Using leverage is something that we all do on a daily basis. Leverage is what we might call a power-multiplier. With small power you can do something that takes a...
As we went through in last week’s post the economy, the environment and our biggest source of energy are in unexplored territory. No one can know exactly how it will play out but if you take the data and think for yourself, then you can build a picture of what it might look like. Since the demands for energy and economic growth are increasing exponentially and the resources that we can take from the earth is limited there is no chance for this to go on for all eternity. The thing is that there is no point in trying to calculate for how long the earth’s resources will last, that is also an interesting thing but right now it doesn´t really matter. What matters right now is at what point production increase can´t keep up with the demand increase anymore. Since the economy is designed to grow exponentially to function and the growth is based on increases in production. Increases in production creates a higher demand for natural resources and here comes the problem. The new oil findings are getting less and smaller, so it’s safe to say that increases in oil production can´t go on for much longer. Because the economy has to grow to still function and the real growth isn´t there central banks have started stimulation programs in the past 8 years or so. Those stimulation programs called “Quantative easing” or “QE” means that the central bank will increase the country´s currency supply to stimulate the economy. The increase in currency supply will weaken the currency and make it cheaper against other currencies which will increase exports, tourism etc. that will increase the country’s growth again. The problem is that most countries’ economies have in the past years been struggling with low growth so the central banks in most countries have been trying their best to weaken their currencies. You might call this “a race to the bottom” because every month you can read about different countries doing more and more QE to weaken their currencies. The problem is that the people of the countries are the ones getting hurt by this. When the currency gets weaker that means that you can buy less things for your money, prices rise. In some countries foods and living costs are rising and in others the stock and real estate markets gets pumped up. The central banks are at war against each other and everyone wants to win, everyone wants to make their currency the cheapest.
So what will happen if the war keeps going on?
Savers will be losers. If the central banks keep on doing what they´re doing peoples wealth will be destroyed. When the effects of all this is noticed by more and more people, that the money you have today will be worth less tomorrow the velocity of money will go up. This means that there will be an increase in transactions with the same money. It´s better to spend the money as fast as possible because it will be worth less tomorrow, the same goes for the person receiving the money, they to want to use the money as fast as they can. People lose belief in the currency and it becomes the hot potato that no one wants to hold. This is happening at this moment I Venezuela with an inflation rate over 100% this year and will happen in more countries in the coming years. If you want to read some more about how inflation works I have written a lot about it in my E-book.
So what about gold and silver
Gold and silver are the same all over the world. It is mined from the earth and can´t be printed or just created out of thin air. You can see gold and silver as world money, everywhere in the world you can exchange the metals for local currency. According to Investment experts like Ray Dalio, the founder of Bridgewater associates everyone should hold some percentage of their portfolio in physical gold. Gold and silver is an insurance policy, if the currencies lose value or the whole monetary system collapses the value of gold and silver will rise and cover the loses. Now there was something that I thought about when I heard this the first time, when the currency loses value, doesn´t everything go up in price compared to the currency. That is a fact, everything goes up in price. Then my thought was that if everything goes up then it´s no problem, it´s just to own a lot of stuff and not so much money. In theory that might be true but then the next problem comes, you will need food, water, electricity, pay rent etc. so even if you have a lot of things it might not be sure that you can exchange them for the other things that you want. Throughout time, every time there has been situations like this the medium of exchange has gone back to gold and silver or other rare metals. Gold and silver are well known by everyone, it’s the same everywhere, it´s rare and it holds a great value in small quantities. The investment experts (like Ray Dalio, Donald Trump and Kevin O´Leary) are recommending 5-15% of your total portfolio in precious metals.
What have I done, what to buy and where to buy it
I see this like an insurance more than an investment, after all it doesn´t produce any passive income. On the other hand, if you just keep your currency in the bank or in cash it doesn´t produce any passive income either. I figured that if I´m going to have a position in any currency it might as well be in Gold and silver, if I ever need some cash, I can always just go and exchange it for whatever currency I want. I have 10% of my total portfolio divided in 30% gold and 70% silver, all physical metals. Since I want to be able to exchange it in smaller quantities later on I have bought mainly 1 OZ coins and some 1 kilo ones, everything in 99.9% fine metals. I bought my gold and silver at Liberty silver Estonia because there you can still buy silver tax free (most countries have 8-25% tax on silver). It´s possible to go there and pick it up yourself or you can have it sent to you fully insured. From what I have heard will silver be taxed with 25% in Estonia also starting from the first of July 2016, because of pressure from the EU. Here you can check out Liberty silvers website
Kind regards Robin Flint