Why I Buy Gold and Silver?

The below section is an email I sent to my family and friends in January 2011 on why I buy Sunnah Money (gold and silver), and I hope to tweak it every now and then with additional information.


I’ve completely lost faith in fiat money (paper currency not backed by anything) as they have continuously been devalued from the time they lost their gold backing in 1971. As you can see in this chart, the US, Canadian, and Australian dollars as well as the British pound have lost over 80% of their value since 1971. This means that 1 dollar/pound today is worth less than 20 cents/pence forty years ago, or 1 dollar/pound in 1971 is worth over 5 dollars/pounds today. In the last two years since the financial crisis of 2008, governments around the world have been heavily devaluing their currencies and the ultimate result of which has been the high inflation being seen around the world now in food, commodities and energy. The faith in fiat money is simply the faith that the government issued IOU notes will have value when you go to spend it, which unfortunately I no longer have faith in, especially not in the long run.

USD and GBP Currency Debasement [1971-2009]

Aside from fiat money loosing their value over time, there are many cases within the last hundred years where fiat currencies have become worthless (Demonetized Currencies, Destruction of the World Currencies). The phenomenon of fiat currencies becoming worthless is known as hyperinflation, which basically means that the currency has become worthless as people have lost faith that it has value and one of the main causes of this is when the fiat currency becomes heavily printed. Most notable cases include Germany (Weimar Republic) in 1920s, Chile in 1970-73, Yugoslavia 1993-95, Argentina in 1990s, and Zimbabwe in 2000s. Countries have also devalued their currency in an instance, like with US dollar in 1934 by 43% and the British pound in 1949 by 30%. So government control over the value of their IOU notes isn’t worth trusting.

Hyper Inflation Nation
Part 1
Part 2
Part 3

So as long as central banks can create fiat money (in paper or digital form) and then devalue the money in my pocket (aka inflation, the hidden tax), then I choose not to store my savings/wealth in such a form, as ultimately I’m being robbed. Instead I choose to save it in the form of gold and silver. I know I cant eat it and cant get dividends on it, but I use it in order to convert my hard earned labour into something that will retain its value. Fiat currencies never normally last longer than 30 or 40 years, but as all the world currencies are fiat at the moment, they are all wondering how can they get themselves out of this huge predicament.

If I had to have money in any fiat currency, I would hold it in commodity currencies (currencies of countries that depend heavily on the export of certain raw materials for income) like the Australian Dollar, Canadian Dollar, New Zealand Dollar, and the South African Rand. Alternatively, I’d go for the Swiss Franc (CHF), which in the chart linked above retained around 70% of its value since 1971 and is used as a reserve currency by central banks. Individuals that I follow also recommend the Singapore Dollar and Norwegian Kroner as good currencies.

Why Gold?
Well gold has been money for centuries and the world was on a partial gold standard until 1971, which was cancelled by the US without the consent of the world. The most widely mentioned phrase about gold’s use in the monetary system is quoted by British economist John Maynard Keynes (Keynesian economics) being that it is a “barbarous relic”. Gold is hated by central banks of the world, as they prefer people to hold their paper currencies and as such they attempt to control/suppress gold’s price, most notably by the sale of large amounts of it into the open market – 395 tons Britain (1999-2002), 167 tons Australia (1997), over 438 tons Canada (1990-2003). Gold is also the only commodity that central banks keep in their reserve, with 18% of all world gold being held in central banks. The US holds 75% of its reserves as gold, while the ECB (European Central Bank) holds 25%, which makes me wonder why central bankers come out and say stupid things like “Our view is that gold has no role to play in the international monetary system” (Bank of Canada governor Mark Carney, November 2010), when Canada maintains 3.4 tons (US$ 153 million) of it as reserves. The reality is that many central banks around the world have been continuously buying gold for many years now, the biggest names of course are China, India, Russia, Iran and Mexico. So if central banks are holding it and claiming its not worth anything, you gotta believe they are lying.

