What’s happening with gold & silver?

March 1, 2013
Sovereign Valley Farm, Chile

For the last few weeks, I’ve had a steady stream of visitors make the trek down to Chile to escape the Northern Hemisphere winter and get a little taste of freedom.

Chile is a place that will soon be the easiest place in the world to establish a business. It’s already one of the easiest places in the world to obtain residency.

The central bank isn’t printing the currency into oblivion. The commercial banking system is conservative and well-capitalized. And contrary to uninformed opinions, Chile is a tax-efficient place to be– tax revenue as a percentage of GDP is the LOWEST in the OECD.

Most of all, this is a very safe, modern, civilized place where they generally just leave you alone.

This lesson was underscored soundly when I went to the airport a few days to pick up an old friend. I actually parked my car in the passenger drop-off area, and left it there unattended.

When I returned 5-10 minutes later, there was no SWAT team waiting to body slam me to the ground. No bomb squad. No cash-sniffing dogs. Nothing. Nobody cared. That’s because Chile has no police state paranoia… and it’s quite refreshing.

With that, I want to address the most frequently asked question we received this week: “What’s happening with the gold price?”

Undoubtedly a lot of people are concerned about precious metals right now.

Just remember that nothing goes up or down in a straight line. Gold has had 12+ years of positive gains, so it’s due for a correction. Since peaking at nearly $1,900 in late 2011, gold has fallen about 18% in US dollar terms.

In my view, though, this is an inappropriate way to look at gold.

The point of precious metals isn’t to invest or speculate. You don’t buy an ounce of gold hoping to sell it for more paper currency down the road. Rather, you buy gold to get rid of your paper currency.

Owning physical gold is like having a put option on your government and the financial system. And when you don’t have confidence in these things, the paper price of a gold contract that trades in a government-regulated commodities exchange is… irrelevant.

Now, if you’re a speculator looking to accumulate more paper currency profits, gold makes no sense.

The idea of speculating is to buy when there’s blood in the streets… when things are dirt cheap and completely hated by the market. Or at least undiscovered by the market.

Gold was a great speculation over a decade ago when it was hated by the market and sold for less than $300. But today, just 18% from its all-time nominal high, gold no longer fits this criteria.

If you’re looking for great speculations, there are better options. For example, junior mining stocks are almost universally hated right now. Chilean farmland is cheap… and virtually unheard of. Etc.

Bottom line, though, gold is something you should buy because you don’t trust your government or central bankers. Own physical metal (not ETFs or paper contracts), and use dips as an opportunity to trade more of your paper currency for a real store of value.

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