I get this question all the time from people: Why should I bother owning physical gold or any other precious metal like silver or platinum?
What’s my answer? I tell them owning precious metals is an insurance policy, plain and simple. And with central banks doing what they do best – dropping interest rates down to zero and putting the money printing presses into overdrive – boy, do we need some insurance these days.
Think about it. Let’s use another kind of wealth protection – fire insurance – as an example.
Records from the National Fire Protection Association tell us that, back in 1977, there were more than 723,000 house fires. A decade later, thanks to the increasing use of smoke alarms and flame-retardant building materials, the incidence of such blazes fell by 25% to 536,000 house fires. Nearly four decades afterward, and the number of home fires continues to decline by nearly 50%.
Yet we continue buying fire insurance for our homes (and renter’s insurance if we’re leasing). Why? After all, the odds of having a fire are lower now than they’ve ever been.
Our reason can be boiled down to three words: Just in case.
Gold Is Wealth Insurance
We don’t know when a stove might be left unattended just long enough for a grease fire to start. We don’t know when a bit of electrical wiring might short out, sparking a blaze inside of a wall.
That’s what insurance is for. Our homes are a valuable asset, and we want to protect them.
But what about protecting the rest of our wealth-related assets?
That’s why precious metals like gold, silver and platinum command our attention in these uncertain times. Perhaps that’s why a number of central banks around the world have sharply stepped up their purchases of gold bullion.
For instance, in 2011, Turkey’s central bank owned about 100 tons of gold, according to World Gold Council figures. Today, the bank owns nearly 500 tons. India, Russia and China have all stepped up their purchases in recent years, too.
Likewise, federal budget deficits remain a serious problem. In 2016, the Congressional Budget Office stated flatly that the U.S. government faces a serious problem in coming years because the economy just cannot grow fast enough to keep up all the financial promises made to Americans. No one knows exactly how such challenges will be resolved or how quickly.
Blue Light Special on Precious Metals
It’s no surprise either that sales of gold, silver and platinum coins achieved high-volume sales records in recent years. Certainly, citizens in other countries facing serious economic challenges are quickly realizing gold’s value as an insurance policy.
For instance, the U.S. Mint sold a record 47 million ounces of American Eagle silver coins in 2015, while gold coin sales leaped by more than half. Austria’s national mint posted its third best year of sales ever. The Royal Canadian Mint broke its own sales record for silver bullion coins for the third year in a row. Japan’s largest gold retailer recently said it saw a significant boost in gold purchases from ordinary people. “Many customers are wagering that it’s better to turn their savings to gold as a safe asset,” said Takahiro Ito, the gold retailer’s chief manager.
Of course, that’s exactly what I’ve been saying for quite some time now. Clearly, with the rising sales and popularity of owning physical precious metals, more investors recognize they need some to counter the continuing imbalance in the global monetary system, and to make sure their wealth is prepared for all contingencies.
About the Author
A veteran investor and longtime financial journalist, JL Yastine is a contributor to Sovereign Investor Daily. He also serves as editorial director, focusing on creation and development of new products and editorial resources that will help the Society’s members “be Sovereign.” Read more at The Sovereign Investor Daily.
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.