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Gold has been valued as money for the most part of the last 5000 years except for.. well... the last 40.  What makes gold an excellent store of wealth is:

Some gold facts:

Why should anybody own gold as an investment?

Gold was the last, best store of wealth before the United States converted to a true fiat currency in 1971.  Before that, owning a dollar was basically the same as owning gold.  Since 1971, the value of the dollar has depreciated quite substantially against gold - both in the 70's and more recently in the 2000's.

When gold appreciates against a fiat currency, what's really happening is the currency is losing value against gold rather than gold somehow increasing in value.  The official parlance for paper money depreciation is called debasing the currency.  Debasing results from printing more of the currency than the underlying asset permits.  The time to own gold is when the expectation is that the debasement of the currency will continue.  Gold also works well in an environment where people loose confidence in a currency.

Gold (and silver) has been in a bull market since 2001 and many of the underlying conditions look to favor the continuation of this bull market.  If the economy does turn deflationary, gold will most likely go down with other commodities, but probably less so.  If we hit deflation again in the US, it's important to note that physical gold has no counter party risk whereas may other assets will rely upon the stability other institutions.


The United States used to be on a bi-metal standard with both gold and silver accepted as currency with an official exchange rate between the metals.  Silver tended to be used in day to day transactions.  Silver was eventually dropped in favor of gold at the end of the 19th century.

Silver may be an excellent investment going forward.  The following is an exerpt from an article produced by the National Inflation Association:

NIA believes silver is the best investment for this decade. Silver is currently receiving almost no monetary premium and is being valued for its industrial uses only. When the gold/silver ratio inevitably returns to 16, those who own silver will see a 4.1875 times increase in their purchasing power compared to those who own gold. It’s estimated that only 1 billion ounces of above ground silver bullion exist in the world today, worth a total of $18 billion. Meanwhile, it is estimated that there are 2 billion ounces of above ground gold bullion in existence, worth a total of $2.4 trillion. This means the total value of available gold bullion in the world is worth 133 times more than the available silver bullion. The U.S. Mint sold 3,636,500 American Eagle silver coins during the month of May 2010, a new monthly record. The U.S. mint also sold 190,000 American Eagle gold coins during the month of May 2010, the most sold in a month since 1999. Based on May’s sales, the U.S. Mint is now selling 43,638,000 American Eagle silver coins and 2,280,000 American Eagle gold coins on an annualized basis. The dollar value of these annualized sales is $785.5 million for silver and $2.7 billion for gold. This means 3.44 times more money is being invested into American Eagle gold coins than silver coins. Think about this, the dollar value of the world’s total available gold bullion is 133 times more than the world’s total available silver bullion, but U.S. investment demand for gold is only 3.44 times greater than silver. Silver might not only be the best investment for this decade, it might also be the greatest investment opportunity in world history! All U.S. mines combined only produce approximately 40 million ounces of silver annually, which is not enough to cover the current annualized investment demand for American Eagle silver coins. Once you take into account how industrial applications and photography consume about 90% of the silver produced each year from both mining and recycling, a major physical silver shortage could be imminent. When investors who own paper silver contracts begin calling for physical delivery of silver, we could see the largest short squeeze in the history of all commodities and an explosion in silver prices like the world has never seen before in any type of asset.

The full article can be found here: NIA 2010 U.S. Inflation Report

Gold & Silver as Investment Vehicles

Gold and silver are volatile investments, silver being more so.  If interested in investing in these assets classes a reasonable approach would be to slowly accumulate over time and expect price fluctuations.  Unless you are a trader, your target is pretty far down the line until the monetary instability has flushed from of the system.  If you own physical bullion (bars, coins, etc), you have no counterparty risk.

Metals Investing - Gold

Metals Investing - Silver

If you purchase metals and have them stored in another location (i.e. Perth Mint), it is highly recommended to use an allocated account which means the gold or silver has been specifically set aside for you.  See below regarding holding paper or futures contracts.

08/03/2010 - Look How Much The GLD ETF Dominates The Gold Market (Business Insider)

Emerging Controversies Surrounding the Gold & Silver Markets

#1 Large Investment Companies Shorting the Gold & Silver Markets (Especially Silver)

There is mounting evidence that large investment institutions have artificially driven down the price of gold and silver using leveraged paper instruments (there are allegations of 100/1 leverage).

#2 There is growing evidence that there is a general oversubscription of paper contracts for Silver & Gold

So, there is potential for good upside for the precious metals if #1 & #2 happen to be true.  In terms of acquiring precious metals, it is encouraged to hold some physical.  Holding futures contracts (Comex, LMBA) is not recommended for long term positions as there is quite a bit of controversy surrounding the actual availability of physical gold and silver.

07/14/2010 - Exclusive: Second Whistleblower Emerges - A Deep Insider's Walkthru To Silver Market Manipulation (ZeroHedge)

Additional Sources

  1. "What Has The Government Done To Our Money?" - Murray N. Rothbard
  2. GLD Prospectus -
  3. - Interviews with a number of gold/silver experts
  4. Gold Anti-trust Action Committee -