There are many things you can do if gold and silver prices have you worried. Put down the financial section and pick up a good long book. Switch the channel over to classic movies. Or better still, take a very long nap.
It doesn’t need to be a Rip Van Winkle affair – a few months would do nicely – but what if it were 20 years? Say you climbed up the mountain with a roll of greenbacks in one pocket and the other pocket filled with gold and silver coins. Which would be of more use when you woke up?
The gold and silver coins would buy as much as they did the day you fell asleep, but it’s safe to say the greenbacks would not. If headline inflation had stayed where it is today those $1 bills would be worth a little more than 50 cents. Real inflation, if by some miracle it too had failed to rise over those 20 years, would make the bills worth closer to 30 cents.
Prices in terms of currency always rise over time. That’s not a fact of life, it is the nature of fiat money. To put that another way, the value of fiat money in terms of gold and silver always falls over time. It’s what goes on in the short term that causes sleepless nights.
As investors in gold and silver we should be concerned only with where the price is expected to be a few years down the road, and the long-term trends are pretty clear on that. If anything, deteriorating conditions suggest an upward shift in the trends.
Europe has already grown tired of fiscal responsibility and appears to be racing to its own cliff. That matters a great deal to us on the other side of the pond because the last thing we need right now is to lose some of our biggest customers.
Meanwhile, we are heading for a really big cliff ourselves if Congress can’t find a way around the mandated spending and tax cuts before the end of the year. Even if they pull a rabbit out of the hat it is very doubtful that anything can be done to restrain inflation much longer under the present conditions. If inflation were to reach double digits, the dollar could be worth less than a quarter in just 10 years. Hyperinflation could render the dollar virtually worthless.
No matter what the world’s leaders do to put a halt to the backslide, even the most fiscally responsible efforts will take years before producing positive results. Until we see some positive signs of enduring progress, it is only prudent to hold a substantial portion of our wealth in physical gold and silver.
Meanwhile, we needn’t stick our heads in the sand. Whenever gold and silver prices fall well below their long-term trends, as they have lately, we are presented with an opportunity that’s just too good to pass up.