Gold is money
“Paper money eventually returns to its intrinsic value – ZERO”
Gold is genuine Wealth, it is real money
Throughout history no paper currency has survived in its original form. Paper currencies are normally inflated away until they are worthless. The purchasing power of the US dollar has declined by 90% since 1950. The situation is the same for most currencies. When governments come under financial pressure they can never resist printing money to pay for debts, be they war debts or just excessive spending.
Gold is the only currency which has no liability attached to it.
So far no paper currency has survived intact over a longer period whilst gold has represented real money for several thousand years. When paper money fails investors who own gold still have a currency which holds its value despite the fact that banks may be bankrupt. Iceland is a recent example of how paper money can lose its value over night. With the massive debt levels and money printing in many countries including the USA and the UK the risk of a similar default in other countries is very high.
Gold has at all times represented real wealth as well as being a medium of exchange. “Old money” has always maintained a percentage of its wealth in gold since the specific characteristics of gold make it probably the safest and most attractive investment for storing and preserving wealth.
Gold stored outside the banking system should be the foundation of the wealth pyramid for high net worth individuals. Therefore, physical gold or silver should not be considered as an asset which is valued or traded on a daily basis.
Gold – an excellent investment.
Over time gold has represented an excellent investment that holds it value in real terms. In particular, gold appreciates during periods of high inflation and financial instability. As there is limited supply of gold it cannot be printed to finance the deficit spending of governments.
Gold can act as a critical hedge both against inflation and a deflationary financial collapse.
The world is currently facing a crisis of unprecedented proportions. The financial system is fighting for survival and has been temporarily rescued by governments printing unlimited amounts of money (read more about this in our Newsletters on the GoldSwitzerland website).
- Either governments succeed in temporarily rescuing the financial system by printing gargantuan amounts of money. This will lead to inflation or hyperinflation making paper money virtually worthless. (See report Inflation, Deflation and Gold)
- Or, if this fails, there will be a deflationary credit collapse which will lead to a systemic failure of the financial system.
The total value of all gold produced in 2010 was around $100 billion. Compared to total investment market of over $130 trillion, the gold market is miniscule. A slight reallocation of investments into the gold market would make the gold price soar. Gold production is stagnant and there are no major mines coming on stream. In addition some central banks have buyers rather than sellers, which will further exacerbate the supply shortage and put upward pressure on the gold price.
Like most investments gold moves in cycles. Although the long term trend has been rising strongly, there are times when gold spends long periods correcting previous rises. In the long term gold has been keeping pace with stock markets but at certain times it outperforms substantially. Since the bottom of gold in 1999, the Dow Jones has declined 83% against gold. Other stock markets show a similar substantial underperformance in relation to gold in the last nine years.
 Since 1999 gold has had an outstanding performance with a total returns of 350-600% depending on the base currency of the investor. A US dollar investment in gold in 1999 would have yielded 600% or nearly 18% compound annual return. For a Euro investor the return would have been 380% total since 1999 or 14% compound annual return. These are outstanding returns outperforming most other investments during the same period.
Gold tends to move in cycles of at least 12 to over 20 years and should therefore continue to increase in value substantially for another few years at least. But gold should not be measured on a daily basis. Instead it should be considered as a long-term core holding representing the foundation of the wealth pyramid.