Why you want lower gold and silver prices

 

March 7, 2019

Pat Heller

 

I advocate that the prudent person should allocate a minor percentage of their investment portfolio or net worth to the ownership of bullion-priced physical gold and silver. In my mind, this is buying “wealth insurance.”

The concept behind doing so is that the value of gold and silver tends to move counter to the changing values of paper assets such as stocks, bonds, and paper currencies. When paper assets fall, precious metals prices tend to rise, and vice versa.

Even though I suggest owning some physical gold and silver for wealth insurance, deep down I would hope that precious metals prices over the long term would stay stable or, even better, would drop significantly.

What?

When people buy insurance, on their life, home, car, or health, they are all best off if they never have to collect on a claim. Literally, they hope what they pay for insurance ends up not being worth anything.

People still purchase insurance even though they hope never to collect, because the law of averages says that some people will face huge losses they cannot afford. Life runs smoother paying an insurance premium than having to recover from a major loss if it ever occurs.

That also applies to owning bullion-priced physical gold and silver as wealth insurance. If the economy does well, business profits increase, leading to higher stock prices. Bonds can be paid off in full instead of at a discount. Paper currencies will generally hold their values. In such circumstances, there will not be a rush to purchase safe haven assets such as precious metals.

If the economy were to perform spectacularly, that could even lead to a major fall in gold and silver prices. While people owning precious metals might not be happy to see them lose value, they should still be happy because the bulk of their investments are doing great.

But, while I am hopeful for a bright economic future in the long run, I fear some major bumps in the road before then. Therefore, owning physical gold and silver as wealth insurance can help you sleep better at night knowing that you have protection against that risk.

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