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« Gold Rocked by Central Bank Selling | Main | Silverado Green Fuels update »

Why Investors Will Choose Gold and Silver

With the US Dollar declining more and more everyday, investors at large are soon going to be looking to get out of the US Dollar and into “things” ie. hard assets that have real value, unlike fiat paper currencies, in order to protect themselves against a dollar collapse.

Why Investors Will Choose Gold and Silver

There has been some speculation that investors will buy other currencies such as the pound and euro to hedge against the dollar, but precious metals, in particular gold and silver, will be the number one choice as a dollar hedge.

The chart shows gold and silver against some of the major currencies. Clearly, gold and silver are outperforming the currencies. Now some may argue that this is to be expected, but currencies are a “better” hedge as they are “safer”. It is true that major currencies such as the Euro and Pound are less volatile than the precious metals, but we would have to dispute any assumption that they are “safer”.

We believe that the US and the world economy is in for some turbulent times in the near future as we slide into a recession and perhaps even an economic depression. In times like these, nothing is “safe” and in fact precious metals are the safest investment in these periods of history.

Another factor is that although other currencies are performing well at the moment, they are still built on the same shaky foundations that are cracking underneath the USD. The Euro, Pound and other currencies are still fiat paper “money” and therefore just as worthless as the US Dollar in theory. In practice, the US Dollar is being printed like there was no tomorrow (which in all fairness there might not be) and so it is becoming less and less valuable. Many investors realising this may decide to come out of currencies all together and get into “things”.

By “things” we are referring to hard assets, true wealth, true money, representing true value, “things” that cannot be recklessly printed. At the top of the list is gold and silver but also included are other sectors such as energy with oil, gas and uranium companies in the spotlight. Money that cannot be forced into the metals will go into other hard assets and then after that, what ever is left over will, reluctantly, go into other currencies, preferably currencies in resource rich economies such as Canada and Australia.

Another factor which must be taken into consideration is that there are over 8000 hedge funds operating in the world today. When those hedge fun managers see their stocks under performing or getting devalued by the falling dollar they will be looking to get out. Due to the nature of hedge funds, they are more comfortable with risks and so we could see a lot of their money, fearlessly flocking into gold and silver as well and gold and silver stocks, which are even more volatile.

Fortunately, or perhaps unfortunately, we do not have billions or trillions of dollars to dispose of and so we will not be forced to diversify into currencies, we can go for the crème de la crème, gold stocks and silver stocks, and therefore make the most money out of the coming dollar collapse and economic downturn.

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Reader Comments (2)

I have been reading about the 'coming crash' since 1980 and something bothers me:

to wit: Even though I am heavily invested in gold, silver, titanium, gold mines, and even moreso in gas and oil mutuals, that just means that I own those investments to the tune of $500,000. But if in the near future the dollar is going to be worth almost nothing, that $500,000 is not worth much. Am I going to have to go shopping with gold ingots in my pocket, or perhaps pulling a trailer loaded with barrels of oil?

July 24, 2007 | Unregistered CommenterBobi

In regard to Bobi's remarks, I too have invested heavily the past 10 years in gold mutuals and as recently as 2001, into energy sector mutuals. I have read much material about peak oil, fiat currency risk and the like. If you want some great answers to your question about needing physical metal or oil to make purchases in the future, you should go to log on and read the many articles they provide. I have always felt that having physical metal, even if its not alot, can be your best best in hard times. They say that Cash is King ... but gold rules the monarchy. I highly recommend Stott. His analyses is priceless and down to earth.

August 15, 2007 | Unregistered CommenterAlan

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