For most financial transactions today, gold is irrelevant. Wall Street can carry on quite happily without ever even thinking about gold.
Why, beyond emotional reasons, is it still a smart move to buy physical gold?
After all, gold does have its downsides. It doesn’t pay dividends or accrue interest. It just sits there. Its value hasn’t even kept up with inflation over the years.
The price of gold also just hit a five year low down nearly 41% since its September 2011 high… and for the two decades between 1980 and 2000 the price of gold fell, even while inflation still rose.
So why bother?
First, over time, the price will almost certainly rise significantly.
This has very little to do with the markets, and a lot to do with its scarcity.
Gold is a very scarce commodity relative to the demand.
All the gold ever mined is estimated to be only about 150,000 tons, and less than a third of that amount is still in the ground and recoverable.
Based on current gold production levels, all of the world’s known mines will be pretty much exhausted in about 20 years.
Stop and think about that for a moment. Scarcity…plus emotion.
Think back to our historical relationship with gold. Think of our desire and greed for gold.
Now think about what will happen to the price when there is no more gold in the ground.
Sure, we’re talking about 20 years from now. But think about what will happen to gold prices when everyone realizes we are just five years away from the end of production. Or 10 years away.
As those dates approach, it would take just a tiny shift in attitudes to increase the demand for gold to levels far in excess of supply.
What if the world’s investors decided to increase their exposure to gold in their portfolios by one percentage point?
Or if the BRIC countries — Brazil, Russia, India and China — decided to bring their gold-to-currency ratios up to the standard of the U.S.?
In either scenario, there wouldn’t be enough gold to meet the demand.
In other words — because of scarcity — now is the time to buy gold … before everyone else starts the countdown to the end of gold production, and both demand and prices soar.
The second reason to buy gold now is as a form of insurance against government and central bank madness.
The U.S. and many other Western countries have national debts, deficits and entitlement spending that is out of control. Their positions are unsustainable.
This, in turn, encourages central banks to behave recklessly, putting world markets — and your money — in very real danger.
So the question you have to ask yourself— as you think about your investments and savings — is this:
Do I trust Washington to keep my money safe?
If not, then you’ll want to put a proportion of your wealth into gold bullion.
Consider reasons one and two in combination.
In a world where the future supply of gold is uncertain, and where governments and central banks are behaving recklessly … there is a very real possibility that gold prices will go up dramatically over the next few years.
Also, buying gold is like buying insurance.
You insure your home and your car, just in case something bad happens.
When you buy home owners insurance, it’s not because you want your home to be consumed by fire, of wrecked by a hurricane. But you protect yourself nevertheless.
Editor’s Note: The safest places to store your physical gold
It’s the same with gold. Owning gold doesn’t mean you want there to be a catastrophic meltdown of the financial system. But you buy it anyway, just in case.
Buy it and keep it close. So it’s there for you, just in case the rest of your wealth suddenly takes a huge hit.
The third reason to buy physical gold: Gold is better than cash.
Earlier I mentioned how gold has a few downsides, like its historical inability to keep up with inflation—and the fact that it doesn’t pay any dividends or offer a guaranteed return.
But let’s not knock gold too much. Because cash isn’t such a great store of value or wealth either.
There are plenty of stories about people who store cash under their mattresses or in boxes buried in their back yards. They do that because they don’t trust banks. And that’s fair enough.
But it’s not such a smart move when you consider that the U.S. dollar lost over 98% of its purchasing power between 1900 and the year 2000.
And when we look at how the Fed has been pumping billions of “freshly printed” dollars into the system since 2008, it would be foolish to think that this century will see any less of a fall of value in the dollar.
Within that context, these hoarders would have done much better to bury gold in their yards instead of cash.
If you want to discover the best time to buy gold, my top secret places to store your physical gold, and my exclusive tactics and strategies to help you multiply your wealth with precious metals check out my newly updated “Ultimate Gold and Silver Trading Course.”
Click here now for a complimentary look at the first session.
All the best,
Larry Edelson is the instructor of the “Ultimate Gold and Silver Trading Course” and editor of the Weiss “Real Wealth Report,” “Power Portfolio,” and “Gold & Silver Trader.” In addition to overseeing these three premium services he also contributes to the Weiss’ daily “Money and Markets.”