social security.
Asians, on the contrary, have continued to see hard work and close knit families as the source of their security during their active life and when they retire.
Because of this fundamental shift, the holders of large quantities of capital have turned to Asia as a source of investment. Factories have been built and are being built throughout Asia; in particular, in China and Japan.
The goods produced in these factories are sold throughout the world since no Western goods can compete with the cost and quality of these goods.
This shift in wealth from the West to the East has brought a minimum of three billion new buyers into the Gold Market.
The population of China and India equals three billion people alone. If we add the peripheral countries; such as, Brazil, Viet Nam and other smaller Asian countries, we see that the new Gold Market has more than doubled.
The price of gold, like the price of anything on this planet, obeys the Law of Supply and Demand. The supply of gold is constantly diminishing. People have been searching for gold since before recorded time. The demand side of this equation has now almost doubled, as I just explained.
The Asians are not wealthy people, but like all people, they are insecure about their old age, and, in addition, they love gold as used in jewelry. Gold jewelry is traditional in Asia.
This means that the Asians are buying gold as never before. As they become wealthier, they will buy more. Inevitably, this will establish a new floor for the price of gold.
DEBASEMENT OF WESTERN CURRENCIES
Since the people of the West have abandoned their responsibilities for the security of their future and even their health, the Western governments have assumed these roles, even though no group of people, government or otherwise, are capable of sustaining the health and well being of billions of people.
We are seeing countries throughout Europe and the Western Hemisphere failing economically.
They are failing because their populations were led by their governments into believing that hard work and saving was no longer necessary and that their governments would supply them with security and well being until they died.
Since no small percentage of a huge population, even though they use the word “government” as a title, can support billions of people we have seen a fraud take place.
These governments have borrowed trillions of Euro’s and Dollars to sustain their populations.
It is very little known that the governmental debt in the USA, the debt owed by local governments, county governments, the debt for the pensions and health care of their workers plus the U.S. Federal debt approximates ONE HUNDRED AND
SIXTY TRILLION DOLLARS!
This astronomical debt can only be repaid by debasing the currency until it loses all value.
As the West sinks in its competition with the East, the nations that borrowed these quantities of money find themselves unable to repay the loans.
They have only one solution: Debase the Currency!
In the last five years economic observers have watched the Central Banks of the West hand over trillions of their currency back to the banks that originated the loans.
Where did the “trillions” come from? A printing press.
As we prepare to invest for our retirement, and as we face a price of gold that was never seen before in history, we must solve a difficult dilemma.
Will the purchasing price of gold be the same as it is today when I retire in 10, 20, 30 or 40 years hence?
We know that all things in the Universe travel in waves. Straight lines are figment’s of man’s fantasies.
If the trend of the waves which represents the price of gold continues to rise relative to the various currencies in which it is price is denominated, its purchasing power will remain the same as it is today.
Should, for some reason, the people of the world reject gold as a store of value, its purchasing power will fall.
Historically, since the beginning of recorded time, such a rejection has never occurred.
I am betting that the seven billion people on this planet will not throw their gold jewelry and their gold coins into the oceans in order to fondle newly printed paper with pictures of politicians on emblazoned on each side.