Buying Gold vs Dollars

Insanity and ignorance pervades

On Monday, January 10, 2011, I watched a brief clip on a CNBC investment show. The moderator was interviewing a man named Robin Griffiths, technical strategist at Cazenove Capital. Griffiths stated that “gold will eventually rally exponentially,” and went on to say, “I think not owning gold is a form of insanity. It may even show unhealthy masochistic tendencies, which might need medical attention.”

I was shocked that someone was actually making a statement like that on a major media, the very point I have been trying to make for years, but never really put it into those words. In my view, however, it is more of a combination of lack of knowledge and willful ignorance than insanity, but the end results, whatever one labels it, are disastrous.

Having been in the gold business for over 14 years, I spend a good bit of time trying to educate people about the concept of owning physical gold and silver for wealth preservation and for barter. I spend more time, however, trying to educate people about the folly of holding onto to devaluating dollars, whether they are sitting in a bank account or parked in the markets.

People are so stuck in the status quo, and trusting in the un-trustable, that it is almost impossible to make them see what they don’t want to see. So, in an effort to shed a little common sense, logical light on the subject for those who might be still asleep, I decided to look at some numbers and hard cold facts of where we are and where the United States and the world is heading.

Gold, silver, and market numbers over the last year

First for the numbers. Gold and silver have been rising dramatically over the last year. Gold and silver prices or values have been manipulated tremendously by the world’s central banks. Without the manipulation they would be much higher, probably three or four times what they currently are. You have to keep that in mind, because once the banks lose control of gold and silver prices, both of the metals will increase to astronomical numbers.

Let me say, as a point of clarification, that those who only have a little bit of money should buy food for their family, first and foremost. I recommend having at least a year’s worth of food on hand if you are able. Second, the next thing to have is a little cash cushion to fall back on in the case of an emergency, maybe three to six months of cash to pay monthly expenses. And, if you still have money left over after you have set aside your food and cash cushion, then you may consider buying some 90% silver coins to have on hand for barter. If you then have a significant amount of money beyond that, which is not earmarked for something, then you should seriously consider buying gold to preserve that wealth. The following scenarios about buying gold apply only to people with a larger amount of money. I am not trying to say that everyone should buy gold because not everyone is financially able to do so. Now to the numbers.

I took the gold and silver numbers for our scenarios from the metal charts on Kitco.com. I will try to keep this as simple as possible for the sake of communication. I went back one year to August 18, 2010, when spot gold was $1,190 per ounce, and silver was $18.10 per ounce. Today, August 18, 2011, spot gold hit a high of $1,830 per ounce and silver was $40.33 and ounce. Doing the simple numbers, gold has risen 54% from August, 2010 to August, 2011, and silver has appreciated 122% in the same period of time. The Dow Jones Industrials were perched at 10,415 in August 18, 2010, and finished today at 11,410. That is a rise of 9.5% over the last year. One doesn’t have to be the brightest light on the tree to see where the better place for one’s money should be.

Purchasing power of gold never changes

The old adage about the purchasing power of gold is, “In the year 1911, (when gold was $20 per ounce) an ounce of gold would buy a good suit of men’s clothes, and in the year 2011, (when gold is $1,830 per ounce) that same ounce of gold would buy a good suit of men’s clothes.” Today, a $20 paper dollar bill has lost so much of its value that it could maybe buy a single gold plated button on that 1911 suit of clothes. That’s how far the purchasing power of the dollar has fallen since then.

Now that we have a little understanding of how gold maintains its purchasing power, let’s look at another truth that the government wants to hide from us. How much has the dollar lost in value over time? There is not a chart, or statistic, or index that indicates that – and that “wool over the eyes” deception is done on purpose. The closest thing to any kind of an indicator is the Dollar Index, but that is a total ruse also, like every other government number.

The Dollar Index only reflects the value of the dollar relative to six other world currencies and does not indicate the loss of purchasing power of the dollar over time. And since the dollar is the bully on the block, being the world’s reserve currency, it always looks relatively strong even though it is the bane of the world at this point. Just ask China and Russia about that if you are looking for their level of disgust concerning the dollar. As an indicator or that fact, the S & P Rating Agency just downgraded the US from an AAA rating to an AA+, a heavy blow to the status of the US and our dollar in world markets.

Inflation – a silent form of robbery

Another very important factor to consider when we are talking about the purchasing power of the dollar is inflation. The simplest definition of inflation is: inflation is increasing the money supply. The more dollars in circulation, the less tangibles, goods, or services it will buy. We have been seeing a tremendous amount of dollar creation by the Fed in the last few years. When Hank Paulson was the Secretary of the Treasury, he asked the Fed for $2 trillion to stop the collapse of the economy. He got the money, but gave it to his banker buddies instead so they could put it in the stock market and make money on the free money. A couple years ago the Pentagon said it had misplaced $2.3 trillion dollars. No one seems to know where it went?