Gold Percentage Annual Change 2001-2010

Why Silver?
Like gold, silver has been used as money for centuries, but its main role in today’s world is that its an industrial commodity – used in all electronics, mirrors, solar panels, silverware, water purification, and the list goes on and on. The world couldn’t function today without silver, as it’s the best conductor of electricity, among other things. In the 19th and 20th century, there used to be a silver standard used by many countries including India, China and Mexico. Silver is known as “the poor man’s gold”, though billionaire Warren Buffett invested in it in 1998, and as such it has been hated by the ‘powers that be’ for many centuries. The ‘powers that be’ have always had a close clinch on gold, which is why they purposefully crushed the silver standard used in the above countries and had them shift to the gold standard. The ‘powers that be’ have crushed the use of silver in all coinage in the world, the last of which were in the 1960s. That is why a US Quarter issued between 1932-1964 is now worth US$ 5.0655 today and a Canadian Quarter issued between 1920-1967 is worth US$ 4.2014. There is also an organization known as the Silver Users Association (SUA) that represents companies that heavily use silver in their products/services, that prefers that price of silver to be low in order to make more money. As a result of silver’s hated by the ‘powers that be’ and the benefit to the SUA for it to have a low price, the price of silver has been manipulated/suppressed for many decades.

The case for silver is that it is mainly consumed and the cost of mining it is more expensive than its current value, which as a result has depleting the huge above ground stock piles of silver that have been around since the 1950s. Presently, mainly investors are buying up silver as a precious metal, including the recent purchase of 15 million ounces for Canada’s Sprott Physical Silver Trust. There are currently silver shortages, which will ultimately drive the price of silver up heavily this year, which I believe will likely double its price or atleast have it up by 70%.

Silver Percentage Annual Change 2001-2010

Fall of Empires and their currencies
Many world empires have fallen over time and with it, its currency, which is normally known as the world reserve currency. The most recent was the British Empire and the demise of the British pound as the world reserve currency. The British pound was the world reserve currency for most of the 19th and 20th century, until the end of the world war 2. In 1967, the British pound was devalued by 14% overnight and due to the continuous devaluation, inflation in 1975 skyrocketed to around 25%.

Fall of the American Empire
Similar to the rise and fall of the British Empire, I believe that the American Empire will soon be falling. Most people don’t consider the US an American Empire, but with between 700 to 1,000 military bases around the world, having the world reserve currency, and the only country in the world who has veto power at the UN and the largest state in the IMF (17%), I do consider that an Empire. So the American Empire began after World War 2, with all currencies of the world pegged to the US dollar and the US dollar pegged to gold. But with all empires, they began printing more and more money, and when the world woke up to this, they sent their US dollars back and demanded them to be exchanged for gold. Well a few countries were able to do this, but America decided to cancel the exchangeability of US dollars for gold shortly afterwards. In order to keep the US dollar as the world reserve currency, the US convinced Saudi Arabia to only sell their oil in US dollars, which ultimately meant that OPEC would only sell in US dollars, which resulted in the creation of the US petrodollar. With countries having to first exchange their currency for US dollars in order to buy oil, all countries needed to keep US dollars in reserves at their central banks. The petrodollar has been the only thing keeping up the US dollar, which is why the US is threatened by Iran, Syria, Venezuela, and South Korea, as they are selling their oil in non-US dollar currencies. Russia has decided recently not to sell oil to China in US dollars, which is another nail in the US petrodollar coffin. Similar to other fallen empires, the US has gone into more debt than it can recover from. The bailing out of the over leveraged institutions in 2008/2009 (banks, insurance companies, car companies, mortgage companies), the huge debts of its states, the huge debts of its social programs, the huge private debt and the buying of debt from 2009 to present by printing more money (monetizing debt) have been additional pressures awaiting the American Empire’s demise. Below are two useful videos on the end of the American empire.

The Shocking Truth About the U.S. Dollar – [11 mins] Explains the petrodollar system and how it’s collapse will destroy the US dollar and United States economy.
End of America – [1 hr and 16 mins] Detailed explanation of the collapse of the United States done by Stansberry & Associates. You can also read an interview with Porter Stansberry about the video. I purchased a subscription from them after watching the video for $100 a year, which I’m happy with, but there isnt a major need for you to do the same unless your invested or going to invest in the stock market. Instead you can read daily articles at their offshoot websites, DailyWealth.com and GrowthStockWire.com.


For an overview of the information expressed above, you can easily watch the video below, which covers gold, central banks buying gold, countries and US states moving away from the dollar, and the fall of the US economy.


