It has always perplexed me that the opponents to gold and silver investments are also proponents of diversification. Investopedia defines diversification as “A risk management technique that mixes a wide variety of investments within a portfolio.” That goes far beyond substituting one paper asset for another.
In a very broad sense, investments divide into two classes: those that are currency sensitive and those that are not. When the dominant currency is strong, asset classes dependent on the currency perform as well as or better than those independent of it. Conversely, when the dominant currency is in decline, asset classes independent of currency perform best.
Effective risk management must take into consideration the relative strength of money. If nothing else, there is little doubt that debt burden at today’s levels threatens every western currency. It is only logical to take a defensive posture in gold and silver, which are not sensitive to the threat.
There is, however, a strong psychological aversion to the idea that our currency is fallible. It runs counter to everything we have been taught and, at least until recently, to what we have experienced in our lifetimes. None-the-less, gold and silver prices refuse to stay down.
So despite gold flirting with $1500 and silver with $26 they keep bouncing back as they are today. Like squirrels caught in the middle of a highway, investors sense the danger but in their panic they dart back and forth uncertain of which way to run. Honking horns just heightens their panic.
The sensible thing, naturally, is to first get to safety as quickly as possible and then sort things out. If you find yourself on the wrong side of the road it is still better than being in the middle of traffic. You can always go back when the mayhem abates.
Chances are that sound instincts were behind the decision to cross the road in the first place. In times of uncertainty instinct may be all we have to guide us and it is almost always wisest to trust that instinct.
The timeless value of gold and silver is deeply embedded in our DNA. If we shut out all of the noise and listen to what our intuition is telling us, we can find peace of mind amidst the chaos with gold and silver investment.