The reasons for holding precious metals as a relatively safe haven for one’s personal wealth are numerous.
One common investing thesis for buying precious metals is that these intrinsically valuable commodities can hold their value in times of rising price levels. This characteristic can help American savers keep pace with credit expansion and paper currency debasement.
Diversify Out of the Dollar
For example, precious metals can provide a safe haven in terms of the diversification they offer relative to holding U.S. Dollars in cash or Dollar-denominated assets.
Physical gold and silver investments can take up a core position in an investment portfolio since they offer an easy way to have some wealth stashed out of Dollar-denominated assets. These hard assets also provide a viable alternative to holding foreign currencies or foreign equities.
Basically, precious metals allow investors to engage in a new way of thinking, where investment priorities are anchored to real value and permit advance planning for troubled times.
When the Dollar Bubble Bursts
In much the same way that market bubbles have been blown in various asset classes over the last 40 years, largely via Fed sanctioned interest rate manipulation, the overvalued U.S. Dollar seems like yet another bubble waiting to burst.
Basically, the value of silver has been artificially deflated in U.S. Dollar terms via price control implemented using contracts traded at global futures exchanges. The symbolic investigation of this so-called conspiracy by the CFTC just passed its fourth year.
Underpriced assets like silver will eventually lead the way back to what will very likely be the largest bubble the world has ever seen. The U.S. Dollar and the U.S. bond market appear destined for a long overdue crash.
Various factors point to this outcome. They include such things as: intrinsically worthless paper wealth, high frequency trading, a world where MF Globals can exist, the threat of taxation, and rampant money printing — otherwise known as Quantitative Easing.
Competing With the Banks for Credit
Major international banks have benefited disproportionately compared to the individual investor from credit expansion in recent years. Banks enjoy better profits from cheap money and can buy future cash flows very inexpensively.
Meanwhile, consumer credit has contracted leaving consumers holding the bag in many cases. People are also unable to consume as much because of a rise in general price levels and the failure of the troubled financial system to purge itself of bad debt.
If at any point the American consumer and banks are equalized with additional credit infusions, the tide will then begin to turn. Consumers can then free up more discretionary income as America goes back to work.
Nevertheless, until the two groups are made equal, credit will neither expand nor contract. Instead, credit supplies will stay constant, although prices will continue to rise relative to consumer incomes.
Precious metals provide a safe haven investment that can often help compensate an investor for such price rises. Furthermore, if at any point the system balances and allows for credit expansion to extend to Main Street, then precious metals investors will typically benefit.
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