Why Should You Invest In Gold? Part I

Of the many causes driving the current gold cycle, here are a few of the most important:

The U.S. Bears A Greater Debt Load Now Than During The Great Depression - US debt of consumers, businesses, governments and financial institutions exceeded $44 trillion in 2008, compared with only $11 trillion in output. The nation's debt more than triples its gross domestic product. Compare that to 1933 when debt was only 2 1/2 times the GDP. Also, with the lowest interest rates in four decades applied to this debt, we can only look forward to it growing larger when those rates rise. See the full story on the U.S. Debt Load

The Stock Market Has Not Yet Seen The Worst
Looking at the massive amount of corporate debt (over $8.3 trillion), most of our companies are debt-heavy. For many, their debts may even exceed their assets, making them balance sheet insolvent. When companies are no longer able to cover their debts, Chapter 11 or even liquidation may be the only answer. No wonder bankruptcies recently hit an all-time high and have begun involving increasingly larger and seemingly stable firms.

While corporate juggling may keep stock prices artificially high for some time, in the end a share has value only if the underlying company has a positive net worth.

Declining Global Dollar Reserves
At the end of World War II, the Dollar finally triumphed over the British Sterling to become the standard "world currency". But now the Euro may be ready to take the Dollar on. With the rise of the Euro, many nations are trading in their Dollars, with China and Japan taking the position the Euro has become the world's emerging reserve currency. As the Euro strengthens, the Dollar weakens, but gold becomes stronger than ever. Does all of this mean you should sell your stocks and any investments involving Dollars? No, but in this time of change it would be a good idea to diversify with gold.

Although The Value Of All Currencies Goes Down In Time, Gold Naturally Increases
Gold prices remain stable over long-periods of time, while currencies normally lose 95-100 percent of their value every hundred years to inflation. A Dollar today will buy less than five percent of what it would in 1906, while one ounce of gold would buy the same amount of goods today as it did back then.

Demand For Gold Is Increasing Because Chinese Citizens May Now Own Gold
In addition to the Chinese government's plan to increase gold reserves, the over one billion individuals in the population may also buy gold. With China's high rate of savings this should mean gold demand could rise, as proven by the Shanghai Gold Exchange record setting sales. While numbers are still uncertain, some estimate that over $30 billion in Chinese money could be transferred into privately held gold within 5 years.

US Trade Deficit Continues To Increase
The Commerce Department reported Friday that the gap between what America sells abroad and what it imports rose to $725.8 billion last year, up by 17.5 percent from the previous record of $617.6 billion set in 2004.

It marked the fourth consecutive year that America's trade deficit has set a record as American consumers continued their seemingly insatiable demand for all things foreign from new cars to televisions and electronic goods.

The increased foreign competition has helped to keep the lid on prices in this country, but critics say the rising trade deficit is a major factor in the loss of nearly 3 million manufacturing jobs since mid-2000 as U.S. companies moved production overseas to lower-waged nations. Many economists believe those manufacturing jobs will never come back.

"Such a huge trade gap undercuts domestic manufacturing and destroys good U.S. jobs," said Richard Trumka, secretary-treasuer of labor's AFL-CIO. "America's gargantuan trade deficit is a weight around American workers' necks that is pulling them into a cycle of debt, bankruptcy and low-wage service jobs."

Terrorism Threats
Any act of terrorism could significantly affect our financial markets, however since gold moves opposite to traditional investments, it should not be as vulnerable.

With Interest Rates Increasing, Gold Should Rise Also
Rising interest rates lead the way for inflation. Although gold keeps pace by increasing in value, most paper assets will eventually fall behind.

Since federal prime lending rates are between 4 and 5 percent, now is a particularly good time to own gold. See example at http://www.certifiedgoldexchange.com/consider_gold.htm

Stocks Don't Respond Well To Rising Interest Rates
Stocks have a negative correlation to rising interest rates, as witnessed by 20 years of unimpressive returns. Rates rose from 4 percent in 1960 to 12 percent in 1980.

60s - Dow Jones Industrial Average +17.8 percent in ten years.

70s - Dow Jones Industrial Average +4.8 percent in ten years.

A Gold Market That May Finally Float Freely
Even if we exclude all the other uses for gold in electronics, medical equipment and astronomy tools, the demand for gold jewelry has doubled over the past ten years and now exceeds current productivity by over 30 percent. In the next five years, why not get on the side of this in-demand commodity!

Gold Demand Is Setting Records
Undoubtedly because of the rising shortage in the gold supply, the demand for gold itself has broken records. As Asian countries get back on their feet, their demand for gold has increased almost 100 percent and is expected to continue rising.

Greenspan Sounds Alert On Social Security - As He Exits
Allen Greenspan issued his warning that the White House and Congress needed to come up with a plan quickly to trim Social Security and Medicare benefits that 77 million baby boomers plan to receive.

