Posted On 07 Dec 2011
Investing in gold is a good idea right now.
Of course, not only do I lack all knowledge of future events, neither I nor anyone else understands the world’s economy in the present moment. It’s too complex.
Furthermore, since its price today is over $1700 an ounce, you have excellent reasons already for ignoring my suggestion. If it goes much higher, it may soon reach the point of diminishing returns.
My suggestion is irrelevant if you have no money to invest.
If you do have money to invest in gold, what percentage of that money should go into gold? Again, I don’t know. It seems to me that 10% would be a minimum and about 75% would be a maximum.
Because I have very little of it, it’s rather easy for me to talk about money, especially other people’s money!
I do, though, participate in the economy. Like you, I’m forced to be at least somewhat interested in it.
I probably also read more than most about it, and I probably have studied more history than most people. (I actually taught history as part of a humanities course as a college professor.)
Why? Why invest in gold (or other precious metals)?
I have a strong suspicion that there will soon be a massive transfer of wealth. ‘Soon’ means ‘within 5 years.’ Why?
The chief reason is that the world is awash in debt with no good way out. If so, the world’s economy is headed for a huge shock, a huge depression.
Because different areas of the world are more economically integrated than ever before, even though there will undoubtedly be pockets of economic success, the ramifications of the downturn will be global.
I originally began paying attention to the global economy due to the influence of such books as Robert T. Kiyosaki and Sharon Lechter’s Rich Dad’s PROPHECY (2002), which predicted trouble ahead, and Thomas L. Friedman’s The World is Flat(2005).
What happened in 2008 did not surprise me.
In fact, my only surprise was that it wasn’t worse. I now think that was just a prelude.
The present Greek-stimulated crisis of confidence in the euro is going to snowball. I’ll be surprised if the euro survives another year or two. The eventual fallout will drag the rest of the world’s economy down.
The world’s political leaders are ultimately going to have to choose between two bad alternatives: hyperinflation and default, which is even worse than hyperinflation.
Either way, owning a hard (rather than a paper) asset like gold is the best possible hedge.
As individuals, besides educating ourselves, we, too, are going to have to go through some wrenching changes.
The old style of getting and maintaining wealth won’t work anymore.
I learned about the old style from many recent books by people such as Robert Kiyosaki and Dan Kennedy as well as from some classics like Clason’s The Richest Man in Babylon.
If you think I’m wrong about gold, I encourage you to read more. Click here for some readings on financial well-being.
If you think I’m right about gold and don’t have enough, do what you need to do to purchase more. (When I write ‘gold,’ I’m talking about the hard asset itself, bullion physically under your control.)
It seems that a lot of people have a lot of deep concern about their financial well-being. In the U.S. recently, that may have been one of the motives of the Tea Party movement. Increasing financial inequality is certainly one of the motives of the Occupy Wall Street movement.
The most recent global depression occurred in the years after the stock market crash in 1929. I mention this because it’s important not to be too pessimistic – even if I am right about gold and what’s about to unfold economically.
The good news is this: although financial wealth can be created, it cannot be destroyed. What happens in a depression or, to a lesser degree, in a recession is only that financial wealth gets shifted.
If we really are on the verge of a global depression, there’s no need to panic or to worry yourself into actual depression. Even if the emotional and physical impact is serious, don’t confuse a global depression with the end of the world.
When it happens, it will be as much an opportunity for some as it is an obstacle for others. Even if investing in gold isn’t the best response, it’ll provide a good starting point for whatever the best response is.
I learned that lesson as a youngster growing up in the village of Ottawa Hills outside Toledo. The Kennedy estate still sits in the middle of the village. I was able to see the mansion regularly in winter by looking up at it when I was skating on the Ottawa River.
I was told that, during the depression in the 30’s when most people had little money, what Mr. Kennedy did was to buy up a lot of prime residential land and then, after the depression, sold it off in pieces. Though that’s a speculative way to do it, divide and conquer is a tried-and-true real estate investment method.
Whether or not that’s what actually happened, the fact is that, during depressions, some people become very wealthy. Judging from history, it’ll probably be that the top 20% will end up with 80% of the wealth (or the top 10% will end up with 90% of the wealth).
If there’s going to be a depression anyway (and there’s probably little that you or I could do to prevent it at this point), the idea, if you value financial wealth, is to wind up in the minority who control most of the wealth rather than in the financially impoverished majority.
The key is developing your financial understanding and acting appropriately.
There may be better strategies for most people than investing in gold, but, until you are able to understand better what will enable you to rise to the top when most of the world is sinking financially, investing in gold seems to be the best strategy.
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