Protect Yourself!
Since 2020 we have seen a sharp rise in inflation. Prices everywhere are increasing faster than wages and consumer purchasing power is diminishing. All of our economic indicators suggest that the 2020’s are going to be an inflationary decade. So how do you protect your purchasing power from rising inflation?
First we need to examine how we are positioned financially. I am a big fan of George Gammon’s 10/80/10 portfolio. For those that don’t know, a 10/80/10 portfolio is 10% precious metals, 80% assets that pay you to own them, and 10% speculative assets. Precious metals serve as an insurance policy in this type of portfolio. Given the current uncertainty in the markets today, that insurance policy is more important than ever.
Why Own Gold
History
Gold has served as money for thousands of years. But does it have a place in the 21st century? I believe so. Historically nations that remove their currency from a gold standard are doomed to experience hyperinflation and they always return to a gold standard.
Currently the US is experiencing record inflation at the same time the rest of the world is de-dollarizing. As foreign nations begin to get off the dollar they will turn to gold, and we already see this happening as foreign central banks are buying record amounts of precious metals.
So what does that mean for you? Well we are entering a highly volatile environment where precious metals are highly desireable. Not only will gold protect your purchasing power from inflation but there is a high likelihood that you could actually gain purchasing power in this environment. Think of it as a game of musical chairs. Buying gold is the equivalent of securing a chair. Keep in mind only 12% of Americans own precious metals. So when the economic “music” stops and people need a safe harbor for their money, they will be willing to pay whatever it takes to get precious metals.
Why Buy Silver
Silver is historically cheap
Silver is extremely cheap right now! How do we know this? The gold-silver ratio. This ratio shows how many ounces of silver can be exchanged for one ounce of gold. It has been estimated that around 8.8 ounces of silver have been mined for every 1 oz of gold mined throughout human history. So naturally this ratio should sit somewhere around 10:1 right? Well not quite, in practice it historically sat around 20:1 until the 1880’s. As currencies have decoupled from precious metals and market manipulation increased, the ratio has exploded as high as 100:1. Currently the ratio is around 84:1. So what does all of this mean? It takes a lot more silver to equal one ounce of gold today, so in gold terms, silver is extremely cheap. When (not if) the ratio comes back to historic levels, you could multiply your purchasing power in gold by 3-4x simply buy owning silver.
Most Silver does not physically exist
How is it possible for silver to not exist? The futures market, that’s how. Manipulating Silver prices can be extremely profitable for the banks that are able to do so, and JP Morgan executives were convicted of doing just that. Basically a bank can “sell” a contract for X amount of silver at a set price in the future on the commercial metals exchange (COMEX). These contracts are supposed to be backed up by the physical metal in a bullion bank. However most people that buy and sell Silver futures do not actually take physical delivery due to the cost associated with moving the metal. So banks can sell hundreds of times more silver into the market than they actually have and safely bet that no one will call their bluff. As of 2021 the COMEX traded 886 ounces for every one ounce of silver in their reserves.
Perfect Storm
So what happens during a financial crisis when everyone is looking to precious metals as a safe haven? Demand for physical Silver will skyrocket. The current silver price is factoring in millions of ounces of paper silver that do not exist alongside relatively low demand. When demand increases and people realize the COMEX can’t back its contracts with the physical metal, the price of physical silver will explode. In my opinion, Silver is perfectly poised to not only protect your purchasing power, but increase it tremendously.
How to Buy Precious Metals
Not sure where to start?
Never bought precious metals before? That’s ok! There are several options out there if you decide to buy, just make sure you work with a reputable dealer and do your research beforehand.
Buy local
Want to look at gold and silver before you buy? Well look to your local coin shop! Local coin shops, often referred to as LCS’s, can add anonymity to your bullion purchases since they accept cash. You may pay a slightly higher premium here, but it may be worth the additional cost. Just make sure the LCS has good reviews and you should be ok.
Buy online
There are lots of online bullion dealers to choose from such as: JM bullion, APMEX, SilverGoldBull, etc. Shop around and see who has the best deal at the time of your purchase. Online bullion dealers typically ship their orders in insured packages that require a signature for additional security.