Given the fact that nearly every major government and central bank in the world has come right out and said that their #1 priority is to reduce the value of their currency, you would think that the “general public” may move some of their assets away from fiat currencies and government debt denominated in those currencies.
Well, if you thought that, you'd be wrong!
The most dangerous man in the world, Ben Bernanke, has come right out and said that creating inflation is his biggest priority at the moment. The textbook definition of inflation is an increase in the money supply. And an increase in the money supply, by definition, means the value of the money goes down as the amount of it in circulation goes up.
One of the most obvious assets to purchase at a time of inflation is gold & silver as a way to protect yourself from declining currencies.
Yet, given this stark evidence of coming currency devaluation the public purchased $155 billion worth of bonds in 2010 and only $2.7 billion worth of gold.
It defies belief. But in three separate encounters I've had in the last few weeks I have been able to see further into the psyche of the average person.
Here are my three encounters and what was said:
THE 55 YEAR OLD ITALIAN/CANADIAN SUCCESSFUL RESTAURANTEUR
This man owns a successful Italian restaurant in Acapulco and I had just bought a condo off of him for around $100,000 USD. He knows I am involved in “the markets” so he asked me for advice on what to do with the $100k.
I could tell he was very, very risk averse and I also knew he knew practically nothing about investing so I gave him the simplest plan I could scribble out on a napkin. I told him keep 25% in Canadian Dollars (because he is part Canadian and has bank accounts there), 25% in US Dollars (for currency diversification), 25% in gold & silver bullion and 25% in the stocks of gold & silver producing companies. I told him the reason for holding cash was in case the price of gold & gold stocks went down so he could buy more later.
He responded that he got similar advice from a “German friend” (note: Germans seem to really understand the gold story more than most nationalities – most likely due to Weimar and WWII memories). He thought it over and then he asked me, “You really have the courage to be buying gold now that is has gone up so much?”
I responded, “This takes no courage at all. It takes much more courage to hold the US and Canadian dollars!”
He never said what he was going to do but I actually saw him scribble out the “Gold Stocks” portion as I walked away. I’ll bet he stays almost all in cash – although he mentioned he might buy real estate. I told him real estate, depending on where it is, is better than holding currencies but it is amazing how easily people will accept holding fiat cash and sometimes risky real estate and yet still consider gold to be too risky.
THE MIDDLE AGED CANADIAN EX-GIRLFRIEND
My first ex-girlfriend asked me about 1.5 years ago if she should sell her Vancouver condo as it had gone up a lot in price. I told her it is a purely personal decision, because it was her home. But from an investment standpoint it’d make a lot of sense to sell the Vancouver condo, put the funds into gold and rent for a few years until the Vancouver real estate bubble popped. She sold the condo and I just assumed she had bought gold with the proceeds as I advised.
I spoke with her recently and she divulged to me she never bought gold (then around $900/oz). She told me it seemed too risky. I told her she should still buy gold with the cash but there is no way she can buy now because she thought it was too risky at $900… at $1,300 she wouldn’t even consider it. Obviously, had she followed my advice she would have had a great gain in the last 1.5 years.
MOM & DAD
I’ve been telling them both to buy gold for 5 years now. Neither has bought hardly anything. Both appear to have woken up a little bit as to why gold might be a good place to store funds but as with my ex-gf they just cannot bring themselves to buy now that the price has gone up.
The psychology of not wanting to buy something after it has gone up dramatically in price is completely understandable. However, notice, that not many people feel the same when it comes to real estate. When real estate has been rising and rising it tends to attract more buyers, not less.
So what is it about gold that people find so risky? Why is it so hard to get “normal” people to even consider holding 10% of their assets in this “risky” asset?? Obviously, pre-fiat currencies people wouldn’t think twice about storing their wealth in gold. What has changed?
And how is it that people buy so easily into fiat currencies? The Euro has only been in existence for 11 years yet many Europeans are in shock when we tell them it might go to zero. They consider it “as good as gold”.
I posed these questions in a casual email to our resident stock guru in chief here at The Dollar Vigilante, Ed Bugos. Here was his response:
The answer I would offer is that most people view gold as a useless commodity. At least they can ‘use' oil…it is an essential element in the industrial process, unlike gold, say people like Buffett. And when they hear how it is supposed to be money because it limits the state, they roll their eyes at what they perceive as free market dogma…religion. So they don't get it. The bull market in gold will teach them, though not to all of course. Those who don't eventually learn the lesson are either going to lose the shirts off their backs or they will vindictively plunge us into a totalitarian nightmare.
But as long as most people think this way, the progressive policies (including inflation and intervention) responsible for the growth of the state will continue, and drive gold higher.
And that continues on this very day. Gold was up another $20 per ounce yet again today. And all of the stocks in our Dollar Vigilante portfolio have been rising at a rapid clip. If you are like the people above and still don't understand why it makes sense to sell your fiat currencies and buy gold then Subscribe to The Dollar Vigilante today (It's only $15/month for Basic or $25/month with full stock recommendations). Our next issue comes out on November 1st and we will have more info on how to survive and prosper through the coming collapse of the Dollar.