Money or currency is a mechanism that’s been created by the governments and accepted by the people as means with which it’s possible to transfer the value of goods and services into other types of goods and services, money is the middle man here, basically. This would be the main definition of money, more or less, and in theory this type of system works fine, you create one type of goods or services, you get paid for these goods and service with money, which you then use to purchase different types of goods and services, different from the ones you produce. If someone is producing apples, if they want pears, they’re gonna have to sell apples to get pears, or maybe not if both parties would be willing to participate in direct exchange.
I said in theory this type of system is good, because in reality there are a lot of ways of how things can go wrongs very bad, very bad when it comes to the fact that the government is in the control of printing the money, well more precisely central banks. Before the seventies, money was being backed by gold, which meant that at any given moment, you could have walked up into a bank and asked for your money to be exchanged for gold. Even though you could do the same thing now, in some banks at least, you are not exchanging money for gold, you’re buying it, and if you look at the prices of gold before the seventies when money was still being backed by gold, you’ll notice that the value of gold has gone up, it’s gone up quite a lot actually.
One of the reason why the value of gold has changed so dramatically would be because of the fact that money is no longer backed by gold, which is what changed during the president Nixon’s stay in the White House. Now money is backed by the total amount of goods and services which are being produced in a country. New money is being created basically when someone needs it, they then decide to take out a loan in the bank, and then the money will be created to suite that persons needs for it, because it’s thought that the person is gonna create new goods and services into the economy, or at the very least spend the money and bring profit to other shop and factory owners by buying their products.
In times of crisis and even generally when the economy is good, newly created money doesn’t have any kind of value backing it, because as you know the total number of goods and services not only that it is not increasing, but it’s actually going down. Factories are closing their door, and the service industry is also going under, because people don’t have money to spend like they did before on the count of them not having any jobs. So in essence not only that the total number of goods and service didn’t go up, it actually remained the same, and all that newly created money has no reason why it should exist.
During our last crisis, when the banks and the insurance companies went under, the situation was even worse, it was made worse by the fact that government bailed out the fallen institutions, and it bailed them out, you’ve guessed it, by printing more money which had no coverage. What happened at times like these is that the overall value of existing currency tanked, became there’s a lot more new dollar which are being created, whose value will have to be covered by the existing value of goods and service within the economy. Money will then be worth less, since there’s more of it covering the same or even decreasing values of goods and services. What this means is that the shop owners and those who are producing goods, they they will be forced to increase the prices to cover the dwindling value of the dollar.
Gold is a great choice in situations like these because gold will not be losing its value, the value of gold will change with the, because it has a very high demand as a commodity and also because its scarce. The same thing that applies for merchandise in the convenience store goes for gold, gold dealers will be increasing the prices to protect the value of gold against inflation, so if you own gold, the value of it is gonna change not only because of the laws of supply and demand, the relations between the produced amounts of gold and the amounts which are consumed, but also because of the inflation. This makes gold and all the other precious metals a very wise thing to invest in.
If you are only keeping money in your bank account or in your “stocking” at home, you are actually losing money, because over time, prices of everything are gonna be increasing and you are gonna end up being able to buy less with the money that’s in your possession, less than what you would be able to buy normally if the prices stayed the same, if there were no inflation.
For the same reasons, it’s very important that when you do decide to liquidate your precious metals, when you decide to sell them, you need to make sure that you do that at the right time, do not sell them and then wait for a long time to spend the money. If you wait for too long, a couple of years, inflation is gonna do its bidding and you are not gonna be able to buy the same amounts of the goods and services that you would normally been able to buy. Whatever it is that you decide to do, make sure that you have at least some of your assets entangled into some kind of precious metal, and by entangled we are referring to having it invested in gold, silver, palladium or platinum, because these metals are gonna hold their value through all the economic problems that we have or may face in the future.