Videos

Below are some of the best videos I’ve watched about why one should get out of paper and into physical metals, most importantly with money you don’t need for your day to day living but money just lying there in the bank.

Max & Stacy Buy Gold – [2 mins] Max Keiser explains why you should buy gold
GoldNomics – [4 mins] Superb animated clip asking you whether you’d prefer to store cash or its gold equivalent in a vault for 10 years
Why Gold and Silver? – [1 hr 21 mins] – Full DVD movie by Mike Maloney which covers currency creation, the Federal Reserve, fractional reserve banking, how central banks steal our wealth, runaway deficits, the second wave of mortgage resets, prediction of short term deflation then hyperinflation, etc.
The Dollar Bubble – [30 mins] Short documentary, featuring people I listen to, about the coming collapse of the U.S. dollar
Why am I investing in silver? – [6 mins] Regular guy explains why he doesn’t like paper money and prefers silver bullion
Gold manipulation by the Federal Reserve – [8 mins] Mike Maloney goes into gold and silver manipulation
Why Invest in Precious Metals – [1.5 mins] Simple explanation given by vice president of US precious metal dealer APMEX
A Brief History of the American Dollar (Part 1, Part 2) – [14 mins] Great video covering the US constitution and its central banks
Gold vs Every Central Bank – Jim Rickards talks on CNBC about the US dollar decline by half by 2016 and its replacement by the IMF’s SDR and also mentions at [6:05] “The problem is, when you own gold, you are fighting every central banker in the world. Central banks hate gold as it limits their ability to print money.”
Sound Money Conference – Conference in London in January 2011 with speakers (James Turk, Chris Powell, Hugo Salinas-Price, Sandeep Jaitly, John Butler, Dominic Frisby, David Morgan, Max Keiser) covering gold, gold suppression, monetizing silver, gold standard, bonds, silver demand and a panel discussion

Articles

The Silver Bullet and Silver Shield – “The BEST article written on silver in Ten Years!”- Jason Hommel
SILVER: Everything You Need To Know – Presentation covering the price, demand, supply and investment of silver
It’s Not About Oil, Its About Currency – John Perkins gives his view about why the US is in Libya

Quotes

The major monetary metal in history is silver, not gold.” – Noble Laureate Milton Friedman, November 7, 1993

To 250 million persons in 51 countries the word for money is the same as the word for silver and silver literally means money.” – ‘Silver Profits in the 80′s’, page 43, by Jerome F. Smith and Barbara Kelly Smith

Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.” – ‘Money and Wealth in the New Millennium’, page 154, by Norm Franz

“Gold is money and nothing else” – JP Morgan, testifying to the Pujo Committee, 1913

“Any day you can trade fake money for real money, is a good day” – Silver Shield [Dont Tread On Me], May 2011

3 Responses to Why I Buy Gold and Silver?

  1. Rage says:

    Hi! I’ve read some of your articles and really foudn it very enlightening. I have started saving up to invest on gold and silver. I do not know why but these precious metals are my first choice in making an invest on. As read more articles on various blogs (like Don’t Tread On Me), I am beginning to realize that these metals aren’t called precious for nothing.

    I hope to see more posts from you!

  2. Murtatha says:

    As Salamu 3alaykum,

    I have been reading through your blogs and I was hoping you could advise me on a few things. I have recently obtained a license to trade in Dubai. I have a potential seller from South Africa willing to sell me raw gold dore bars. They have agreed to do a 50 KG trial at 100% CIF ( meaning cost to me ). I wanted to get some information on how the refineries work in Dubai. Some of the questions I have are:

    1. What are average costs for refining? what percentage would they take?
    2. Do the refineries offer to purchase the gold bullion after the final assay?
    3. Any resources you can direct me to for getting better information on the basics of refining and selling gold to Dubai refineries?

    I would greatly appreciate your help and looking forward to hearing from you!

    • Yousuf says:

      Salams Murtatha,

      Unfortuantely my knowledge of the refinery market is quite limited but from what i know, the costs are quite cheap and there are many sellers in the market so there isnt any real need to sell it to the refinery. About resources, you can check out the mints websites for Emirates Gold and Etihad Gold. You can find there contact info on the UAE buyer’s guide.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Notify me of followup comments via e-mail.