Gold, silver and other precious metals seem to have fallen out of fashion for the modern American investor.  Although many Americans own mining stocks or other paper forms of ownership in the precious metals industry, the concept of owning physical gold and silver has become almost laughable.  But why? Until perhaps just 100 years ago, gold and silver were essentially the world’s money for hundreds, if not thousands, of years. Why is it now only the realm of antique collectors?

It is a common misconception that gold and other precious metals are no longer traded on a large scale or lost their role on the world’s stage.  The demand for gold among the world’s governments has actually increased – countries like China, Russia and the United States are buying gold at staggering rates – and keeping it a secret.  They keep it a secret from not only one another, but from you. Why?

What governments know, but their populations do not, is gold (and other precious metals to a lesser extent) represent real money.  A person needs to know the difference between money and currency to fully understand the concept. Currency only represents money – more of an IOU than actual value.  Think of it like this – perhaps around 5,000 years ago, gold was the only form of money and most of the population had no safe place to keep it. Whether in your pocket or under your mattress, it was vulnerable to theft.  Enter the world’s first banker. Someone came up with the idea of charging people to store gold at a safe location. Gold would be deposited, and a paper IOU was issued to the owner. It didn’t take long before people were exchanging these pieces of paper, instead of their physical gold, for goods and services.  While the physical gold is money, the paper being traded is currency.  Unfortunately, these early bankers (and it continues today) would loan out the physical gold held in their vaults behind the owner’s back and charge interest.  Because of this, currency only has a value because people believe it does – they have no real way of knowing the gold it represents actually exists.

The problem this poses is that when there was panic, such as invading marauders, everyone would rush to the bank to exchange their paper IOU’s for physical gold.  Unfortunately, since their gold was loaned out behind their back, most owners found themselves holding a worthless piece of paper.

It is no different today, which is why governments – and the very wealthy, are acquiring gold in huge quantities as fast as possible.  During the next global financial crisis, they want to be holding physical gold, not worthless IOU’s.

So why is the common American investor unaware?

The reason is twofold.  First of all, governments and the very wealthy keep the true value of gold a secret in order to keep demand, and therefore prices, low.  While you are distracted by the latest reality show and shopping at Walmart, they are buying gold and other precious metals at historically low prices.  The second reason is the United States economy requires massive amounts of daily trade for goods and services in the form of currency – if everyone suddenly exchanged their currency for gold, the economy would come to a screeching halt.

What should the average American do?

Thirty percent of your investment portfolio should be physical, American precious metals.   Don’t think you have an investment portfolio?  Your 401k is an investment portfolio, so is the IRA you fail to contribute to each year.  Even if there’s only $3,000 in your 401k, save your money until you can afford to purchase $1,000 (roughly 30%) in precious metals.  If you have an IRA, you can actually convert 30% (or as much as you like) of it into precious metals.

And most importantly, buy physical American precious metals.  As stated above, mining shares or other paper contracts representing ownership in the precious metals industry is no good – you need to directly own the physical stuff.  The reason is that gold and other precious metals need to be there for you during a financial panic; paper contracts will quickly become worthless as they fall in value with the rest of the economy.  Any buying American precious metals nearly guarantees they can be traded for goods and services when you need them the most, unlike buying some rare antique coin from 17th century France that nobody will recognize or trust.  During the worst financial crisis, anyone holding a precious metal coin minted by the United States government will find themselves in an advantageous position – essentially watching the value of their gold increase as everyone else’s investments become worthless.

The moral of this story is that you need to become aware of the value of American precious metals.  Educate yourself. Understand why governments and the very wealthy are buying it behind your back. It could save you from financial ruin some day.

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