This week I want to talk about a very controversial subject right now: the problem with holding gold and silver. Every time there is a recession, the price of gold and silver skyrockets. There are a lot of new YouTube videos right now telling people to buy gold and silver. So I wanted to have the conversation that gold and silver is just like any other asset class. There are benefits, but also potential downsides. WATCH NOW!
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VIDEO SUMMARY
Let us start with the current price chart for gold. Gold has been up significantly since the stock market crashed in mid February. As you can see, prices have skyrocketed which has generated a great deal of excitement about gold and silver.
The top reasons most people give for holding gold and silver are:
- Diversify into different asset classes
- Protect against inflation
The idea is that during a financial crisis, when markets are going crazy, you can move some of your money into gold and silver as a way to hold its value. Historically, gold and silver are precious metals that have been seen as valuable throughout history.
But if you are holding gold and silver, you should also realize that there are inherent problems with gold and silver. Gold and silver are commodities. A lot of people think about gold and silver as similar to currencies, but they are not. Price movements in commodity markets are completely different than price movements in currency markets. Commodity markets are driven by supply and demand. Currency markets are also driven by supply and demand, but also by other factors like the economy and actions by the Federal Reserve. Commodity markets tend to be volatile, because they are driven by supply and demand. This means that prices can go up and down very quickly. They tend to be more volatile than the currency market, the bond market, and the stock market.
If you are thinking of gold and silver as a safe haven, you need to be very careful, because the one thing we know about the gold and silver market is that prices are volatile. Just like the stock market, you can lose all your money.
I do think there is a place for gold and silver in people’s portfolios, but you need to be careful of the limitations of this asset class. On top of that, there are people putting videos on YouTube that are saying things I find questionable. They are questionable, because they are telling you to buy gold based on statements of opinion. These statements are their opinion on what might happen in the future. They might be right, or they might be wrong. But it is just an opinion. If their opinion is wrong, you can lose a lot of money.
Let us go through some of these statements that people are making.
- The US Federal Reserve will create inflation by printing money to pay for US stimulus programs. This is an opinion. What we are actually seeing right now is massive deflation as demand is lower due to the recession and prices are decreasing. It is possible that inflation could happen in the future, but it is an opinion that inflation will go out of control.
- Growing US debt and economic recession will cause the US dollar to collapse. This is an opinion. If the US does get into financial trouble, it is possible to make some simple policy changes, like increase the retirement age for government programs. Increasing the retirement age by three years has a significant impact on financial projections. So it is an opinion that the US would not be able to resolve any debt problems.
- Inflation of the US dollar will force currencies to return to the gold standard. This is an opinion. The US left the gold standard for the very reason we already discussed earlier: commodities are volatile. There is a lot of problems with pegging a currency to something that is volatile. It is an opinion that the US would tie their currency to the price of gold.
- Failure of the monetary system will cause the world to abandon the current central banks and move to a One World Currency or BitCoin. This is an opinion. The US would be foolish to give up control of their own currency. I am not saying it is impossible, but there is a lot of incentive for the US not to join a world currency.
These statements are opinions on what might happen in the future. Often people will make a YouTube video, give a dire prediction to scare you, and then at the end of the video they will try to sell you some gold. When you are making financial decisions, it is important to be careful and realize when you are basing your decisions on someone’s opinion.
In a sense, this video is my own opinion, that we have a strong global currency system that can work through the issues of a recession without the collapse of the monetary system. I also think a lot of people forget what is happening inside the US Federal Reserve. The US Federal Reserve has a team of really smart people. Their job is to ensure that the US dollar remains more attractive to investors than gold. So if you are purchasing gold assuming that it will become more attractive than dollars, just be aware that there is an army of people working towards the exact opposite outcome. I hope this discussion of gold and silver was helpful on providing a different perspective. My only goal here is to encourage people to be careful and thoughtful as you are making decisions with your money.
Leave a comment down below letting me know what you think!
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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.