We have gone through Quantitative Easing 1 (QE1) and QE2 already as the Fed has pumped trillions into the banks, and it didn’t stimulate the economy one bit. All the money went to the banks and the insiders. The only thing that particular increase in the money supply accomplished was dilute the dollar even more and make the corrupt Wall Street gang richer. Now the Fed is poised for QE3, and there is no end in sight to their money creation. All they will succeed in doing is to inflate the dollar into oblivion.

To make the monopoly money creation worse, we just found out about a month ago that the Fed secretly created $16.1 trillion in 2008 during the sub-prime mortgage meltdown and wired it to the too-big-to-fail banks in this country, big U.S. corporations, and the Fed’s bed-fellow banks in Europe – more inflation. And we are wondering why the rest of the world is mad at us? Countries like China, Japan, and Russia which hold trillions of dollars of our debt are going ballistic because the US paper they have been holding, that was worth something a few years ago, is now worth only a few dimes on the dollar, and descending rapidly. Inflation though money creation is Wall Street’s insidious and silent form of robbery.

Gold is a measure of the purchasing power of the dollar

Inflation has a direct correlation to the purchasing power of the dollar. Let’s look now at the current purchasing power of the dollar to determine its relative value. There is no better measure to do that, than to look at the price of gold. The simple formula is: when the dollar drops in value, gold rises in value an equal amount to compensate. In other words, gold price is the barometer of the true purchasing of the dollar. Gold is the world’s only monetary metal at the present time. It is an historical law that for over 5,000 years gold has maintained its purchasing power. Neither the paper dollar nor any fiat world currency does that, only gold. Even though modern nations have reduced silver to an industrial metal, when the dollar collapses and the world is thrown into every kind of chaos and anarchy, silver will again regain its monetary status it held with gold at the beginning.

Purchasing power of the dollar a year ago and today

So, looking to spot gold price for the answer, how much has the purchasing power of the dollar lost in the last year? We know that the price of gold responds to or keeps pace with inflation, and with the collapse of the dollar. A simple example using simple numbers will illustrate. Say, for instance, that a person had $100,000 in the bank or the markets last August, 2010, and he bought a $100,000 worth of gold at that time.

In reality, no one buys gold at spot price, but for point of illustration, let’s take that $100,000 and buy as many ounces of gold as we can at $1,190 per ounce. Doing the simple math, by dividing $1,190 per ounce into $100,000 we could purchase 84 ounces of gold. Now let’s take today’s, August 18, 2011, spot price of gold and buy $100,000 of gold. When we divide $1,830 per ounce gold into $100,000 and we get 54.6 ounces of gold, an exact drop of 54% in the number of ounces purchased with the $100,000 back in August, 2010.

As we have already mentioned, gold has risen 54% in the last year-to-date (YTD). So, conversely, using the price of gold per ounce as a barometer of the collapsing dollar, we see that the dollar has lost 54% of its purchasing power in the last year. The numbers are even more dramatic when we look at silver, which also maintains its purchasing power as gold does. Silver has out performed gold, having risen 122% in the last year from $18.10 per ounce to $40.33 per ounce. The same $100,000 in August, 2010 would buy 5,525 ounces of silver at $18.10 per ounce. In August, 2011, that $100,000 would only buy 2,480 ounces of silver, a 122% drop in the number of ounces of silver in one year.

You are a twice loser – dollar drops while gold rises

By holding paper dollars or electronic digits while gold is climbing in response to the plummeting dollar, you are a twice loser. First, you lose, because as the dollar falls, your money purchases less. Second, as gold rises, you will pay more for it, if and when you decide to buy some. To illustrate that point, let’s take our little scenario with the $100,000 as we mentioned in the previous paragraph.

How much purchasing power has that $100,000 lost over the last year relative to gold? - $54,000. That $100,000 in paper, a year later, subtracting the $54,000 it has lost in purchasing power is now only worth $46,000. Now, let’s look at $100,000 purchase of gold in August, 2010, a total of 84 ounces of gold at $1,190 an ounce. What is it worth in August, 2011, in terms of gold? The 84 ounces times $1,830 per ounce just turned into $153,720. Our bright entrepreneur just made a neat $53,720 in one year on his investment. Not bad for one year’s appreciation.

By buying gold with the $100,000, rather than leaving it in paper or digital form, we went from a drop of $54,000 (or real value of $46,000) in the purchasing power of fiat paper or digital dollars, to an increase of $153,720 in actual gold value. So, the spread between the two ($153,720 - $46,000) is $107,720. And that is in just one year’s time. Those who stayed in paper or digital dollars should be cursing themselves by now. An additional bonus, however, is that the physical gold is held in hand rather than sitting as electronic digits on a thief’s computer. Keeping money in the bank or the markets and not putting it into gold or silver does become insanity when one does the simple math.

