Top 5 Reasons To Buy Gold And Silver

Posted by admin on Tuesday, September 6th, 2011

While gold and silver (and precious metals in general) have long been known to be a solid investment, there are many reasons why now is a better time than any to start building up your precious metals portfolio.

1. Governments’ Finances Are Out of Control

The damage that lack of financial responsibility can do has been seen over the last few years. First, we had the financial crisis (or credit crunch) generally blamed on the big banks inability to control their lending and their speculative greed (remember sub prime mortgages?). More recently, we have had the burgeoning debt of the United States and Europe getting out of control. Governments have been overspending for decades, and seem unable to control this.

At some point, this lack of fiscal restraint will lead to a further, and worse, financial crisis. There have been pointers over the last few years as to what will happen to the price of the precious metals when this occurs. Stock markets and government debt prices fall, and silver and gold rises.

2. Central Banks Are Buying Silver and Gold Again

When central banks start to bolster their gold reserves, it a clue that there is widespread pessimism of the prospects for the world’s economy. According to the World Gold Council, there has been increasing demand from Central Banks, particularly Russia, Mexico, and Thailand. For the first time since the 1980’s, central banks have added to their stocks of gold and silver for three years in a row.

India’s and China’s imports of gold and silver surged to their highest ever in the second quarter of this year. This growth seems set to continue, particularly in China as it seeks to replace dollar denominated debt with gold and silver as a hedge against a weakening dollar.

3. Savings Rates Have Negative Value

Even though the economies of the developed western world are sluggish at best – a double dip recession is now expected – inflation is still rising. Costs of energy – oil, electric, and gas – and basic foodstuffs are increasing at rates not seen for several years. Inflation in the USA is running at 3.8%, the highest it has been since mid 2009, and in the UK, Consumer Price Inflation is 4.4%.

Across the Eurozone countries, inflation is rising at 2.5%. Compare these to bank base rates (interest rates) in the three areas, 0%, 0.5%, and 1.5% respectively, and investors are actually receiving a negative rate of interest on money deposited in bank accounts.

In such an environment, investors look for value in their investments. Gold and silver traditionally provide this.

4. Measured Against Equities, Long Term, Gold and Silver Look Cheap

By some measures, gold and silver are still cheap. has looked at the idea of ‘sleeping’ investment markets in earlier articles. Basically what this theory shows is that for periods of 17 to 25 years, one asset class stagnates, whilst another catches up. Equities performed remarkably from the mid-1980’s to shortly after the turn of the century. Gold and silver has been catching up on equity investment returns for the last ten years, whilst equity indices have stagnated. Measured against the S&P 500, and according to some metals analysts, gold would have to reach a price of around $6400 an ounce to be considered on a par to its relative level of the early 1980’s.

Supplies of Precious Metals Are Limited

This is a given. Although as prices rise more mining becomes economic, which will add to supply in the short term, there is a finite amount of gold and silver that the planet can give up. As the cost of production rises so to will the end price of the commodity. Small rises in demand will have a much higher impact to the upward momentum of this end price.

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