Sure, I understand that times are tough and a lot of people are struggling to get by. But selling your gold IF YOU HAVE OTHER THINGS YOU CAN SELL INSTEAD is about the worst possible financial decision you can make under most circumstances I can think of. Let me tell you why.
Back in less-modern times, people would put their gold and silver (let’s not forget gold’s little brother) on deposit at banks so they wouldn’t have to carry their precious metals with them, and banks would give people promissory notes for the gold and silver. Banks would then lend out what they had on deposit and earn their money from interest on those loans. Huge problems started creeping into the banking system when banks started lending out more money than they had on deposit at any given time–this is called fractional reserve banking–and if there was a sudden panic and all of the people who had deposited their money in the bank tried to withdraw it all at once, then because the bank had loaned out on paper more than they had in deposits, it didn’t matter what the face value of the promissory notes was that the depositors had on hand. If the bank didn’t have gold or silver on hand, the depositors were left holding worthless paper.
The paper “money” that these slick cash-for-your-unwanted-gold businesses are offering you only has value as a medium of exchange because the U.S. government says it has value. More properly called Federal Reserve Notes (FRNs), these green pieces of paper have no value if nobody wants them. Gold and silver have been used as a store of value and a medium of exchange for thousands of years in countless civilizations. The LAST thing you should be doing is selling what has been accepted as real money or as a store of value for thousands of years for pieces of paper that have lost 97 percent of their purchasing power since the creation of the Federal Reserve in 1913.
Until 1933, U.S. citizens could exchange their paper “money” for real money — gold — until FDR banned private ownership of gold (a ban which was repealed in 1974). Richard Nixon severed the link between Federal Reserve Notes and gold in 1971–the Federal Reserve had issued a greater face value of Federal Reserve Notes than the U.S. government had in gold deposits, so to keep the government’s gold supply from evaporating when the British ambassador showed up at the U.S. Treasury wanting to exchange $3 billion in Federal Reserve Notes for gold, Nixon permanently cut the ties between Federal Reserve Notes and gold–there wasn’t enough gold remaining for all of the paper promises from the U.S. government to be fulfilled.
I’m a multitrillionaire…in Zimbabwe
Last year I shelled out a whopping $9 in FRNs to become a Zimbabwe multitrillionaire. Not that I’m going to be able to buy much with it:
While that country’s dictator, Robert Mugabe, flips the bird at the international community over his long rap sheet of human rights abuses, he also flips the bird at his countrymen by having rendered their currency absolutely worthless. According to the Cato Institute, prices in Zimbabwe double approximately every 24.7 hours. Last year, to keep people from having to carry around 1,000 $100 billion notes for the same purchasing power, the country benevolently started printing $100 trillion notes. I got one for $9 on eBay. And even if I was in Zimbabwe with this cool $100 trillion in hand, there wouldn’t be anything left to buy, because all of the other trillionaires there (which is to say, the entire population) have already bought everything in the marketplace because they want to get things before the prices go up even more.
Which brings us back to why selling your gold and silver for paper money is about the worst financial move you could make at a time like this.
I’m not a fan of big government, but I’m even less of a fan of a government that rapidly takes on so much debt on top of what it already owes that it will have no choice but to print worthless paper money to technically meet its financial obligations that it’s gotten itself into around the world. At some point, foreign countries and other investors are going to stop lending money to the U.S. government because they know that the only thing the U.S. government can repay them with is paper promises that are inherently worthless.
One of the stupidest things I’ve ever done happened about 10 years ago. I was going to college, and driving a taxi to pay the bills. One day this guy flagged me down and asked me if I’d take him from where we were in central Alabama to northern Georgia for $250. I was eager for a lucrative fare and told him I’d take him, but I should’ve had second thoughts before I agreed to take a check. Nine hours and 530 miles later, I was back home and deposited the check in my account. Imagine my surprise, then disgust, when I got a call from my bank that the check had been returned because the account it was written on was closed.
What kind of an idiot was I??
A pretty big one. Lesson learned the hard way. Even though this check had a technical face value of $250, it was worthless because the only place where that promise to pay could be redeemed refused to pay. I was left holding a worthless piece of paper.People who are selling their “unwanted” gold and silver to all of these slick marketers across the country are getting pieces of paper that could soon be worthless. As I noted above, that paper “money” in your purse or wallet has lost 97 percent of its purchasing power since the creation of the Federal Reserve in 1913. If you need funds to pay bills, or worse, if you want funds to be able to buy items that are not essential for your long-term survival — remember, you can’t eat a plasma-screen TV — sell off items that you don’t need and can do without. Sell that motorcycle, that boat, your old dusty LP collection or other antiques. But DON’T SELL YOUR GOLD. If, as expected, the U.S. dollar soon goes the way of every other fiat currency and becomes worthless through hyperinflation, nobody is going to want all of the junk you’ve bought with the FRNs you received for your gold. But gold and silver have always been accepted worldwide as something of value, and I think it’s safe to say that they always will. Nobody is going to want your plasma-screen TV after the dollar collapses, so save yourself the trouble and don’t sell your gold to buy that TV in the first place. If Weimar Germany were here today, nobody would want your plasma-screen TV. But gold and silver have always been accepted as a medium of exchange and a store of value when one currency dies and another one takes its place. I think it’s safe to say that we’re following Weimar Germany’s footsteps. Sell your REAL junk now. And don’t buy more junk that you don’t need and won’t be able to use later. But most importantly, don’t sell your gold. But if you decide to sell it, I’ve got a $250 check I’ll give you for it. I promise.
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