He said, "The benefits currently promised cannot be financed by our government and Americans born in the 20 years after World War II needed to be put on notice to start putting away extra retirement savings during their working years."

"Even under the most optimistic economic assumptions of growth and productivity, government resources will be inadequate to provide the baby boom generation with the level of benefits their parents got," he said.

Although government estimations put shortfalls at 11 trillion (private studies put Social Security and Medicare imbalances at over 45 trillion).

"If we have promised more than our economy has the ability to deliver, ... as I fear we may have, we must recalibrate our public programs so pending retirees have time to adjust through other channels," he said. "If we delay, the adjustments could be abrupt and painful."

John Helliwell, a professor at the University of British Colombia, argued that immigration would make only a small dent toward offsetting the problems of a shrinking labor force that must support more retirees.

While the United States faces a major problem, the situation is even worse in Europe and Japan. Birthrates have declined further than in the United States, and the Europeans and Japanese have received less help in bolstering their labor forces with new immigrants.

Demand Exceeds Supply
Even with every gold mine in the world trying its best, they are only able to produce roughly 2,500 metric tons per year. In contrast, the worldwide demand for gold continues to increase, with a 4,000 to 5,000 metric tons annual shortfall. Therefore, currently only three-fifths to one-half of the demand is being met, causing demand to exceed supply.

The Strength And Feel Of Gold
There is nothing like holding your first gold in your hands and enjoying the sensation of its heaviness and mystery.  Only then will you understand what has driven so many people from explorers to miners to search it out and make it their own.

Gold serves a crucial role in an investment portfolio as the ultimate hedge against misfortune, because the metal itself will always retain at least some intrinsic value.  Whether riding the highs of the coming price surge or falling back to a more common level, gold should always hold its value.

We have learned the hard way from the stock market volatility that even shares in huge institutions such as Enron can still watch their value plummet to nothing. This simply can't occur with gold, which has timeless inherent value not built on paper or promises. Gold purchased today will likely keep its buying power over long periods of time, allowing your descendants to keep on fully enjoying it.

While the worth of other investment instruments shifts with the ever-changing economy, the value of gold itself should stay steady.

Think of gold as an insurance policy. You may never experience the many disasters covered by your insurance, but you know unexpected events can have a negative impact. By putting gold into your investment portfolio, you insure your future finances against those things beyond control.

Introduction
The reasons involve currencies, banking and monetary history. These are complex areas unfamiliar to most. Everyone knows how money works on an everyday level but most people are surprised at the way the money system works at the high-finance level. The current money system has some systematic problems and is likely to undergo great stress in the next few years. These stresses will affect the financial lives of everyone-many will lose, some will profit.

I've tried to present the case as simply and briefly as possible. Due to the inherent complexity of the topic, it's almost impossible to do it justice in a shorter piece. No special background or knowledge is required to understand what follows, just some time and an inquiring attitude.

Summary
Here are the fundamental reasons to invest in gold soon (in summary form):

1. Gold is a currency. It is the currency that evolved in the marketplace over the last 5,000 years.

2. Gold and silver are the only currencies not created and controlled by governments. All of today's other currencies (Dollars, Euros, Yen, Pounds, Renminbis, Rupees, etc) are 'fiat' currencies, which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws).

3. Governments always end up creating too much fiat currency out of thin air. All fiat currencies in the past have ended up worth very little, collapsing into hyperinflation. All of today's fiat currencies have been fiat currencies for less than 34 years (all government currencies were convertible to gold until 1971).   

4. The rate of creating fiat currency accelerated markedly in 1995, leading to today's worldwide bubble in asset prices. In September 2003 the rate started to slow, suggesting that the bubble might end soon.

5. In the pain of the post-bubble period, governments will come under pressure to return to backing their currencies with gold.

6. Returning to currencies backed by gold is practical. Even the possibility that it might happen will cause the value of gold to rise considerably.

7. Today's fiat currencies are unfair. For example, because the U.S. issues the world's reserve currency, the rest of the world sends the U.S. real goods and services and just receives bits of paper or electronic bookkeeping entries in return-many ships travel to the U.S. full of goods, but return half empty.

8. Governments and central banks have been suppressing the price of gold since 1995 by lending and selling their gold. They won't be able to keep it up forever. Then the price of gold and silver will soar.

9. The pressures of enormous debts will increasingly tempt the United States to inflate it's Dollar so much that it will become almost worthless. So that debts can easily be repaid in near-worthless dollars. Gold will gain as the falling U.S. Dollar destroys trust in fiat currencies.

10. The finance industry and governments have promoted fiat currencies at the expense of gold in the public's mind for decades. From here, the investing public's attitude to gold can only become more positive. Read entire report by: Dr David Evans - Why Invest in Gold Now!

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