It is a common assumption that the money we use today is backed by gold and silver and, therefore, the Federal Reserve notes are redeemable in gold and or silver. By all accounts, this is a wrong assumption. As a matter of fact, the Federal Reserve notes have not been redeemable in gold since January 30, 1934, after the Great Depression.
As a remedy to the Great Depression, the government adopted the Fiat Currency system, which allowed the Fed to increase the supply of money thereby, decrease the value of the dollar. However, people still prefer buying and keeping gold and silver regardless of the entrenchment of the Fiat currency system.
Herein are some of the notable reasons to invest in gold and silver bullion.
#1. Inflation Hedge – An inherent characteristic of the Fiat currency system is that it is vulnerable to inflation. In this regard, over time, the purchasing power of the dollar has been decreasing, exposing currency holders to perpetual loss of wealth.
With regards to gold and silver as precious metals, they have been used for thousands of years as currencies. However, today they are not used. However, their value has remained stable over time and are thus used to hedge against inflation. In this regard, having part of your wealth in gold is regarded as the best way to protect your wealth from devaluation due to inflation.
#2. Gold And Silver Have Inherent Value – Every gold bug will acquaint you with the fact that beyond the value the government ascribes to paper money it does not inherent value. At the same time, they will tell you that gold (and by extension silver) being a precious metal that is not only tangible, but also they are scarce. Therefore, gold and silver also have inherent value that cannot be washed away. This is true whether it’s solid gold bullion or even junk silver coins. While the government has the power to print new money on a whim, there is only so much silver and gold to mine. Therefore, their value will remain constant through time.
#3. Gold And Silver Are Tangible Assets – Owning silver and gold bullion (in coin, bars or ingots) gives tangible assets that you can store in your bank safe deposit box or home safe. These investments ensure that you have a physical asset that maintains its value and is redeemable anytime. This is different to silver and gold mutual funds, precious metal mining company stocks and precious metal exchange-traded funds, which are somewhat restrictive regarding asset usage.
However, before buying gold and silver bullion to diversify your investment portfolio, you should take heed of the following consideration:
You should investigate the bullion seller (such as Lear Capital) you deal with as well as the bullion you buy. Of critical importance is to understand that silver and gold come in different purities. For instance, the American Eagle gold coins are .9157 fine, making them 22 karat gold while the Philharmonic coins are .9999 fine, making them 24 karats gold.
Take these tips on board and you will be fine. Now you understand the value of gold and silver you can start investing. If you’re unsure whether buying physical gold for investment purposes is actually for you, you can start trading gold online, and once you understand the market more, you’ll be ready to make the decision.