There is a wide range of factors that contribute to the rise in interest for precious metals. Find out why buy gold and silver bullion today.
Below are six of the key reasons (not in any particular order):
1. Negative real interest rates
Interest rates in the developed world are close to zero with inflation rates running increasingly higher. This means that you virtually aren’t sacrificing any yield by owning precious metals. The opportunity cost is highly favorable. As there, usually, is a storage cost associated with gold and silver the general viewpoint is the higher the yield on government “risk-free” securities the less attractive metals will become. Precious metals don’t pay a yield, which is why people tend to want to buy and own them when they are facing negative or low real interest rates.
With U.S. rates poised to stay low to AT LEAST 2015 the chances of interest rates rising is slim.
2. The ownership of precious metals is low
Institutional ownership as a percentage of global financial assets is low. Many pension funds have only a very limited exposure to gold.
For individuals the situation is similar. In most of Europe and the U.S. you are swamped with advertising for “cash for gold”. People are encouraged to sell their gold at low prices. There is very little information about actually owning precious metals. Tell your friends that you think about buying a silver bar and they will look at you strangely.
3. The monetization of debt
This is what many like to call the collapse of the fiat monetary system.
Many western and developed nation’s currencies will eventually not be worth the paper they are printed on due to the explosion of money printing. As currencies become increasingly worthless people will turn to precious metals as a means of wealth protection. Just like it has been throughout history gold is still money. Probably the only “currency” where you have no counterparty risk. Why will the fiat monetary system collapse? Well, at the rate the Fed, BOJ, ECB etc are printing money there really is only one direction we are heading in.
For the U.S. specifically it will lead to the demise of the dollar as the worlds reserve currency. It is beyond the scope of this ebook to fully discuss this but suffice to say is that some international transactions already are settled in other currencies than the dollar. Also, some central banks in the world such as China and Russia are already discussing the possibility of replacing the dollar with a basket of currencies. We will probably also see some currencies being backed by gold in the future.
4. Central bank buying
After decades of selling gold central banks around the world are now net buyers again. Some, like China and Russia are aggressively buying gold.
5. Promotion of gold ownership
Even though this might seem to contradict point 2 above, many countries around the world such as China actively promote private ownership of gold. I suspect we will see an awakening in western countries within the near future. Unlike Europe and the U.S., Asian and Middle Eastern economics have gone through wars, booms and busts more recently than us, and their populations are more educated about how to preserve wealth in a time of crisis. There is also a cultural relation to gold in many countries such as for example India.
6. There is a limited amount of precious metals
Just as the headline says, there is a limited amount of gold and silver produced every year so precious metals are scarce. All of the gold ever produced in the world would according to some calculations fit into three Olympic size swimming pools. Platinum is even more scarce than gold.Finally, precious metals are the ultimate insurance policy against inflation. As more and more citizens realize the irresponsible and reckless way U.S. and European governments are handling monetary and fiscal policies, they will increasingly turn to precious metals. This will make it more difficult to buy these assets going forward.
During periods of turmoil increased transaction costs is exactly what happens. We saw evidence of this during the financial crisis 2007-2008. At that time, gold buyers were forced to pay between a 9%-15% premium over the spot price to buy coins. And coins were hard to come by.
Shipping delays of 30-60 days were the norm and lags of up to four months were not uncommon. There were days when suppliers simply advised dealers not to sell, because no one could promise when, or even if, orders would be filled.
With all of this in mind it becomes clear that owning and having exposure to precious metals makes sense. It also makes sense to build a position gradually, at a time when you really don’t NEED to do it because it will be much more difficult when everyone else wants to build positions. To finding the cheapest silver bullion have a look at the suggestions blow.
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