gold

Top 2 Reasons Why You Should Invest in Gold

Because gold has a recognized value worldwide, it had been used as a universal currency dating back to the Byzantine Empire.

However, upon the signing of the Bretton Woods Agreement back in 1944, the US dollar has replaced the gold in being a universal currency. But that didn’t stop gold from being a valued asset. It may have ceased to be a currency but not a store of wealth. However, many developing countries still used it as a backer to their devaluing currencies. Many years have passed, and gold still remains a priceless treasure.

When Richard Nixon removed the gold standard in 1971, other countries followed suit. It may have been erased from the memories of many people, but even when it was no longer a currency, it retained its value by being an excellent investment form.

With the rise of new investment instruments, some people would ask if in today’s modern era, is gold still considered a valuable investment? There are lots of reasons why gold makes for a significant investment. Two reasons are:

1. An Excellent Getaway from The Paper Currency Experiment

The fiat currency which we have all believed to be the ultimate form of money is only an IOU. Meaning to say that it is a representation of a particular credit that countries are issuing. The paper money phenomenon first started out as an experiment. Eventually, when society became more accepting of paper money as the standard of financial systems, many government units have lost control of the economy. And, thus, they resorted to printing massive amounts of money. This, in turn, resulted in hyperinflation.

Hyperinflation has happened time and again in the past. For some people, it may be best to leave the past behind. However, you can’t ignore the saying “history repeats itself.” With that in mind, one factor that makes gold an excellent investment is that it can serve as a replacement for fiat currency.

People may refuse to accept paper money as payment if your currency has been devalued. However, they will always take gold because it is the single asset that has value all over the world.

2. The Relationship of the US Dollar and Gold

There is no denying that the US dollar is the leading currency worldwide. However, just like other fiat currencies, the US dollar also tends to fluctuate through ups and downs.

There is an intriguing association between the US dollar and gold. When the dollar is at a high value, gold appears to be heading towards that direction. However, when gold is purchased at favorable prices, the dollar also goes up in value. Meanwhile, when the dollar has low value, the price of gold tends to go up.

The US dollar is currently at an all-time high. But instead of waiting for a currency fluctuation, you’d rather start investing in gold. That way, when the dollar swoops in value, you will have an excellent exchange for gold.

To Buy or Not to Buy

The main goal of investments is to increase and protect one’s wealth. The topics discussed above cover the primary reasons why gold is people’s go-to when it comes to financial problems.

 

Cyber currency: the best investment choice for an increasingly cyber world, a bad investment as it is, or something else entirely?

If you’re already familiar with cyber currency you might be wondering what the critique or support over the particular cyber currency called Bitcoin in this article will be about. However, what about the following cyber currencies: Ethereum, Fatcom, MaidSafe, or Ripple? By considering the vast spectrum of crypto currencies as a whole in addition to the more popular crypto currency called Bitcoin, a lot can be learned about how crypto currency acts as an investment vehicle altogether.

First of all, all crypto currencies require two elements: an internet-based dollar to crypto-currency exchange capability, and supply and demand principles such as are exhibited in a typical stock exchange.

These requirements for crypto currency to exist also exist as their primary weaknesses. In order to exchange your dollars for your desired crypto-currency, you must purchase them like you would purchase a stock: you’d have to purchase through a crypto-currency brokerage. Governments such as the US Government seem to already be taking measures towards controlling those crypto-currency brokerages such as in this final rule generated by the Department of the Treasury:
https://www.fincen.gov/sites/default/files/shared/MSB_Final_Rule_Definition_and_OtherRegulations.pdf .

As we continue to see the use of crypto-currency demonized by the media as the tool of criminals and dark-web abusing menaces with headlines, “It’s a very good time to be a money launderer, and you can thank crypto-currencies,” from a major news outlet such as CNBS it brings into question the long-term value of crypto-currency. There’s no doubt that there’s a legitimate concern as to when governments will draw the line and start controlling a, ‘dangerous,’ element that has the potential to bypass their control.
If we’re considering crypto-currency as an investment vehicle, it would be totally irresponsible not to worry that the use of it is demonized by major media outlets all while controlling governments are looming over them in such a way that threatens any investment in dollars you make on a crypto-currency.

However, unique to cyber-systems, crypto-currency is also vulnerably to denial-of-service based attacks that can be perpetrated by small groups of anonymous individuals, scamming on the part of brokers, and denial-of-service due to insufficient hardware to support unusually popular trading hours. All of the above have caused undue grief to many, and is a considerable complaint because of the second required elements of a crypto currency: supply and demand principles.
The addition of malicious denial-of-service attacks to crypto-currency networks as well as insufficient hardware has causing denial-of-service has created enormous volatility in the price of crypto-currencies when service is denied. And when this service is denied and the price is falling, you cannot save your hard earned dollars that you’ve put invested into crypto-currency. A visit to various Twitter threads of crypto-currency brokers will confirm that horror for you. This is besides the questionable practice of crypto-currency brokers being accused of scamming in the form of banning user’s accounts after they’ve made purchases.

In fact, as a perfect example for both major weakness of crypto-currencies previously stated, upon following a link to a formally popular Bitcoin brokerage named BTCe, I was greeted to the site with the following message: “THE DOMAIN FOR BTCe HAS BEEN SEIZED. Pursuant to a seizure warrant issued by the United States District Court for the District of New under the authority of 18 U.S.C…”

The link to see it yourself is here: https://btc-e.com/index.html .

