In a world where all governments have encouraged the use of paper currencies and then debased them to finance reckless spending policies, we believe that gold remains the most honest and accountable form of money.
When financial uncertainty abounds, it becomes increasingly important to hold assets with value that cannot be diluted by government monetary policy. Gold has been chosen as a store of value and unit of exchange since the dawn of civilization due to its inherent properties: rarity, durability, fungibility, divisibility, and portability.
Paper Currencies Increasingly Shaky
I believe the U.S. dollar, the world's reserve currency, is in long-term decline, and there isn't a suitable replacement on the horizon. The Euro, the only other currency with enough liquidity and financial backing to challenge the dollar, now looks very fragile. China, America's chief competitor, fixes its currency against the dollar to boost exports.
Ultimately, as the current global financial crisis runs its course — the worst of which is yet to come — the value of a gold-based monetary system may once again gain favor with productive nations looking to safeguard the value of their savings. In such a scenario, gold would spike in value as central banks became net-acquirers of gold, rather than net-sellers. Of course, private citizens are already leading the way to this future.
The Global Debt Bomb
The Western world is facing unprecedented levels of sovereign debt. The worst of them — including Greece, Spain, Iceland, the UK, and the US — have funded and unfunded liabilities greater than the yearly output of their entire economies. Governments around the world have assumed debts and made promises they simply cannot afford.
When the major banks faced bankruptcy in 2008, Washington bailed them out; but we have yet to see what happens when Washington itself faces bankruptcy. Rather than default, or "restructure" its debt, I believe the United States will take the politically less painful way out.
It will simply print more and more dollars, and pay back its bonds with cheaper dollars, until its creditors receive the nominal value printed on the front of their bonds. This does not erase the debt, but rather pays it back by stealing purchasing power from every investor, worker, and saver with dollar-denominated assets. This is called inflation.
The worst part is that nearly every wealthy Western country in the world is mired in debt, and every one is devaluing its currency along with the US. It's a race to the bottom, and many conservative investors feel there is no safe place to turn. But history provides us with a safe haven from all government paper — gold.
Gold in an Upward Trend
Gold has appreciated steadily for most of the current decade, ultimately breaking $1,200 per ounce in November 2009 and again convincingly in May, 2010 We believe that gold is still in the early stages of a secular bull market (long-term upward trend).
The Ultimate Insurance Policy
Unfettered access to portable wealth, which is not subject to confiscation, registration, or unwarranted intrusion by government authorities, is the ultimate insurance policy in today's uncertain and perilous world. Physical gold and silver, being the most well-recognized and dependable forms of money throughout history, should form the core of any well-balanced portfolio.