Should You Be a Goldbug?

soundMoney (ecoPen Ltd)

by Sound Money (ecoPen Ltd)

People expecting the world to go down at any moment and hoarding gold for their perceived worst-case scenarios are often referred to as Goldbugs.

So, do you have to be a goldbug in order to buy gold? Should you even want to be one? Or do we want you to become a goldbug?

Absolutely not.

Are we goldbugs ourselves? Are we fearmongers or, being Gold & Silver traders, do we want as many people as possible to buy tons of precious metals?

No.

And here is why: as always in life, things should be taken with moderation. Even the good ones. Precious metals are not an exception to that rule. Just as everything else, gold and silver have their useful place in life based on their economic functions.

Precious metals as an investment may be used as a backup for Futures and Options Trading producing roughly predictable amounts of cashflow (just like any other form of investment), as an insurance policy and wealth protection for other assets owned or they may be used as a form of saving where they normally do not produce significant returns (just like any other form of savings).

The real distinction is the difference between investors and savers, the difference between people who use their time and money for the development of a business plan and stick with it and those who just want to put something aside and not think about it anymore.

Being generally of the latter sort, Goldbugs risk missing out on numerous investment opportuinities in their lives.

Buying something without too much premeditation and then hope for asset price appreciation is not financially smart. (It is precisely what got people into trouble during the real estate bubble as well as the preceeding dot-com bubble in the first place.)

Gold and Silver must not be mistaken for something producing miracles and making lazy people who have a savers’ mentality rich by yielding spectacular investor-style results. (Such an expectation would fail to acknowledge the investor’s risk taken being the basis for his rightfully earning a reward.)

That said, there are certain times where Gold and Silver fare significantly better than other assets. This has usually got less to do with precious metals themselves than with everything else around them going not quite as well as planned by governments and bureaucrats.

So it is not really a matter of precious metals prices increasing but rather of currency prices decreasing across the board, and that is precisely the scenario viable insurance is designed for. Still, you might not be better off in absolute terms for having “insurance coverage” over a scenario where the hurricane did not strike in the first place, but you should — at least — have both the peace of mind and the resources to re-build your house (plus potentially acquire a few neighboring properties that are in shambles).

The latter would be what is called Cyclic Investing and means that, quite different from a goldbug, one knows when it’s time to re-sell one’s gold or silver and put the proceeds to work again. This is what gold and silver buying and selling coupled with financial intelligence is all about.