SGM Metals: Gold Adjusted for Inflation has Profitable Decade, What about Stocks?

Dec. 19, 2011 - PRLog -- caseyresearch.com reports: [ Someday, we (or our heirs) are going to spend some of the wealth we are accumulating. How much we can actually buy with our gains will directly depend on how hard inflation has hit whatever our investments are denominated in. A 15% gain in dollars is only 9% in real terms if USD inflation was 6% during that time frame. A money-market return of 1% is a losing investment if denominated in something inflating at 3%. In Andrea's case, by keeping all her funds in dollars, her 20% gain turned into a 16% loss in purchasing power.

In other words, since most people don't adjust for inflation, their investments are not doing as well as they think.

The S&P 500 is down 15.1% in dollars since 2000, but it's lost 85.8% against gold. If you’ve owned an S&P index fund, you not only have fewer dollars that what you started with (excluding dividends) but have fallen dramatically behind when compared to the monetary asset of gold. ]

In a world where we are told that inflation doesn’t exist and that the Federal Reserve’s job of managing inflation is being perfectly executed like a fine ballet, investors and consumers are left wondering ‘why then does my paycheck not buy as much as it did back when I was single in college?’ The truth is that the FED’s inflationary policies are NOT perfectly executed and if it wasn’t for these policies in the first place our government wouldn’t have grown into the cancerous tumor that it has and wouldn’t be sucking the life blood out of the economy through ever increasing taxes just to sustain itself. Once you accept the fact that the application of inflationary policies such as these require that every year the total amount of fiat (paper) currency printed MUST EQUAL the total of the prior years volume of printed money plus the additional amount necessary to cover the interest that is attached to the prior years money just to keep the wheels turning, then you can begin to realize that CONSUMER PRICES WILL ALWAYS RISE ON A YEARLY BASIS BECAUSE THE VOLUME OF MONEY IN CIRCULATION ALWAYS INCREASES.

Once this fact is accepted then you can look at the ever expanding size of the federal government and realize that even though the politicians talk a big game about reeling in the monetary issues of the nation and balancing the budget it is just campaign rhetoric. The ugly truth is that the US Dollar is nothing more than a confidence game and the confidence in the system is beginning to wear thin. Soon you will see the FED dumping trillions MORE US dollars into the global financial system under the accepted wisdom that if a nation is buried in toxic debt with a weak GDP and all of the sudden they have a trillion US dollars in their country’s bank account, then their problems are fixed. The issue with this is that they have been doing this for 3 years now and pretty soon everyone will say: ‘If the FED has printed tens of trillions USD out of thin air & have flooded the bankrupt banks, over leveraged investment banks, defaulting Wall Street firms, countries, continents, private sector companies, the IMF and governments of the world, how can this capital have any value?’ When this question finally comes into the conversation the next logical inquiry along this thought process will be something along the lines of: ‘If the act of increasing the volume of a currency (the world reserve currency which affects all commerce of the world economies) decreases the currencies purchasing power and drives up commodity prices such as food, gas, gold & silver, I should probably proactively move my money into the monetary metals to offset the losses I will incur as the USD plummets in value, thus saving my purchasing power by sidestepping the decline in the dollar.’

If you are wondering if this is a sensible move based on sound logic, consider for a moment that central banks who have for 25 years been net sellers of gold have dramatically reversed their position on gold and aggressively increased their gold holdings by 550% in the last 12 months. Do you think there is some economic driving force behind this trend reversal? The answer is yes and you would be wise to follow their lead and establish your ‘Depression Proof Insurance Policy’ in gold & silver today and begin to participate in the sound money debate with alternative currencies to protect your purchasing power before you have no purchasing power to protect.

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SGM Metals strives to offer not only wealth preservation precious metals investments to offset weakness in the economy, but to help educate our family of clients to better identify the threats to their financial security.