Primer for Investing in Gold

Gold is a lumpy yellow metal that doesn't pay any dividends or interest. And Gold is a very, very bad investment in deflationary periods. And a very, very good investment in inflationary periods.

Which brings up a good point. What exactly is deflationary and what exactly is inflationary? Well, deflation is defined as a decrease in the general price level of goods and services. Or when the inflation rate is below zero. At times like this, CASH IS KING!!

However, inflation is defined the opposite. When the the prices rise over a period of time in goods and services. Ever since World War 2 ended, the only condition we really are familiar with is inflation. Most of the time the inflation rate rose gradually except for the period between the late 1970s to early 1980s. At times like this, investing in GOLD IS KING!!

Some of you may be familiar with the rising prices of foods and gasoline back then. When there is inflation, generally everything goes up, especially the commodities. There is a well known investment letter writer (very expensive) by the name of Dennis Gartman. His definition of commodities is "Anything that hurts your foot when dropped on it." Drop a bale of cotton, your foot is going to hurt. Drop a bushel of wheat, your foot is going to hurt. Drop a few pounds of gold, your foot is going to hurt.

Makes sense now? So in times of inflation, commodities are going to do well. And why? Well in simple terms, there is a finite number of commodities. And there is an infinite number of currency chasing after those commodities.

I know, I got ahead of myself for that one. We need to know what exactly causes inflation and why so many dollars chasing after a thing will make the price rise. Well, inflation is caused by the government when they expand the supply of money.

For instance, let's look at Zimbabwe. Have you ever seen a 100 Trillion dollar note? And no, I'm not stuttering. In case you didn't know, Zimbabwe has been ruled by a dictator for decades. And he ran the country to the ground. It has the highest inflation in the world. And I just saw a $100 Trillion dollars note. But the thing is no Zimbabwe merchant will accept that bill. That is hyperinflation for you. The net result is there is no trust in the currency by that country.

Gold is a lumpy yellow metal that doesn't pay any dividends or interest. And Gold is a very, very bad investment in deflationary periods. And a very, very good investment in inflationary periods.

I heard horrible stories of hyperinflation during pre-World War 2 Germany. People were using wheelbarrows to push around the money to buy a loaf of bread.

We had the Great Depression back in the 1920s to 1944. Everyone was miserable. Jobs were hard to find and nobody could afford most goods. Most people were living on little but their wits. If you want to know what it was like to live in that period, ask anyone over the age of 75 years old.

So hyperinflation is very, very bad. Depression is bad too. But the Goldilocks economy of small increases of inflation is just perfect. It enables the prices of homes to increase so homeowners have some equity and the bankers make a profit.

But what happens when there is a serious threat to the housing market? If the prices of homes go down and stay down, well everyone and their cousins are going to put their keys in the mail box and walk away from the mortgage payments. Banks are going out of business and the economy will crash. This is the politicians worst nightmare.

Again, politicians will never... EVER! Allow deflation to occur. When people are unhappy, the Pols lose their cushy jobs and the power that comes with it. The only alternative in the face of a impending depression is to... CRANK UP the money printing presses and attempt to inflate ourselves out of the mess.

Do you see where I'm going with this one? This is happening worldwide, home prices went up too much and too fast the past few years. And it all came to roost in 2008 when a lot of the subprime mortgages defaulted.

And yes, most of the governments around the world are doing crazy things that costs money. Money that the government doesn't have and never will. So they continue to print out currencies as never before.

Eventually, we are going to have MASSIVE INFLATION. It is coming. Nothing will stop this train. Those who ignore this is going to be shocked when it does happen. Note, I am not predicting we are going to have massive worldwide inflation. I'm saying it is GOING TO HAPPEN!

So take it for what it is worth. This lens is just free information and there is no value placed on the information placed here. As I said before, I hope that one or two of the readers will take this seriously and attempt to further their own education about how to protect themselves in the upcoming financial calamity by possibly investing in gold.

The rest of you? You are probably going to be living a vastly lower standard of living that you are used to now.

OK... the days of the easy Gold Rushes are long gone. Just like oil, all the easy stuff has been gotten. And now, most of the new gold discoveries are located in hostile countries, hard to reach locations, or in countries that are anti-mining. And think about it this way, many times, the good mines might be lucky to get 20-30 grams of gold per ton! Truly, gold isn't that easy to get anymore.

The LARGEST Gold Nugget ever found was in Australia in 1869. It was named, "Welcome Stranger." And you can see the picture of it on your right. The gross weight of this gold nugget was 2,520 Troy ounces or if my calculations are correct, about 241.6 pounds!!

The guy who discovered it practically tripped over the thing. This massive piece of gold was buried 2 inches below the dirt. And of course, like most people who win the lottery, he lost most of his wealth due to poor investment choices.

But that isn't happening any time soon so put away your camping gear.. your wife doesn't want you heading for the Yukon either. A lot of people died making the 1000 miles or so trek up to Klondike and when they got there, there were no more claims to be worked on. That must have really sucked...

Then again, the last two gold rushes happened in Mongolia (2001) and Brazil (2006). About 500,000 miners are working their claims in Brazil!!! Yikes!

There are several ways to invest in precious metals. They all have pros and cons. The final decision is up to you!

1. Rare Gold Coins - In United States, Presdient FDR banned the private ownership of gold in 1933 and devalued the United States dollar. It was probably the GREATEST theft in history because everyone in USA became poorer relative to the world overnight. President Nixon made it legal to own gold again in the 1970s... about 40 odd years later. But the US coins minted before 1933 became rare in terms of their condition. If you decide to go this route, ONLY buy coins that were slabbed by PCGS or NGC. Also, ONLY buy from reputable coin dealers. The price of these coins is the melt value plus the rarity of the coin. Keep in a safe location and don't tell anyone about them.


2. Bullion Coins - These are modern coins that sell just over the melt value of their gold weight. The most popular ones are the American Buffalo or Eagle, Canadian Maple Leaf, and South African Krugerrand. Keep in your safe deposit box or seal them into a plastic pipe and bury them in your yard. Just be sure there is a treasure map so your heirs will find it.


3. Gold Mutual Funds or Gold ETFs - This is an excellent way to protect your cash from inflation.


4. Junior Gold Miners or Jr. Gold Mining ETFs - As you probably guessed, these are very risky because most Junior Gold Miners are pure garbage as an investment vehicle. And they can be radioactive if you don't know what you are doing. But the leverage!!! You can shoot for the moon with these guys if you are on the right trend. So be very sure you know what you are doing or subscribe to a paid gold investing service that has a lot of expertise in this area.

Aristotle was a ancient Greek philosopher (384 BC to 322 BC) that was a student of the famous teacher, Plato. Aristotle was the teacher of Alexander the Great. He wrote and taught on a lot of subjects, including the qualities of what makes good money.

Aristotle said there were 5 characteristics that a thing must have to be considered as good money:

1. It must be durable. It must not fade away, corrode or change through time. This is why wheat isn't good as money.



2. It must be divisible. Money should be relatively easy to separate and recombined. This is why diamonds isn't good as money.



3. It must be convenient or portable. You can hold fifty grand worth of gold coins in your hand. This is why lead is probably not a good choice for money.



4. It must be consistent. It must retain its characteristics from one form to another. This is why real estate isn't a good form of money. There are lousy real estates and excellent real estates but they range along the entire spectrum.



5. It must be valuable by itself. Well, duh! The thing must be rare to be considered an excellent form of money. This is why paper isn't a good form of money.
   

And of all the materials and things in the world, Gold perfectly fits within Aristotle's definition of good money.