A Return to the Gold Standard?

Russia has just announced that it would back a return to the gold standard. What would this mean and how could it affect you?

The G20 meeting this week could be a turning point in the unfolding of the global economic crisis. There are huge issues that need to be not only discussed but acted upon. I have talked often about the likelihood of a new global currency and a move away from the US dollar as the reserve currency of the world. No one quite knows what, if anything, will be decided, but there is a strong possibility with China having called for a new reserve currency last week and Russia wanting radical changes, that this will certainly be a point of discussion.

Many people around the world do not know what to do with their money. Should they invest in stocks and shares while they are "cheap?" Should they leave it in the bank and if so which bank as they are all so shaky? Should they put their money into tangible assets such as gold and silver coins? Should you buy property and if so what kind of property?

During these uncertain times, it is very hard to give definitive answers as each day new ideas and trends are reported. The statistics cannot be trusted 100% as it depends who is publicising the information as to what bias it might portray.

Hyperinflation is a strong possibility as the levels of debt are so unbelievable that a wave of hyperinflation would erase much of the liabilities on banks and businesses balance sheets. However, what will it do for the average person? How might it affect you?

If you have big debts at the moment, you are still going to have to make sure that you have the income to service those debts, especially during this downturn that could last for years. So I would be very careful with debt and even though hyperinflation would erase much of the debt, it is a matter of being able to make the repayments until hyperinflation takes hold. So this is a very risky strategy and not for someone who is unsure of their future income and may not be able to afford the repayments.

The stock markets are extremely volatile and once again, unless you are a high risk-taker and have funds to spare, then it is not the best place to invest at this time. The markets could fall another 50% or more yet over the next few years, so unless you are able to follow the markets daily on an hour to hour basis, this is not going to be a workable plan for you.

As far as banks are concerned, if you have some money at least spread it over several different banks. Then, if one goes down, at least you have not put all your eggs in one basket. Also, have a few months expenses in cash on hand. It is quite possible that all the banks could have a "bank holiday" for a while and you would be very frustrated and angry if you could not access your money. Start to use cash more than all your plastic cards. Banks are going to start charging more and more for their services to try to recoup any money they can to salvage their balance sheets. Just make sure you are not one of those people contributing to their coffers. They have been greedy enough.

I am often asked "what about buying a distressed or repossessed property?" This too is a risky strategy at the moment. If you are able to go into the deal with plenty of money to spare and you do not have to take on a high percentage of debt, then this could be an option. But remember, property taxes are going to increase dramatically as well as maintenance costs. Keep this in mind when you are considering your purchase. There is probably more of a downside to prices yet until the world decides on its plan of action for the future economic systems of our planet.

Gold, silver and precious commodities. What are the upsides and downsides?

With commodities, especially gold, you have a potential store of value for your money. In medieval times, one ounce of gold was worth 350 loaves of bread. With bread costing about $2.75 a loaf today, this would equate to $962 per ounce of gold. So, as you can see, it really has held its value over hundreds of years! You cannot say that about any fiat currency in circulation. Indeed, since 1913, the US dollar has lost 95% of its purchasing power.

Gold should be a consideration as part of your portfolio if only for insurance purposes. However, in purchasing gold you should also be aware that should gold be tied to a new world currency in any way, there is a possibility that it could be confiscated as it was in the US in 1933.

I think there will be many warning signs before it does get confiscated, but you should be aware of the possibility before you purchase and be willing to watch the markets and the world economies for decisions that could affect laws concerning gold holdings. One siign could be an oil-producing nation demanding gold in exchange for oil rather than US dollars. Another sign could be when the gold price starts to soar and if it goes above $3000 per ounce, you should be alert to the possibility of confiscation. At this point, as long as you are aware of world events, you could sell your gold at a nice profit and get out before governments start to regulate its ownership.

These are my thoughts for today. I hope they are helpful and I will keep you posted with more as it comes up!