Investing in Gold and Silver – RISKY or Safe – Why and How?

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(June 2012)

Rather than answer this question directly, let’s approach this question from another direction.

  • Is it risky to assume the US government will continue to spend $1-$2Trillion more each year than its income? (The current deficit is well in excess of $1Trillion.)
  • Is it risky to assume the US government will borrow the difference between expenses and revenues each year? (The government has been borrowing since WWII and has accumulated in excess of $15Trillion in national debt.)
  • Is it risky to assume that both debt and currency in circulation will increase rapidly, since all currency is created as debt? (More borrowing means more debt, and that means more currency in circulation.)
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  • Is it risky to assume that The Federal Reserve (The Central Bank of the USA) will create as much money as is needed to keep the politicians happy and US government spending? (This seems inevitable.)
  • Is it risky to assume that, all evidence to the contrary, our national politicians will suddenly act in a fiscally responsible manner? (They will talk but positive action seems unlikely.)
  • Is it risky to assume that the US government will continue to engage in wars and increase spending on military adventures? (Iran, Pakistan, China, and Russia come to mind.)
  • Is it risky to assume that Social Security and Medicare will continue to increase in cost each year and that politicians will avoid reform as long as possible? (This issue has been discussed for several decades and nothing of substance has changed.)
  • Is it risky to assume the purchasing power of the dollar for real necessities such as gasoline, food, and shelter, will continue its long-term decline, since debt and currency in circulation are increasing rapidly? (Gasoline cost about $0.18 in the 1950s, and bread cost about $0.20. Since then we have increased the supply of currency in circulation and, on average, prices have increased proportionally.)
  • Is it risky to assume that gold and silver, which have been a store of value and real money for 5,000 years, will continue to be real money, and not merely another depreciating currency?

Given the above, it seems risky to believe what the US government says about inflation, a balanced budget, and a strong dollar, or to believe the US government will soon act fiscally responsible, to believe the national debt or the budget deficit will ever decrease, that the currency in circulation will only grow slowly, and that gold and silver prices will remain flat or even decrease. I think it is far less risky to assume that gold and silver will increase in price, on average, faster than most other investments.

Gold and silver are not always a good alternative to the dollar, such as between the years 1980 and 2001. But, in today’s economic environment, given all the above, gold and silver will be an excellent means of protecting your purchasing power. And, for the next several years, they are likely to be very safe investments.

GE Christenson
aka Deviant Investor

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