Gold, an Investment or Insurance?

Many people think of gold as an investment.

gold barsIf that is your belief too, check out this blog by Len Penzo. I changed his precious metal examples to include my own and made edits, but I couldn’t have explained it better!



Len Penzo’s condensed blog:

It’s ironic, but bankers and fiscally irresponsible governments despise gold and silver. Why? Because precious metals demand accountability and force responsible governments to live within their means.

In 1971, Richard Nixon cancelled the direct convertibility of the U.S. dollar to gold. It helped end the Bretton Woods system of international financial exchange.

Since then, the U.S. has continued to print money with reckless abandon, greatly expanding the size of the federal government and destroying the dollar’s utility as a store of value in the process — so much so that it now takes $578 today to buy the same basket of goods and services that $100 would fetch in 1971.

printing moneyOver the past five years, the Fed’s printing presses have conjured over $3 trillion in new money out of thin air — and that doesn’t bode well for the U.S. dollar’s value and continued confidence in its future as the world’s reserve currency.

Unlike paper money, precious metals can’t be created out of thin air, and that makes them proven instruments of wealth protection. It’s why some people choose to keep a portion of their savings in gold and silver.

Critics point out that precious metals pay no interest, have no earnings, provide no yield, and spin off no cash flow — but that’s also their biggest strength! Precious metals serve no master, so they don’t rely on any counterparty to remain solvent. As such, gold and silver are the ultimate collateral, which makes them the perfect insurance policy against rapid currency devaluation, or a total loss of confidence that ultimately results in the death of a currency.

Other critics may insist that they expect precious metal prices to drop in the coming years; but those folks miss the point. Whether the price rises or falls, the value of gold and silver never changes in real terms relative to tangible products. What’s really changing is the value of the paper currency used to purchase them.

Look at the chart below.

1935 2014*
Price of an ounce of gold $35 $1254
Gallon of gas $0.10 $3.58
Loaf of bread $0.08 $2.87
*The 2014 examples are as of January 17, 2014

Using the chart above, you could buy 350 gallons of gas or 437 loaves of bread in 1935 OR right now in 2014 with that same ounce of gold.

Those who believe in personal responsibility don’t buy gold and other precious metals to make money — they buy them to protect the money they already have.

Like any insurance, you may never need to rely on your gold, in which case you would simply pass it on to your children and grandchildren. Then again, if the day ever comes when you do have to use it, you’ll be glad you had the foresight to protect yourself.

So, consider accumulating a little wealth insurance — even if it’s just one gram of  gold per month.

Your future generations will thank you.

James “Lamont” Lawson
Independent Karatbars Affiliate

The postings on this site are my personal opinions and do not represent the positions, strategies, and opinions of Karatbars International GmbH.



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