Now that we’ve dispelled the 7 deadly myths that often prevent people from making prudent investments in gold, you still might wonder when is the right time to invest in gold.  Any smart investor wants to be able to read the tea leaves and know what warning signs indicate whether it's a good time to buy. We say "warning signs" because very often gold rises sharply during negative economic events, so typically a "warning sign" for the economy is a "buy sign" for gold investors. After all, there are very good reasons many of us market experts are forecasting gold to surge to $3800 per ounce.  So next we examine 7 Major Warning Signs for Gold Investors.

Warning Sign #1:  The Dollar is Falling

We all know the damage caused by the devaluation of the US dollar.  Every day, your money is worth less than it was yesterday.  Your purchasing power shrinks and your investment portfolio suffers.  The good news is, with each downtick of the US dollar comes an uptick in the value of gold.  Fundamentally, gold's value increases because the amount of printed fiat currency is also increasing.  Simply put, the increase of fiat currency devalues fiat currency.  As long as the Federal Reserve and the central banks around the world keep printing fiat currency, the price of gold will continue to rise.

Investing in gold can form the cornerstone of a conservative or aggressive portfolio because it tends to move in the opposite direction of paper investments and the US Dollar.  It has become even more popular as a necessary addition to any diversified portfolio in the last few years.  You buy gold to hedge the items of perceived performance in your portfolio, but don’t be surprised if gold continues to outperform most everything else if we keep printing currency, accumulating debt, and spending money we don’t have.

As a clear illustration, investors who held $100,000 in cash since the turn of this century saw their buying power decrease by over 30%, as measured by the U.S. Dollar Index. In comparison, over the same period, $100,000 held in U.S. Gold Eagles acquired in 2001 were valued at over $300,000 by the end of the decade.

Protecting yourself from US dollar devaluation and currency debasement is an important aspect of preserving your wealth.  Yet, protection from a falling US dollar can also be tricky in the current economic environment.  Let’s look at how and why.  In the past, before the game of global “competitive currency destruction” began, one could have bought a competing currency or other country’s currency, which should have become more valuable as the dollar deflated and served as a hedge to a falling US dollar.  The problem with that strategy now is that all the central banks around the world are printing fiat currency in order to be able to trade with one another.  The fact that all fiat currencies are all being debased is an effect of the global effort to kick-the-can and avoid painful default and or restructuring, which means there is no longer any security in foreign currencies.

Holding any asset that trades globally in terms of US Dollars should serve the purpose of hedging a falling dollar.  Unfortunately, this isn’t going to work for you.  You’re not going to store barrels of oil in the garage.  Demand for something like diamonds is far too volatile to call anything about it “protection.”  And real estate brings tax issues, loan issues (bank involvement) and maintenance fees, not to mention real estate isn’t going anywhere until unemployment and wage growth get better.  So gold makes the most sense as a wealth preserver.  This should make perfect sense, since that is exactly what gold is designed to be and ultimately what it is.  Not only does gold protect you against a falling US dollar, it protects you from the monetization and debasement of all fiat currencies and paper promises.  And even in a default scenario, it protects you because gold loves chaos, debt and a falling US Dollar.

Warning Sign #2:  The Debt is Rising

Many economists have argued that going into debt is sometimes a necessary and unavoidable way to maintain our nation’s infrastructure, protect our national interests, and keep the economy stable.  Yet we all know there’s a serious price to pay when the national debt skyrockets and remains at unmanageable levels for decades.  The value of our currency shrinks, meaning your money in the bank and many of your investments are shrinking in value right along with it.  So, how do you protect your investments against the scourge of national debt?

History shows us that the most reliable hedge against rising national debts is investing in gold.  Just take a look at the last few years as an example.  In 2008, the national debt stood at $9 trillion and the price of gold was $850 per ounce.  In less than 2 years, the national debt rose 67% to $15 trillion.  Meanwhile, gold rose at exactly the same rate:  67% to $1425 per ounce.  Now, you may agree or disagree with why the debt was increased, yet we can all agree that the national debt has increased precipitously over the last decade, and gold has once again proven to be the most reliable hedge against rising debts.

Warning Sign #3:  The Fed Keeps Printing Money

We’ve already examined how printing money and increasing the national debt devalues our currency and spawns a proportionate increase in the price of gold.  What must be emphasized is that the actions of our federal reserve and policy makers is not something in the past; the fact is, the Fed continues to print money as we speak.

Presently, the US prints money to buy treasuries to keep rates low.  Not only does this cause a major drop in the value of the US Dollar, it also makes it impossible for our trading partners to sell us anything.  So they all turn on their own printing presses to “equalize” the value of global currencies by devaluing their own currencies against the dollar.  Needless to say, this current central bank action makes holding any fiat currency a huge risk and almost a guarantee to lose your purchase power and wealth.  So as the Fed keeps printing money, it becomes more and more imperative to own gold as a hedge against plummeting global currencies.

