“The Bullions are sitting out there waiting to give you their Gold! Are you gonna take it? Are you MAN enough to take it?”
-Glengarry Glen Boss
Physical Gold & Silver
It’s always a good idea to own Physical Gold and Silver as small part of your investment portfolio. However, based on the recent trends of U.S. Economic Policy, Energy Policy and Geopolitics, the case to invest in Gold and Silver is becoming stronger by the day.
U.S. Economic Policy
How has the U.S. decided to deal with Economic Crises? Lowering Interest Rates to 0% and Printing money NON-STOP.
Since the COVID lockdowns, the Federal Reserve has printed 80% of all US dollars in existence. Even though the COVID lockdowns are over and everything is “back to normal”, the Fed is STILL printing a MASSIVE amount of dollars EVERY MONTH!!!
*By Printing, I mean adding 0’s into a computer. Everything is digital now.
Dollars are added to the Central Bank, where they are debited/credited to Financial Institutions (Wells Fargo, JP Morgan, etc.). These Financial Institutions now can lend out that new money in their accounts to governments, companies or people. With a legally required reserve ratio of 10%, the new money in bank reserves could potentially result in a nominal monetary increase of 10x of the money printed.
Figure 1: M1 money supply 1970-2022. M1 tracks the money supply of the most liquid assets.
How does this impact us? That is because Money Supply directly impacts Inflation.
For example, let’s say that the total Economy has $100 of dollars and there are 1,000 loaves of bread that are produced per year. The price of a loaf of bread would then be 10 cents on average.
2 years later, we printed another $400 to the Economy. However, production of bread loaves only increased by 10%. So we producing 1,100 loaves per year but we have a total of $500 in the Economy now. The NEW equilibrium price of bread is around 45 cents per loaf. The price of bread has gone up 350%!
Replace bread in the example with any other physical goods that you use on a daily basis. They all have physical limits in production and supply. This includes Oil, Gas, Cars, Phones, etc.