Dependent upon the influence of the Ron Paul wing of the Republican Party, here is something to look for over the next three – to twelve months that if it happens could spark a significant rally in the price of gold – legislation allowing for competing currencies. That is – legislation to allow other forms of currency to compete with the paper US Dollar Federal Reserve Note. Should competing currencies legislation actually become law the most likely competing currency to emerge is gold bullion. Even if legislation allowing for competing currencies is not introduced it is still very important for all savers to understand the concept of competing currencies as such a movement could emerge outside of the legislative process (more on this later).
Competing Currencies Could Result in Hyperbolic Increase in the Price of Gold
Currently only a very small percentage of the American public – perhaps less than one percent, actually own gold bullion coins or bars. Now just imagine the increase in demand for gold if it is allowed to compete side by side with paper money as a competing currency. Assuming one percent of the public is currently in the market buying gold, a five fold increase in demand for gold would result if just five percent of the public starts to buy gold. It is impossible to accurately predict the price of gold with a five fold increase in demand but the laws of supply and demand would say with certainty that the rise in the price of gold under these circumstances would be significant. And if ten, fifteen or twenty percent of the public starts to take an interest in buying gold, the price of gold could go hyperbolic.
Gold and Silver as “Off the Record” Competing Currencies
Competing currencies can emerge in one of two ways – voluntarily via legislation calling for elimination of current legal tender laws such that gold and silver can also be used as money at current market value (e.g. $1650/$30 an ounce); or involuntarily should the public become so concerned about the devaluation of federal reserve notes that they hold onto them only long enough until they can trade them for a better storehouse of value – e.g. gold, silver, real estate etc. It is the view of this writer that as the sovereign debt crisis worsens and ultimately leads to concern over the long term survival of USD federal reserve notes, gold and silver will emerge as “off the record” competing currencies. In fact, gold and silver will emerge as a common and preferred form of savings as more and more savers convert their paper money savings into physical gold and silver bullion coins and bars.
Competing Currencies and Those Left Holding the Bag
Here’s something else to keep in mind as you ponder the purchase of gold and silver – ultimately, all debts are paid. Early movers to gold will be rewarded as later movers drive the price of gold substantially higher until such time as no one will sell their gold for paper. It is at this point where the final reconciliation of debt will take place – the paper dollar sovereign debt will be paid for by those holding the paper money that no one else wants – the paper money that is being created out of thin air even as you read this. You see, when paper money is created out of nothing to pay a paper money debt, those who hold it at the end when it becomes worthless are those who pay the debt. Pretty slick isn’t it?
As for legislation allowing for competing currencies, such as gold – unfortunately this is unlikely to happen. Why? Well, because to do so would force the politicians to face the reality that the gig is up as it will not take long for the public to catch on that the good money is the money that cannot be printed by the politicians and bankers in order to account for the debt that those left holding the paper money will pay. The best way to protect against the end game ending in disaster for you and your family is to convert some of your paper dollar savings (e.g. 10-25%) into physical gold bullion – sooner rather than later. What you do with the other portion of your savings is up to you and your financial adviser (of which I am not) - maybe you keep it in equities, maybe you buy some investment real estate property. The point is, the only asset class that has survived every historic calamity for the past 3000 years – wars, famines, revolutions and the rise and fall of empires, are the precious metals – gold and silver bullion. We are at the precipice of a period of time where, if you do not own this physical asset class, you are at risk.
Ron Miller, President and Founder – Atlantic Precious Metals LLC
Phone: 1-800-APM-GUIDE (1-800-276-4843)