This simple truth or concept is almost impossible to explain to the average person, who somehow thinks that the markets, the banks, and the dollar, have descended from God, and have been eternally established as the guardian of their wealth. This kind of naïve, public mindset is another form of insanity that blankets our land.

Projected appreciation of gold and silver

Going one step further, let’s look at the potential appreciation of the gold and silver over time. What values per ounce could each attain in the chaotic days and years ahead? No one really knows, but conservative estimates say that when the dollar collapses, gold will get to at least $8,000 per ounce and silver $200 per ounce. I have seen estimates for gold as high as $53,000 an ounce, and silver for $950 an ounce, but for illustration purposes, let’s use the $8,000 number for gold and the $200 number for silver.

Assuming, now, that the dollar collapses and gold and silver reach those levels. If we have the 84 ounces of gold we purchased in August, 2010, at $1,190 per ounce, and gold is now $8,000 per ounce, our gold is worth a hefty $672,000 (84 oz. x $8,000 = $672,000). If one were a little slow at the switch, and waited to buy gold in August, 2011, at $1,830 per ounce, the 54.6 ounces of gold, now worth $8,000 an ounce, is worth $436,800 (54.6 oz. x $8,000 = $436,800).

On the other hand, if you listened to the good advice of your broker, financial advisor, accountant, CPA, or your husband or wife, and left your money in the banks or stock market, when the dollar collapses, how much wealth do you have? You guessed it – zero. Look for an open window on the 33rd floor.

Let’s look at the silver numbers in our appreciation scenario. They are even more dramatic than gold’s numbers. If we took the $100,000 and bought silver in August, 2010, at $18.10 per ounce, we would have 5,525 ounces of silver. Now, after the dollar collapses, the 5,525 oz. of silver, times $200 per ounce, equals $1,105,000. If we waited until August, 2011, to use the $100,000 to buy silver at $40.33 per ounce, we would have 2,480 ounces of silver, times $200 per oz., equals $496,000.

As I have mentioned in previous articles on my website about buying gold and silver, I recommend buying 90% “junk silver” for barter, the U.S. dimes, quarters and half dollars that were minted up until 1964. But I don’t recommend buying more than one $1,000 face value bag per household (full bag weighs 55 lbs. and contains 715 oz. of silver among the coins) of 90% silver coins. Why? - Because if you have too much, the disadvantages of having too much silver are daunting and cumbersome: weight, volume, bulk, storage, and mobility. However, the appreciation numbers for silver are impressive.

Why are gold and silver rising so dramatically?

But why are gold and silver prices rising so dramatically? All we need to do to answer that question is look around at what is happening in this country and the fatal effects of our countries’ greedy Wall Street bankers, corrupt politicians, and heads of huge US corporations. Things are going to get worse, and gold and silver values are going to continue to rise in response. The rest of the world is appalled at our greed. Russia’s Putin recently called the US a “parasite,” and with good reason.

As I mentioned before, China in hopping mad at the Fed for creating 10s of trillions of dollars out of thin air and sending it to its world banking cronies, thereby devastating the value of the trillions of dollars they hold of our debt. There is no stopping the financial and economic blood letting. When you have the computer that creates the money, as the Fed does, the only thing left is the next Weimar Republic collapse of the currency. This lunacy was recently voiced by former Fed chairman, Alan Greenspan, when he said, “The U.S. is not going to default on its debts. All we have to do is print money.”

Besides the collapsing dollar, gold is responding to a host of disastrous things: the real U.S. unemployment rate is between 25% to 35%. We have 46 million people on food stamps. Over 47% of all Americans don’t pay Federal income taxes because they don’t make enough money to pay taxes, and 58% of all work age Americans don’t have a full time job. Hundreds of thousands of Americans are losing their jobs every year due to the devastating depression our country is in. At the same time, the mega corporations in the U.S. continues to send thousands of jobs overseas every year for the sake of the bottom line profits. Consequently, our job situation continues to get sucked into a black hole.

Major, highly profitable corporations like General Electric pay no income taxes at all due to the tax structure designed specifically for them. The stock markets are a rigged game, with bankers and insiders using High Frequency Trading (HFT) to control and milk the markets. The too-big-to-fail banks are using the trillions of dollars of bailout money to buy commodities, buy each others’ stocks, and completely control the market.

Nothing is natural any more. Everything is manipulated. Every government number is a lie. The media feeds us propaganda as if it were popcorn during the Saturday matinee at the movie house. The government is totally corrupt. A recent poll indicated that 84% of Americans don’t trust politicians and their government. The clowns and crooks in Washington are only there for the gravy train, not to represent their constituents. Washington and Wall Street is such a corruptible, stinking mess that the only thing that would fix it properly is a match.

These are just a few of the reasons that gold and silver will continue to rise. But when the dollar finally turns into charcoal, gold and silver will go through the roof. And if you are able to buy some gold and silver, and don’t do it when you can, you should be issued into the psych ward with all the other crazies. And, as the man said, “not owning gold is a form of insanity.”

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