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When is it a good idea to buy precious metals?

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Budgeting

When is it a good idea to buy precious metals?

Precious metals like gold, silver, or platinum are a common investment strategy used by all sorts of entities – whether countries, banks, or individuals. Often overlooked or dismissed by retail investment advisors, there are some important things to think about before buying a lot of gold.

It’s important to remember that very few people purchase PMs as an investment. They’re not a way to get rich: they’re a way to retain wealth.

Having all your financial eggs in one basket is a disastrous strategy. Even the most mainstream financial advice encourages an investor to diversify between the stock market, savings accounts, retirement funds, and other forms of investment. But even so, all of the above are still valued in a single currency: the dollar. And the dollar is a fiat currency which is the bedrock of an economy subject to depressions, recessions, and perhaps eventually runaway hyperinflation.

Diversifying your savings outside of the dollar is an important strategy. While buying assets in foreign currencies is one avenue of diversification, they are still currencies dependent upon the centralized financial system. 

One of the best options to retain and protect wealth is the purchase and storage of precious metals. Gold and silver have been used as money for millenia, and still remain a solid means of wealth retention. The value of precious metals stays reliably consistent throughout the years, the value of fiat currencies sometimes fluctuating wildly in relation to it.

The problem with fiat currency is that, despite the ability to be regulated, it is difficult to retain true value during an economic crisis. Traditionally, countries which have undergone hyperinflation, such as Zimbabwe, have instituted a stronger foreign currency such as the American dollar or the pound sterling as a substitute. However, foreign currency is often made illegal during the inflation itself in order to attempt to force residents to use their home currency (as we are currently seeing in Venezuela and, to a lesser degree, Argentina). Residents are forced to search for other alternatives to their currency, such as barter or another form of money. During the currency hyperinflation of the Deutsche mark in the last days of the Weimar Republic, the only form of money that retained value were precious metals: gold and silver.

Those who held on to Deutsche marks found them worthless in a few days: what cost a thousand marks one day might cost a million marks the next week. An ounce of gold, serving as a representation of decentralized value, would have stayed the same throughout the crash.

Gold and silver bullion serve as an important means of decentralization, with all the benefits of good monetary value like fungibility, permanence, and ease of use. When the centralized financial system suffers a dip, or even an entire collapse, the best way to preserve yourself from financial harm is to diversify your assets into something that is decentralized. Don’t let your wealth become dependent upon a single system’s health: take diversification to the next level and put some of your investments into precious metals, away from the dollar.

Should everybody buy gold? No, there are many reasons that a blanket encouragement to buy precious metals doesn’t make any sense. There are many things to address before you purchase PMs (like paying down debt, or saving up for a rainy day fund). But if you’ve found yourself in the enviable position of having a little extra saved up, it might be worth considering.

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