Introduction to Precious Metals Investing
Welcome to Silver.com!
We’re so glad that you’re interested in the wonderful world of precious metals investing. You will soon discover both how these elements came to be valued and why they remain such an enduring possession worldwide.
So, let’s get started!
How gold and silver became American investments
Gold and silver have enjoyed their prestige for thousands of years. It’s widely accepted that gold has served as a form of currency since around 1500 BC due to reliable evidence that the Egyptians used gold to create their money, the shekel.
Silver’s usage as a currency also extends into antiquity, though not quite as far back as gold’s coinage does. Silver coins began to appear in the same areas of the world around 700 BC, particularly in what is now Turkey.
Part of gold’s charm is its unique external properties. Its distinctive yellow luster is recognized worldwide. It does not corrode or react unfavorably to other elements or gases. It is also quite dense – nearly 20 times as dense as water – and has a characteristic heaviness to it.
At the same time, it is quite soft and malleable. Thus, it is an easy material to use for minting coins, making jewelry, or otherwise working into usable formats.
The gold standard and the US
Gold’s status as an investment vehicle for us, in the United States today, however, has nothing to do with the Egyptians or the thousands of years of civilization that used it afterward. Instead, gold has become a prized commodity for Americans because of some pointed political decisions cast only in the last 100 years.
For most of the country’s history, the United States officially tied its currency to gold and silver. According to the Coinage Act of 1792, 24.75 grains of fine gold or 371.25 grains of fine silver equaled a dollar, and 15 pounds of silver was worth 1 pound of gold.
Like all issues, both metals had their proponents and detractors in terms of which metal was “better” for the nation to use for its currency. For more than 100 years, gold advocates argued with silver advocates in statehouses and Congress about the subject. However, all the arguments ended in 1900 when President McKinley signed the Gold Standard Act. Thus, the United States officially went onto the gold standard.
Fiat isn’t just an Italian car
Of course, that’s not the end of the story. Regardless of what your political beliefs are, it’s a simple fact that leaders prefer flexibility in spending, and a money supply tied to a physical metal runs counter to that aim. Thus, the gold standard’s presence in US monetary policy began to chafe, and two US presidents took steps that firmly removed the country from its financial relationship with tangible property.
The first of these presidents was Pres. Roosevelt, who sought to arrest the economic freefall he perceived during the Great Depression. In short, he moved to expand both the money supply and the federal government’s reach to get people back to work. So, he issued two executive orders that criminalized broad private ownership of gold and silver in the country. Americans had to exchange their metals at a preset rate or face harsh prison sentences.
If FDR’s moves were the primary assault on the gold standard, Pres. Nixon’s were the coup de grace. After World War II ended, several major countries entered the Bretton Woods Agreement to establish a defined relationship between their currencies and the US dollar. These countries could exchange their currencies into dollars at a prescribed rate, and then exchange those dollars for gold under FDR’s designated exchange rate.
Nixon determined that all these actions were inflationary – which they were – and sought to strengthen the US dollar to encourage domestic commerce. So, along with price freezes, wage freezes, and new tariffs, Nixon ended the practice of allowing foreign countries to exchange for gold. Thus, the US dollar’s value began to float according to its perceived value, rather than according to any physical source like gold or silver.
What is bullion?
As you begin trading gold and silver, you are certain to hear the term “bullion.” However, you may not know exactly what bullion is, and you must know.
The procedure for bringing precious metals to the market is roughly the same, no matter what metal it is. Gold and silver are mined from the earth like any other element or mineral. Once excavated, the metals are known as “ore,” which is their rawest form.
Companies then use various techniques, depending on the metal, to extract the pure metal from the non-precious metal portions of the ore. The pure metal collected is now known as bullion.
Bullion is important, however, because it is an easy way to store the metals in bulk. Even if it’s not minted into coins or used for a ring, the metal still retains its value – even if it’s just a giant block of it.
Furthermore, some collectors and investors are more than happy to buy and sell bullion itself without waiting for further refinement and manipulation. In general, raw bullion is a bit cheaper than the processed products.
Why precious metals increase in value over time
Nixon’s move to fiat currency and away from the gold standard was momentous, to be sure, but it’s not like the country’s gold and silver evaporated into thin air. If anything, the new era of paper money meant that the two metals became an independent store of value, rather than subject to the whims of politicians, policymakers, and banking professionals.
Thus, we have arrived at why precious metals are so intriguing as investments. Thanks to a change from Nixon’s successor, Pres. Ford, Americans regained the ability to own gold and silver in significant quantities. Gold and silver became a way to push back against the inevitable inflation associated with fiat money and, to a smaller degree, a sort of novelty.
As we now live in times when both Democrats and Republicans are racing to print as much money as they can, the steadiness of gold and silver’s intrinsic value only increases. Similarly, buying these metals is as relevant today as it was fifty years ago. Though gold and silver prices are near record highs, investments today will likely be worth more in the future.
That’s why we like them.
