If you’re unsure whether you should put some of your cash into the yellow metal, read on.
Why you should have a portion of your portfolio invested in the yellow metal
Here are three reasons why you should have gold as part of your portfolio, as explained in FSP Invest’s How to Make Money from Gold
#1: Soaring demand... but a lack of supply
Currently, all new mining output of gold’s accounted for by the existing sources of demand. Simply put, there’s no capacity to supply the rising demand for gold over the medium- to long-term.
Global production is currently falling with costs soaring, further exacerbating an already tight supply demand balance. It takes at least four years to bring a new mine to fruition.
After decades of underinvestment in exploration and mining, the imbalance of supply and demand’s enough to ensure the gold price rises, and not just in US dollar terms.
#2: Rampant government spending – unfettered debt!
Government spending is designed to bribe electorates. The secret for governments is to somehow “give” more to their electorates than what they “take” in the form of taxes.
This is done by deficit spending (government’s spending more than what they receive in taxes). Over the long-term, this spells ruin; but power in the short-term is more important for politicians.
Debt and deficit ratios in advanced countries are starting to resemble those of dodgy third world countries. This means declining credit quality. The ultimate end-game is default.
This negatively affects the value of the national currency and results in an implosion of the economy. The Argentine experience, and more recently that of Iceland and Greece, highlights the implications for ordinary citizens when their government bankrupts the nation.
#3: Competitive devaluation and debasement of currencies
Globally, governments are increasingly resorting to competitively devaluing or debasing their currencies as a policy measure to avoid unpopular economic reforms in the face of increasing global competition.
The problem comes from economic concepts where GDP is the main measure of economic performance. GDP is effectively a country’s income statement.
The balance sheet (wealth side) isn’t measured. And if something isn’t measured, it tends not to matter.
Unfortunately, the national currency IS supposed to function as the store of wealth. The attack by government on this function means you need to protect yourself from this wealth destruction.
Political attack on global currencies means investors need to resort to hard assets (in general) and precious metals (in particular) to protect their wealth.
There you have it, three reasons why you should own gold.