With risks like the above a growing reality, denial-of-service a continual reality, and denial to exchange dollars to crypto-currency a growing possibility, crypto-currency is much closer to gambling than it is to investing. Crypto-currency may be a sexy, new, fast-paced, high risk investment, but if you are serious about investing for your future and making returns on your hard earned money, then crypto-currency is a bad investment for you.

Fiat Money

What is fiat money?

According to InvestorWords, fiat money is money which has no intrinsic value and cannot be redeemed for any commodity, but is made legal tender through government decree.

If something has no intrinsic value and can’t be redeemed for anything that does, how could people value such a thing? In other words, how can such a thing like that be used as money?

In order to understand the relatively new phenomenon of fiat money we have to look at how money has changed historically.

Way back when during the times of kings and kingdoms, the medium of exchange was gold, silver, or copper coins, just to name a few. All was well with regards to normal commerce in marketplaces as people would exchange these valuable commodities for goods or service. However, whenever a kingdom would decide to go to war there was a problem: in order to pay the soldiers a salary of gold coins to wage war, the kingdom would be limited to however much gold resources the kingdom controlled.

Hence, the birth of contractual money. Instead of paying the soldiers gold coins directly, the kingdom would issue contracts promising to pay the soldiers a certain amount of gold. The contract could be brought to the kingdom and it could be exchanged for gold.

This type of money persisted for thousands of years up until the previous century when fiat money was invented. At that time, gold, and silver-backed currency in the form of paper dollars was commonplace. More importantly, the paper dollars were contracts for an amount of gold, or silver they could be exchanged for.

When fiat money was introduced, the contracts for gold and silver were decreed to be null and void.

The obvious question, then, is why was that fiat money still able to be used as money after such a heinous decision to render the contract for gold or silver void?

Economists generally concede that the reason why the new fiat money maintained value was because the vast, general populace had been used to trading paper dollars.

Fiat money, then, is like owning stocks in a company that is generally accepted to be a very valuable, stable company, but in reality is worth nothing and has no assets or earnings. But because it’s generally accepted to be valuable and people purchase stocks at a generally high rate, the stocks in that company remain valuable.

However, if the stocks were to stop being generally accepted as valuable, or if the company were to issue more and more stocks trusting on general ignorance to maintain the stock’s value, historically, the price of the stock will plummet.

Switch the terms in the above analogy from company to government, and stocks to money and you have the fiat money issue that is facing the world today.

How long will something without value remain accepted as valuable, or how long will it take a government to overestimate public ignorance?

Only time will tell….

What is money?

What is money?

According to the Merriam-Webster dictionary, the definition of money is something generally accepted as a medium of exchange, a measure of value, or a means of payment. So, what is money? This definition has three critical components:

• Generally accepted as a medium of exchange
• A measure of value
• A means of payment

If any kind of ‘money’ were to fail the criteria listed above, it would cease to be money. So, lets take a closer look of what is money.

Historically

Historically, ‘money’ has ceased to be money, and a great example of this was during the First World War. When the German Empire ‘temporarily’ suspended their gold-backed money, the gold Mark, to use debt-backed money to finance their war, the money in the form of the Mark started gradually failing the criteria of being money.

After the Allies won the war, the value of the Mark was so low that they would not accept it from Germany to pay for reparations. The German government then made the following decision: buy gold and foreign money at any cost in Marks to pay the reparations they had to pay. If they ran out of paper Marks, not to worry, they would simply print more.

  • By 1920 10 paper-Marks were worth one previous gold-Mark.
  • By 1922 100 paper-Marks were worth one previous gold-Mark.
  • By 1923 10,000 paper-Marks were worth one previous gold-Mark.
  • And by the end of 1923, 1,000,000,000,000 paper-Marks were worth one previous gold-Mark.

But in 1924, the German government instituted a new form of money: the Rentenmark. It was backed at a rate of 2790 Marks per kilogram of gold.

The change in value of the Mark by backing it with gold was dramatic:
1923: 4,210,500,000,000 Marks per US Dollar.
1924: 4.2 “Rentenmark” Marks per US Dollar.

By backing, meaning the paper “Rentenmark” Marks could be exchanged readily, and easily for a bond for gold, the Mark once again became:
• Generally accepted as a medium of exchange
• A measure of value
• A means of payment

So when did the Mark stop being money?

The moment the decision was made to stop backing the Mark with gold as its measure of value, the Mark as a form of money was totally in jeopardy. The man who made the decision to back the Mark with gold, Hjalmar Schacht, wrote in his biography, “Unbacked paper money is political money and as such is a disruptive element in a system of free markets.”

Once the German government chose to use paper money it became unsafe money for the German people. While it was seen by other countries, and trading individuals as valuable money for a little while, in the end it would cease to be money. Anyone holding only that form of money would have been destitute; they would have no money.

The only people that would have money, and not be financially ruined after the failure of the paper-Mark would be those people holding other forms of money; a form of money—gold, silver or an equivalent generally considered valuable, or a currency backed by gold, silver or an equivalent generally considered valuable, or similar— generally accepted as a medium of exchange, a measure of value, or a means of payment.  So asking the question of what is money really opens up a very large discussion as you can see.