Friday, September 30, 2011

To be, or not to be, a gold (and silver) bug

Looking at the monetary system we have at present through the lens of the Austrian perspective, one tends to want to invest in precious metals and hold them for a long time. For example, since the inception of the Federal Reserve in  1913, the dollar lost 98% of its value. This is compared to an ounce of gold. Most people don't realize it, but this is a direct outcome of inflation. In 1913, a dollar and an ounce of gold would buy you a nice suit. Today, an ounce of gold will still buy you a nice suit, but a dollar will buy you a candy bar. Inflation makes it very difficult for a middle class family to save money for their retirement. We have to stay ahead of inflation, which means we have to invest our savings instead of just saving it for a rainy day. It means we have to be speculators exposing our personal wealth to the risk of loss. Personally, I think it is the main reason people do not save. They know they had better spend it now before it loses value than to save it. Behavior like this over a long period for a family or nation eventually leads to a lower quality of life. Understanding this, I took on the strategy of buying silver every month to accumulate my "savings". I figure that both gold and silver will maintain their value relative to the dollar or other fiat currencies over time. I assumed that this is a way to save my capital against inflation without the risk of investing. However, I could be wrong. Yesterday I read an article by technical investor that has made money by shorting silver and believes that being a gold or silver bug is not a good strategy. He also expects silver to go down much farther yet as well.

His article is here.    

Admittedly, this article concerned me. Maybe I am taking the wrong strategy. Maybe I should be more aggressive and use options and short term trading to get ahead. I really do not want to do this, because I would rather focus on my core business (my fitness studio), than to spend time on studying the markets. Ironically, I read another article today that expresses my views and the rationale behind my strategy. It put me a bit back at ease.

Here is this article.

I am sticking to my original strategy. I don't feel comfortable investing in this climate. I feel the stock markets are too manipulated, bonds are too dangerous (too much debt-investors sooner or later will take a haircut), and real estate needs to correct another 20 to 25% before I would even consider getting back in the game. As per Bill Bonner, I think we are in the midst of a "great Correction" that may take years (decades?) to get back on track.

What do you think? 

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