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Why To Buy

This guide was written with the intention of directing readers on how and what to buy rather than why to buy, however it is prudent to include a small section on why to buy as this may dictate the way and what you buy.

Some people are buying Gold as money, somewhere to store their wealth as central banks destroy it through excessive money printing (keep their wealth safe from inflationary forces). Some buy as insurance, a hard asset that can be exchanged in the case of complete financial meltdown (keep their wealth safe from deflationary forces). Some see that Gold and Silver are cyclical in nature and are trying to time the move buying when undervalued with intention to sell as they move to overvalued (essentially a medium/long term trade). Some buy due to the unstable political, financial and economic environment, seeing that the metals have previously thrived in such situations. None of these reasons are necessarily wrong, in fact some may buy to protect against multiple of these situations or their specific location may dictate which is appropriate based on likely outcomes.

Gold and Silver both have rich histories of use as money. The perfect money should have the following attributes:

Durable (not easy to destroy)
Acceptable (something that other individuals will take)
Portable (ability to carry wealth easily)
Divisible (able to be split without destroying value)
Homogeneous (consistent)
Identifiable (easily recognised/measured)
Retain value (rare/scarce)

Gold has all the above attributed and Silver most as well (could argue that at current low prices Silver isn't very portable). It's no wonder that Gold and Silver have remained the people's choice as money for thousands of years.

Open your wallet and take a look at the plastic notes inside. What gives this currency any value to be exchanged for goods... ?

Can you come up with a reasonable answer? My suggestion would be 'confidence' and nothing more gives this currency any value. While the general public is confident that their currency has value then you can exchange it for goods (and to a degree this reflects the confidence the public has in the central bank or government to do right by the money supply). 

Confidence in fiat currencies is slowly faltering as people wake up to the reality that central banks and governments are destroying the value of their savings through bailouts and money printing to try and avert the current debt crisis that we face.

Eventually we will reach the 'knee of the curve' or inflection point where the vote of non confidence in fiat currencies accelerates, but to what end?

There is the possibility that governments restore faith in fiat currencies before they are completely rejected. In the 1980s they did this by jacking up the interest rates to control inflation and restoring a fair cost to borrow money above the rate of inflation.

I recently heard a story that went something like this:
There was a room full of 100 people. After 5 minutes 10 people get up and leave the room. The rest of the room is left wondering... why are they leaving? What do they know that I don't? Where are they going? Another 5 minutes passes and then another 5 people get up and walk out. Again the remaining 85 people question why these people are leaving... are we in danger? Should I leave as well? Another 5 minutes pass and 10 more people get up and leave. At this point the final 75 people in the room decide it's not worth waiting around to see why these first 25 have left and everyone left gets up and leaves...
This truly does reflect the way people think and act. Whether we would like to admit it or not we humans (as a group) have a herd mentality, just like sheep. If you act ahead of the large majority then there is the potential to be significantly better off as result. If the shift toward hard assets and sound money in Gold or Silver continues then acting ahead of the herd has the potential to greatly reward those who are early to the scene.

Jim Rickards was even recently quoted as saying that less than 1% moving in a certain direction could set the trend given the fragile nature of our markets:
Rickards doesn't think chaos and collapse are inevitable but says that in today's nervous and interconnected markets, it may not take much for events to spiral out of control.

"You don't have to change the minds of 20 per cent of the population in such a dynamic system," he said. "A fraction of 1 per cent can start a stampede that everyone else follows." SMH
I don't think that he is wrong.

At the same time we must be cautious as the bull market and wealth shift into Gold and Silver is already around 10 years old. Over the past 100 years the wealth shift from stocks into Gold and Silver as measured by the Dow to Gold ratio has only lasted around 13-14 years as recently pointed out on Pragmatic Capitalism:

Given the nature of the current crisis it could be "different this time", especially if we return to sound money that somehow included the metals, for example a return to a Gold backed currency or inclusion of Gold in an new global monetary system such as the proposed SDR (basket of currencies) could result in a more permanent revaluation of the metals.

The above has really only started to scratch the surface on why you might want to buy Gold and Silver. Hopefully it at least kicks your mind into gear and gets you thinking like current Gold and Silver buyers and from there you can start doing your own research and decided why you are a buyer of the metals.