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Why is gold so important as Wealth Protection?

*Dow Theory Letters, by Richard Russell, June 7, 2012

”I spend a lot of time wondering how the world is going to resolve the giant credit bubble problem.  Right now, almost every living person, every state, every nation is a participant in the credit bubble.  The world and its citizens have bought what they want, and more, on credit, and now it’s ‘payback’ time.  But nobody and no nation has enough money to pay off what they owe.  Really?  Then we’ll just print some more of the damn currency!  Are the computers working, Charlie?

How will this monster credit bubble be resolved?  And when?  ‘This time it’s different’ is a phrase that finally has meaning.  You see, this time it really IS different.

We know that in the past governments have tried to solve their overspending problems with credit and fiat money.  We know that none of the fiat money has ever survived.  But what does that tell us about the current world, a world awash in fiat money?

It tells me that there’s a ghastly train wreck somewhere ahead.  At some point, sanity will return to citizens of the world, and they’ll start to figure it all out.  If fiat money is wealth, then how can any institution print wealth?  First skepticism will rise regarding fiat money — then it will rise towards all fiat money.  Somewhere along the line there will have to be a moratorium, a world moratorium regarding money.  In the end, people will only trust what they can hold in their clenched fists, or what they can own outright, such as land.

Ultimately, the world always returns to what it knows and trusts.  What it knows and trusts is gold.  I think there will have to be new currencies that are convertible into gold.  Printed paper money will be despised, and the whole fiat currency system will be denounced as a racket.

I think toward the end of the downfall of fiat money, there will be a frantic rush to accumulate gold.  The great bull market in gold which has been building rather conservatively for over ten years — will suddenly come alive and turn speculative.  Just as Americans have been basically disinterested in gold, psychology will reverse and turn white hot for the yellow metal.

Speculation in tangibles — I can see it in the rising speculative interest in works of art and in diamonds. There is a great speculative ocean bubbling beneath us.

Hundreds have turned into thousands,and thousands are now millions.  Millions are translating into billions and now sovereign debt is figured in the trillions.  There’s a rising tidal wave of money, and most of it is fiat money.  But tangible wealth is already sneaking into the mix.  It’s sneaking in, in the form of art pieces, collectibles, gold and diamonds.  There’s a madness regarding wealth and it’s building into a crescendo.

Maybe a good example is Zuckerberg and Facebook.  Suddenly a young man is worth $19 billion overnight.  He isn’t an instant millionaire — he’s an instant billionaire — and everyone is fascinated.  The pot is sizzling and it’s close to coming to a boil.  The Zuck is suddenly worth $19 billion,and it’s all in fiat money.  How solid are the Zuck’s newfound riches?  My bet is (if he gets the right advice) that he turns a good portion of his mountain of fiat money into gold.  If he doesn’t, he’s crazy.  But that’s only the way I think.  And I don’t believe it will be too long before everybody thinks the way Richard Russell thinks.  The immorality and insanity of fiat money and the credit bubble is coming ever-closer to it’s end.  At its end there will stand a pot of gold.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

Monex Bullion Investor