A recent response to a post from someone on CGN indicating the inflationary case for gold and silver.
During the Christmas break, I tried convincing my Dad (again) to invest in precious metals. I went so far as to give him a 1/20th ounce gold maple leaf. His response was to scoff at the coin I gave him and say that if we experience a deflationary recession, gold and silver will go down in price.
Personally, I think it doesn't matter if it's inflation or deflation - gold and silver are a safe investment either way. Here's why:
Quote: "I think all the predictions like that are based on extremely high US inflation accompanied by massive printing by the federal reserve. It isn't so much that the metals are going up as the value of the dollar is falling.
When you look at debt Canada isn't much better, I'd bet lot of money that the combined federal provincial debt is over a trillion dollars. Throw in municiple debt, corporate debt, personal debt, unfunded programs like the old age pension and... I just don't know, pick a number...
If the Bank of Canada starts printing money to cover those bills..."
It isn't so much the debt that's bad - it's where the money created through that debt is invested that is the big worry and what are the implications of that debt as fundamental and unavoidable changes to the economy occur?
As long as I've been alive, it's almost been taken as gospel that "home prices ALWAYS go up," but that's because of the huge working class of baby-boomers who upbid the price of housing because of the apperance of increased wages, combined with loose monetary policy by the central banks (encouraging unsustainable debt).
What happens when most/all of these boomers transition from working age to retirement age - and the inflows of capital into the real estate market start subsiding as fewer and fewer (relative historically) people start buying homes because the combination of artificially stimulated demand that has upbid thein price for the last 30-40 years has made it too expensive to buy? Housing prices already are unreasonably high, IMO.
I think the prices HAVE to come down, and come down sharply - meaning anyone banking on high valued real estate and more specifically, home equity, will be screwed, whereas anyone with saved up capital will be able to swoop in like vultures to pick up some killer deals.
Also as long as I've lived, the other asset that has been touted as one that "always goes up" are mutual funds, specifically equities and bonds. This again, is because of targeted government intervention designed to incentivize people to invest in these assets. While investors like me didn't leverage up to buy these assets, I suspect the fund managers, corporate insiders, or other speculative investors buying on margin did - and just like in real estate, when a huge swath of the population transitions from being BUYERS of these assets and either stop buying them or worse, become SELLERS of them, it's simple supply and demand fundamentals that will drive the prices of them through the floor.
I think the insidious design of the government manipulation of the economy through rigged pension and savings plans are the worst part (RRSP, TFSA, RESP, etc.). It absolutely reeks of criminal corruption. The government sets tax rates to confiscatory levels, then the same government creates savings plans with "tax incentives" to coerce people into investing into the stock and bond markets. Bond sales, in turn fund government spending and force the government to set taxes at confiscatory levels in order to pay off the interest on the bonds. If that's not a fraudulent, criminal ponzi scheme - I don't know what is.
For now - no one buys physical precious metals which is EXACTLY why I want to load the truck up and buy them. My Dad didn't take kindly to the 1/20th gold maple I gave him for his birthday. He simply said "I'm just going to lose that." I felt like saying to him "You'd lose a $100 bill? Someday that thing will probably be worth at least $500."
Instead he wants to buy shares of Telus, which look like they pay a decent divident but I think looks like it's in a dead cat bounce (but what do I know?) [url]http://www.google.com/finance?q=TSE:T.A[/url]. My Dad doesn't care about dividends though - he only buys stocks on the assumption they go up in price.
Peter Schiff has often said "When the tide goes out, you see who's swimming naked." For basically 40 years, the tide of easy money due to demographics and monetary stimulus has been coming in, but now, I think over the next 10-20 years, the tide is going to be going out and going out fierce. I think a LOT of people are going to be swimming naked or stealing swim shorts from the people who had no idea what's going on.
It isn't just the inflationary prospect that makes precious metals an attractive investment, it's the established history of it being a shelter of portable wealth. When the vast majority of people start seeing thier wealth destroyed through a deflationary shock, if the governments and banks don't step in to lend a helping hand (by dumping oceans of currency on the economy), I believe these panicked sheep will come running into the tiny PM market and send the price to the moon.
Either way, inflation or deflation - the sky's the limit for the price of the metals. All we as PM investors have to do is sit back and enjoy the ride and be thankful everytime the price falls through the floor, because it presents an excellent opportunity to get some metals at a discount.
I knew my Dad's reaction when I gave him that 1/20th. 100% of his wealth is tied up in real estate, equities, and bonds and he's retiring this year. Some day soon, I envision his portfolio being quartered, halved, maybe even completely wiped out. At the same time, I believe gold and silver will be at unimaginably high prices. When that happens, I'm simply going to tell him "You know, Dad, that gold coin I bought you for your birthday the year you retired? I bought it for $100. Now, it's close to <X>." (My guess is at least $300, as high as $500). I hope giving him that coin, he at least drives him to give it a bit of thought to buying even a little gold and silver.
To him right now, $10,000 is very little money (odds are you've seen my Dad if you watch TV or Youtube). My Dad has the outward apperance of being very wealthy and succesful. He worked very hard and made a lot of personal sacrifices in his life to make it to the top of the corporate ladder. Even though he was "there" my entire childhood, I recently told my wife that the first 18 years of my life, my Dad probably spent 13 of those years in his office or taking work home with him. How ridiculous is that, for fathers to spend 72% of thier children's childhood away from them?
In my Dad's case, he may have achieved material and career success, but if what I envision comes to pass, most to all of that success will disappear and the sacrifices he made to his health, his family, his soul, will all be for nothing.
This is why I am so passionate about gold and silver. Gold and silver ARE a representation of human sacrifice. I hate having to sacrifice my time, mind, and body away from my wife and daughter to earn fiat currency that I believe will be worthless by the time my daughter is a grown woman. I don't want the time I spent away from her wasted.
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