“Son, I have followed you into every investment you have ever recommended,” my dad told me in 2003. “But I draw the line at your latest story on gold and gold coins.”
When my dad said this to me, two things immediately went through my mind…
- I can't believe my dad is saying this to me.
- This has to be the greatest “buy” signal in gold… when gold is so hated that even my dear ol' dad won't follow me into this trade.
It turns out, 2003 was a fantastic time to buy gold… Gold traded for around $350 that year, when I first shared this story in True Wealth. Today, gold is around $2,000 – up nearly 500%.
Why did my dad hate gold so much back then?
Why did he draw the line at following my gold recommendations? And can we learn something from his experience today?
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Today, I'll share the details with you. And they'll show that right now is a fantastic time to own gold.
Let me explain…
My dad's personal experience with gold was a lot different than what we've seen since 2003. He had the opposite experience. And he felt burned by gold, big time.
It turns out, my dad owned some gold coins… South African krugerrands, to be specific – which have roughly one ounce of gold in them. After booming during the 1970s, gold peaked at $850 an ounce in January 1980. Assuming my dad paid $700 an ounce, that would mean he lost half his money between when he bought and my True Wealth issue in 2003 – as gold went from $700 to $350.
Down 50%, over 25 years?! No wonder he hated gold and gold coins!
Last month, I inherited those gold coins from my father. (He passed away in 2008. And my mother passed away recently of pancreatic cancer.) Holding those coins in my hands brought back these memories.
Is there a lesson here for us today? Actually, yes…
The same conditions that set up the 1970s gold boom are in place today. But gold hasn't soared – yet.
Remember, gold went from $35 an ounce to $850 – in 10 years – ending in January 1980.
What caused it to soar?
In the simplest terms… It was a loss of faith in government.
The oil crisis in 1973 kicked off a dreary decade for the economy. Inflation took hold, rising at rates the U.S. had never seen. And unemployment started rising, peaking at nearly 11% in the early 1980s – the highest rate in our lifetimes (until this year).
As unemployment rose, the Federal Reserve cut interest rates to artificially low levels to try to stimulate the economy. Sound familiar?
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And the government started running extreme budget deficits – spending far more than it took in – to try to stimulate the economy. The budget deficit reached 6% of gross domestic product by 1983.
Here's the thing… the numbers from the '70s and '80s pale in comparison to today's numbers. This is what we're seeing now…
- Unemployment hit 14.7% in April.
- Interest rates are at record lows… essentially at zero.
- The budget deficit hit record levels – by far – this year.
The numbers on the budget deficit are just crazy… This year alone, the government deficit will be $3.7 trillion. That means the government is spending $3.7 trillion more than it takes in – just this year.
So how will our government pay for this?
We will see higher taxes and more “money printing.” Higher taxes will barely make a dent, though. So that means money printing is the answer – a lot more.
And you probably know what else this means… We'll see much higher gold prices.
It's an old, old story for most investors. Printing more money reduces the value of the dollar over time – which makes gold a better store of value.
This is certainly true today. And the conditions are in place to put this trend into hyperdrive.
My dad didn't listen to me when I told a similar story in 2003. And it's no surprise given his personal experience. But if you feel the same – if you don't like the idea of owning gold today – please hear me out…
Conditions are set up for a multiyear rally in gold prices. Don't allow yourself to miss it.
Good investing,
Steve
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