There's no question that gold and silver are in a bull market. That trend will likely continue as long as the Fed keeps increasing the money supply, and deflating the dollar.
Investors who heard Ben Bernanke's "throw money from a helicopter to save the economy" speech and bought precious metals to protect themselves before 2006 are glad they did. But is it too late for those who waited until now?
Gold bugs say it's never too late. They fear paper money will be worthless eventually, and the only real money left will be gold and silver. This may be true, and if so, it would certainly be wise to stock up on some.
However, not everyone can afford to have their money tied up in something that offers security, but no income. At over $1500 per ounce, gold may be a strategy reserved only for the super wealthy.
Let's imagine for a moment that the Fed approves QE3 and launches a new round of money creation. First of all, why would they do this? It's pretty simple:
If you had more debt than you could possibly pay off such that it threatened to shut you down, but you had the legal ability to make a bunch of new dollars, what would you do? The government cannot survive the way it is without printing new dollars to pay off its mountain of debt. It must create more money to feed the monster that it is, even if creating that money makes it less valuable in the future.
Those who get really hurt are hard-working Americans who hold their net-worth in dollars (home equity, cash and fixed incomes). That's why so many people are trading dollars for precious metals, because the Fed can't print gold and silver.
If the dollar eventually becomes totally worthless, and there isn't enough gold and silver to go around, what would people use as currency? The answer is: anything of value!
When the German currency became worthless in 1923, the people of that country traded cigarettes, food, clothing and other things that people actually needed and used.
If an apple costs $1 today and $2 tomorrow, wouldn’t you want to store up on apples? How about apple trees? You can grow them when you own land. A pile of gold and silver may not be as attractive to cold, hungry people.
That’s why many of the nouveau riche in Germany were the people who bought property that could be used to grow food or to house people. If an apple could double in value, what about a property? A building is made up of precious commodities that are also increasing in value with hyper-inflation. Plus, they keep people warm and dry.
Today you can get a 30-year fixed rate mortgage on a property with just 3.5% down on a primary residence, and only 20% down on investment property. That means you can lock in today’s historically low rates for three decades!
In some parts of the country, you can find a fully updated and upgraded home in a nice neighborhood for only $50,000. That means your downpayment may be as low as $2000 (not much more than an ounce of gold!) and your monthly payment with taxes and insurance under $400 per month. It would cost more than $700 per month to rent that same house.
Can you imagine what the rents will be in 10, 20, or 30 years from now? Today’s renters may not be able to afford their current homes in the future.
If you buy the property as a primary residence, you have the security of knowing you’ve locked yourself into a low fixed payment that will not go up with inflation. The home’s value will also likely increase over time as the dollar’s value declines.
If you buy the $50,000 property as an investment with the intention of renting it out, you would need to put $10,000 down (the same as 6.5 ounces of gold). The cash-flow after expenses would be approximately $3600 per year, plus you can be pretty certain rents will go up every year with inflation.
This is monthly income and security you don’t get from buying silver and gold.
Kathy Fettke is the CEO of Real Wealth Network, a real estate investment group that provides education and resources to new and experienced members.
Larry Kudlow: Stagflaton: It's Back
John Ransom: End of America?
Mike Shedlock: Recession or Depression?
Kathy Fettke: Gold vs Real Estate
Bob Goldman: The Desk Chair of Death
Carrie Schwab Pomerantz: Paying Off Student Loans
Get John Ransom's daily market commentary at: