I was recently asked in an interview if I thought gold was going to
$5,000 an ounce. “No,” I said bluntly. “I think it’s
going higher.”
“You’re that
optimistic?”
“No,” I replied.
“I’m that pessimistic.”
Imagine the condition of our
world if gold reached $5,000 an ounce – and kept soaring. We’ll
likely be in a mania if that happens – but what kind of mania will it
be? There’ll be some greed to be sure, but I think there’s a good
chance a deeper reason will be at play. And it’s the same reason that
will drive you to keep buying gold at $2,000 an ounce.
You’ll have to.
There are 101 reasons to own
gold right now. You might buy because of the debt turmoil you see around the
globe. You may think it wise, like the Chinese and others, to keep some of
your savings in gold. Negative real interest rates may draw you to gold. You
might buy because of the mere fact that demand is overwhelming supply. Or you
fear inflation. Or deflation.
But most of these factors are
missing one critical element: They’re not yet personal.
Most reading this have not had
to flee their country, been the victim of hyperinflation, or watched
helplessly as their currency went poof! Longtime investors have made
money on their gold investments, to be sure, but most of us bought the yellow
metal as an investment and not because of a do-or-die situation.
It’s doom and gloom to
say this, but I think it’s possible and perhaps even probable that at
some point we’ll all feel forced to buy gold, almost irrespective of
price, due to a sudden and rapid depreciation of the U.S. dollar.
How do we get to that point?
Simple: You go to buy something and realize you’ve just been
priced out of the market, not because the item is too expensive, but because
you suddenly realize the money in your hand no longer has purchasing power.
Your reaction to that event is predictable: You feel cornered, maybe even
scared, and the urgency to seek an alternative takes over.
This is obviously an inflation
scenario, but it’s not exactly a stretch to get there from where we are
today. Here’s why.
The following chart tracks the
dollar and gold adjusted by the CPI from 2000 to present. It catches many
people off guard, once they realize its implications. Look what’s
happened to the greenback in the past 11+ years:
Since the Y2K scare, the dollar
has lost an incredible 25% of its purchasing power. Even adding the measly
interest one would earn in a traditional savings account doesn’t make
up for this loss. This isn’t a picture of the dollar since the creation
of the Fed or since Nixon took us off the gold standard. This is what’s
happening right now – a gross devaluation of your dollar-based
savings. Gold, on the other hand, has not only preserved but increased our
purchasing power.
Now, imagine this scenario on
fast forward. Instead of a 25% loss in 11 years, what if it occurs in, say,
two years? That’s what can happen in a highly inflationary environment.
At some point, given the baked-in consequences for our currency and the
unwillingness of politicians to effectively deal with the problem, you one
day instinctively realize, as you hand money to a cashier to buy milk and she
asks for more, that it is a depreciating asset and no longer a stable form of
exchange.
In other words, you won’t
buy gold at $2,000 an ounce because you think it’s going to $6,000;
you’ll buy gold because you fear the dollar will continue losing its
ability to meet basic monetary requirements and you’ll need a
substitute, something that will retain its value.
Regardless of whether the
downward trend with the dollar continues at the same pace or speeds up, one
thing is clear: It will continue. You must portion some of your
savings in gold.
Sooner or later I think we all
will have an epiphany about money that pushes us to buy gold, even if
it’s at levels that would seem expensive today. When that time comes,
you won’t be focused on the price of gold but on the absolute need to
acquire a more lasting asset.
If I’m right, $1,700 is
not a high price to pay.
[For many, $1,700 at a pop is a lot of money to come up with for an ounce
of gold. But Jeff found a way to buy gold and silver for $100/month, and was
so impressed with the programs that he uses them himself. Check out his top
two recommendations in the brand-new issue of BIG
GOLD and start accumulating enough gold and silver to protect your
savings from ongoing devaluation.]
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