Warning Sign #4:  The Stock Market Loses Value Even As It Rises

To understand how the stock market actually loses value even as it rises, you need to go back to the crisis that has been created by increasing debt and printing money.  As an illustration, use your imagination and pretend the US government, Europe and the central banks of the world act like a public company.  This company has 100 shares at $1 dollar per share.  To pay down its debt and make the debt more manageable, the company prints more shares.  The only way to keep the company afloat is to pay interest payments, so the company prints even more shares.  But the stockholders aren't made aware; they think their shares are still worth $1 dollar, yet the company has sold 100,000 more shares and used the money to pay down debts.  This is essentially what the Federal Reserve is doing with the US currency.  And in response, the international community uses US dollars to buy gold, silver, sugar, cotton, oil, and other commodities.  Why?  Because even if the stock market goes up to Dow 15,000, in real dollars that’s closer to Dow 9,000.

The example that is often cited is the devastating two-year inflation rate of 24.7 percent from 1979-1980, the highest in modern-day America.  During the five worst years of inflation in U.S. history, the average return on Dow stocks was significantly lower than the rate of inflation. Not the most inspiring reason for investing wholly in stocks.  Meanwhile, gold reacted protectively by hitting $850 an ounce and silver reached $55.  This is fundamentally why pre-1933 numismatic gold and silver coins have a history of being complementary to traditional stocks, meaning they actually tend to move in the opposite direction of stocks.

So clearly, pre-1933 numismatic gold and silver coins maintain an important position in a prudent portfolio. And not just as an antidote for inflation, high interest rates, or political uncertainty. Although perfectly suited for these roles, investment-grade numismatic coins are best evaluated on their own record of long-term growth.  Converting your assets from cash, money markets and mutual funds into physical U.S. gold provides you with protection and diversification against the shrinking dollar, inflation and volatile global stock markets.

Warning Sign #5:  The Wealthiest People in the World Buy Gold

It’s often said that, if you want to become wealthy, just look at what wealthy people do and follow suit.  And if you’re already wealthy and want to stay that way, pay close attention to how the wealthy class maintains their wealth over many generations.  What’s the common denominator in both cases?  Investment in gold.

You need not look much further than the top .001% -- central bankers who essentially control the world and most of its wealth – to see how they protect themselves from the debasement of the US Dollar (and global fiat currencies), and copy what they do to your own personal advantage.  After all, the central banks know when they are going to print money, and gold becomes the true currency of central bankers.  Central banks have been net buyers of gold for nearly a decade now, and countries like India, China, Brazil, Korea and many others have been buying literally tons of gold at a time.  So be your own central banker, so to speak.  Protect yourself from the debasement of currency by investing in gold.

Warning Sign #6:  Retail Investors Are Just Now Discovering Gold

When we countered the “gold boom is over” myth, we mentioned that penetration and participation in gold investing was far from being on a mass scale.  In fact, even when gold peaked at $870 in 1980, gold made up just 5% of the average investment portfolio.  Today, even with the precipitous rise in gold, exposure to gold makes up less than 1.5% of the wealth in the US.  Shockingly, wealth today is still concentrated in paper.

What this all means is that retail investors – average people looking to grow their money or protect their investments – are just now waking up to gold.  This is exactly why the majority of experts who are bullish on gold point to the fact that retail investment in gold is just beginning.  Since gold tends to move in the opposite direction of paper investments and the US Dollar, gold is soon to become even more popular as a necessary addition to any diversified portfolio.  Federal bailout programs and stimulus measures have caused a major increase in the volume of dollars printed and have also caused the federal budget deficit to grow to historical and unprecedented levels.  As a result, investing in gold and holding hard gold as a hedge has become more important for Americans than ever before.  And it’s only the beginning.

Warning Sign #7:  Gold Is A Durable Investment for 5,000 Years

How can you argue with an investment that has been a top performer for over 5,000 years?  Indeed, gold has outlasted every single debt-based paper currency that human beings have ever invented.  As the Roman Empire crumbled around them, Roman emperors sought refuge in their asset of last resort:  gold.  Gold hording during the final days of the Roman Empire crippled the global economy, leaving only those who owned gold any real security from the collapsing empire.

For over 5,000 years, gold has been the purest form of money and the oldest, most durable wealth-preserving asset on the planet.  Governments can’t devalue it.  It has no debts, no board of directors, no politicians or central bankers who can manipulate its value.  That’s why investing in gold has survived every economy in history, has outlasted every paper currency ever printed, and has preserved investors’ purchasing power over a span of over 5,000 years.  Negative economic, political, environmental, or monetary policy conditions contribute to a rising gold price.  This is the reason gold has always been referred to as a perfect diversifier.

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Also see:

The 7 Deadly Myths of Gold Investing
Why Gold Will Surge to $3800 per ounce

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