Many people who understand that our current unsustainable debt-based monetary system is in its death throes protect their hard-earned nest eggs by purchasing physical gold and silver. Ironically, many are understandably uncertain about the right time to use their wealth insurance. Or how to deploy it.
Of course, some people insist that precious metals won’t insure anybody’s wealth during a currency crisis for myriad “reasons.” Here are the most common ones:
- The government will make gold illegal and confiscate it. (Even though it’s not practical, if only because gold is so easy to hide.)
- Despite 5000 years of history, the public won’t use precious metals because they only consider fiat currency as money today. (Really? Even after hyperinflation proves otherwise?)
- A currency failure will result in a “Mad Max” hell scape where money becomes useless and society permanently collapses. (I disagree; despite countless currency failures throughout history, that has yet to happen.)
In fact, gold and silver’s true value is as a bridge for transferring wealth. As for when you should use your wealth insurance, depending on your goals, there are two legitimate entry points:
Entry Point #1: When the Old Currency Is Hyperinflating
History tells us that during any hyperinflation, the public’s willingness to conduct transactions in physical gold and/or silver becomes widespread. In fact, during this period, many sellers insist on receiving precious metal rather than rapidly depreciating currency for their products. This is when you can exchange old silver US dimes for, say, a loaf of bread or a dozen eggs. Likewise, you can exchange old silver US quarters to buy, say, a gallon of gas or a pound of chicken.
Of course, as long as any dying currency is still being accepted — even if bread is selling for $1000 per loaf — then the correct course of action is to hold on to your precious metals and continue using the old currency until its purchasing power becomes so small that it can no longer be practically exchanged for goods and services.
It’s at this point where the purchasing power of precious metals soars for many hard assets. This is especially true for real estate. And this is when gold and silver holders can take advantage of some absolutely incredible deals. For example, during the Weimar hyperinflation, savvy investors could buy nice townhomes in downtown Berlin for five ounces of gold. If your currency begins to hyperinflate, you can expect similar bargains to be available again – no matter where you live.
Entry Point #2: After a Failing Currency Is Devalued or Retired
You can also use your wealth insurance to transfer your wealth when financial, monetary and economic stability emerges from the chaos of the old failing currency. There are two ways governments can restore this stability:
- By devaluing the old currency against gold (i.e., sharply increase the price of gold in the old currency)
- By replacing the old currency with a new currency
A fair revaluation of gold and silver may result at either point in time. And that is when you can consider using any gold and silver you have accumulated to your advantage by exchanging it for the devalued old currency or new currency. There are two caveats to this:
First, if they devalue the old currency against gold, it may be prudent to wait to ensure that the devaluation is sufficient to restore confidence in the old currency. If it isn’t, you’ll know that additional devaluations may be forthcoming.
Second, if the government introduces a new currency then, to restore trust, it should also include circulating gold (and possibly silver) legal tender coins, known as specie. However, the government may not provide specie, and simply claim that its new currency has “gold backing.” It could also introduce a new fiat currency with no connection to the yellow metal whatsoever. The bottom line is that in the absence of specie, it may be wise to wait to transfer your wealth until you see that the new currency is relatively stable and capable of maintaining its purchasing power.
Hopefully, this little primer gives you better insight into when you’re supposed to cash in some or all of your wealth insurance.
By the way, if you haven’t already, I also urge you to read my post explaining what everybody should have on hand before they make their first precious metals purchase. Just in case the powers-that-be wait too long to reset the monetary system and end up having their hands forced by collapsing supply chains.
Photo Credit: Athena Lao