Investing in Gold and Silver Bullion
Hedge Against Inflation
A one ounce gold or silver coin represents the capital required to prospect, mine, refine and produce the coin. Gold has intrinsic value and by this definition, provides a hedge against inflation. In contrast, fiat currency, has no real value but only a perceived value and is affected by government reserve bank policies. Silver has a “negative feedback” price control mechanism, it's value is usually less than it costs to produce. Paper money or fiat currency, as opposed to silver has a positive feedback loop, as the cost to produce paper money is negligible. Throughout history the amount of paper money in circulation has always grown, which inevitably leads to inflation. Inflation is caused when there is an increase in the money supply, caused by the printing of currency, monetisation of debt, etc. All too easy for central bankers controlled by politicians seeking re election.
Gold Rand Price from 05-01-1990 to 27-01-2017.
Gold price was R1032.00 per ounce and is currently around R15859.00 per ounce. The annualised price appreciation of gold from 1990 to 2017 is 10.62%. As a results of the South African Reserve Bank printing new money, and retail banks creating money through fractional lending, the South African Rand has depreciated 10.62% against gold, and inflation has increased by 10.62% per year. This is a hidden tax on South African citizens and, due to the devaluing currency, if you are a "saver", you are losing 10.62% buying power.
Gold Rand Price from 07-01-2000 to 27-01-2017.
Gold price was around R1708.00 per ounce and is currently around R15859.00 per ounce. Annualised price appreciation of gold since 2000 to 2017 is 13.95%.
Gold Euro Price from 14-01-2000 to 27-01-2017.
Gold price was around 283.95 euros per ounce and is currently around 1191.40 euros per ounce. Annualised price appreciation of gold since 2000 to 2017 is 8.78%.
Gold Pounds Price from 07-01-2000 to 27-01-2017.
Gold price was around 172.16 pounds per ounce and is currently around 943.36 pounds per ounce. Annualised price appreciation of gold since 2000 to 2017 is 10.48%.
Gold Dollar Price from 07-01-2000 to 27-01-2017.
Gold price was 283.95 dollars per ounce and is currently around 1191.40 dollars per ounce. Annualised price appreciation of gold since 2000 to 2017 is 8.78%.
Purchasing Power of the Dollar from 1913 -2013
In 1913, when the US Federal Reserve and the Internal Revenue Service were created, the real devaluation of the dollar against gold was more apparent. Since 1933 the dollar has devalued against gold by 91 percent as per the chart below. The American buying power has been radically reduced over the last century, questioning why the world still believes the dollar to be the reserve currency.
From 1913 to 2013 $1.00 has the buying power of 5 cents.
Many analysts believe that substantial devaluation or collapse of the Dollar is inevitable. The United States national debt stands at over $19.9 Trillion and is growing. (A staggering $155 265.00 per taxpayer.) This does not include any of the United States un funded liabilities, which total $ 62 Trillion [$62 000 000 000 000].
A trade deficit is not necessarily bad as it can correct over time, but if America cannot regain the ability to produce, cut spending or increase taxes, increasing trade deficits are guaranteed. America’s GDP is composed of more than 70% consumer spending, a lot of which, in the past has been subsidized by Americas credit based economy. Americans have a savings rate close to zero and have in the past subsidized their lifestyles with credit and by refinancing home loans. American debt, like all debt, will have to be repaid at some point in the future. America to a great extent has lost much of its production capacity, which leaves two options, default or depreciate the currency to the extent where the debt becomes manageable. Both of these scenarios are bullish for silver and gold bullion coins.
There is no default risk when you invest gold bullion and silver bullion coins. An investment in a gold bullion coin or a silver bullion coin can be contrasted with an in vestment in AAA rated US Treasury bond or on any other Government bond. There is no counter party risk and thus an insurance policy in times of economic uncertainty and, in the current economic climate of more and more money printing and debt.
Bullion Banking Mechanics
Bullion banks are some of the most influential participants in the global gold market. But who are these players and what do they actually do? And most importantly, how can these bullion banks trade thousands of times more gold each year than is actually in existence?
This infographic lifts the lid on bullion banking, looking at the world of fractional-reserve paper gold trading built on the unallocated gold account system. Topics covered include:
The identities of these bullion banks The fractional reserve nature of bullion banking and the paper gold creation process How the staggeringly large paper gold trading volumes are generated The gold price discovery process and how the price of gold is set in London by unallocated trading which channels gold demand away from real physical gold and into paper The secretive nature of the bullion banking club and how its activities in the City of London are deliberately shrouded in secrecy How new competitors into the London Gold Market claim to be providing competition but are actually perpetuating the underlying unallocated gold account system of trading.
Bullion Banking Mechanics – An infographic hosted at BullionStar.com
For more information about the mechanics of bullion banking, please also see BullionStar Gold University article Bullion Banking