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Gold Is Real Money — And Life Insurance

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Warren Buffet once said, “[Gold] doesn’t do anything but sit there and look at you.”

So, why buy gold?

Because gold is real money. And in a world of fiat currencies, it’s life insurance.

We can classify gold in three ways. We can view it as an asset, a commodity or as money. Gold does exhibit characteristics of both assets and commodities, but ultimately, gold is money. When you look at things from that perspective, Buffett’s attitude doesn’t make as much sense. I doubt you would ever hear him say “never hold cash because it’s an unproductive asset.”

The mainstream doesn’t generally express quite the same disdain for gold as Buffett, but it does tend to be rather apathetic toward the yellow metal. Nevertheless, with the price of gold pushing up and the realization that the Federal Reserve is about to pivot back to an easy money policy after interest rate “normalization” ended at a paltry 2.5%, we’re seeing more mainstream chatter about gold.

A recent article in MarketWatch by analyst Jared Dillian urges you to consider gold as an important hedge – not just on your portfolio but on your life.

It’s a hedge on this place turning into ‘Mad Max Beyond Thunderdome.'”

Dillian is referring to the inevitable breakdown of an economy built on debt and fiat currency. We go into great detail about the economic fundamentals of this looming breakdown in our recently revised and updated “Why Buy Gold Now?” report. Dillian offers a nice list of bullet points that hits some of the highlights. You’ll notice a lot of the same themes Peter Schiff has been hitting in recent podcasts.

  • In recent history, the government has had a habit of abusing its currency.
  • Most governments abuse their currencies.
  • Gold is an objective store of value, while the dollar is a subjective store of value.
  • Big deficits will probably be monetized. Some lunatics want to inflict Modern Monetary Theory (MMT) on everyone.
  • Inflation is trending higher, measured and unmeasured.

Consider this: between January 1972 and March 2018, the purchasing power of the dollar dropped 84%. Even if you take short-term interest rate into account, the greenback’s purchasing power has gone up no more than 47%. On the other hand, the purchasing power of gold has increased by 394%.

This is precisely why you want to own gold in your portfolio.

Peter Schiff has been advising holding at least 10% of your portfolio in gold for years. Dillian echoed this advice. He noted the standard 35/55/10 portfolio strategy –  with 35% equities, 55% bonds and 10% commodities.

It’s not unreasonable to allocate the entire commodities portion to gold and silver. Most other commodities have a pretty high cost of carry.”

The point is you need to be prepared for the worse. How will you fare financially if we get to the point Mel Gibson is running around outside your window with a chainsaw?

No, that probably won’t happen. As Dillian put it, in all likelihood, we won’t be reduced to bartering our silver coins for cans of condensed pea soup. But economically, it is likely that things are going to suck and gold and silver will increase significantly in value. As the Boy Scout motto teaches us, “Be prepared.”

The fact is, most of us aren’t. Dillian said he finds this odd.

People buy insurance on their houses, cars and even themselves, but they won’t buy it on their portfolios. Seems strange to me.”

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