Investing in Gold and Silver - Essay Example

By depositing the gold and silver into the respective banks of nations, it was replaced with paper money based on the value of the gold and silver they deposited (Dunwiddle, 2008). The problem started to arise when the World War closed in and the countries required huge amounts of resources to fund the wars. Prior to the World War, the gold standard was in place in most of the countries. Gold Standard, as explained above is when people could convert their gold into paper money. Hence, the government is restricted in the amount of paper money it could print.

The advantage of this gold standard upholds is that the inflation is kept under check, as the supply of money is limited (Haynes, 2005). To fund the war the United Kingdom and the United States both abandoned the Gold Standard, in 1920s and 1933 respectively. This was replaced by the Gold Exchange Standard, through which countries did no longer hold reserves in actual gold, but in dollars and pounds. Thus putting these currencies in a strong position in the world, while the other countries kept on piling up foreign currency thinking they were good as gold.

In 1974 to further cut the ties between gold and currency, US government of Nixon abolished the link. Due to the need of yet more funds for the Vietnam War, the government abolished this link. The effects of this final blow, led to high inflation further helping the government and big businesses. Leslie Snyder in her book, “Why Gold? The One Sure Cure for Inflation and Economic Tyranny” named inflation as a vicious form of taxation on the common people, while the big corporations and government are the beneficiaries (Snyder, 1974).

The importance and relevance of this historical background of Gold and Silver, is to understand how valuable gold and silver is even today. One thing to keep in mind is that even though the abolishment led to high inflation and budget deficits during the 1970s, the prices of gold and silver also increased with it. Hence the investment in silver and more importantly gold is always a safe bet. When inflation was at the highest in the United States during 1979 and 1980 the return on the gold was 130.

4% on an average. It is a great hedge against high inflation; this holds true for the current market situation as well (BERU). Currently, the central banks are planning to announce unlimited liquidity to the financial sector. This would further fuel inflation and move it a step closer towards hyperinflation and top of the exhaustion of the savings and diminishing purchasing power, the metals such as Gold and Silver will emerge as winners. This is due to fact that the governments and central banks continue to print more and more money.

According to William Bancroft, the gold is undervalued today in terms of the money being published. Considering this scenario the investors in the mining sector will be rewarded handsomely in the future. The opposite side of inflation is deflation. According to Bancroft, not only will a high inflation have a positive impact on gold, but a deflation will result in a desirable outcome. Due to the economics of deflation, it would put high pressures on the banks. Resulting in bank failures, depositors will find other means to safeguard their money.

As history has shown, there is no safer investment than gold and silver. Due to the nature and high performance of these metals, gold and silver in tough times i.e., especially in times of hyperinflation is why most advisors encourage