A Golden Age for Money

Luke Burgess

Updated May 31, 2011

Picture this…

You’re at your local hardware store, picking up some potting soil for your early summer gardening.

There’s a guy in front of you with a pruning saw in one hand and a bird feeder kit in the other.

He steps up to the cashier, gets his items scanned, and when the total is read off, drops a single shiny silver coin on the counter. He gets his change in quarters and dimes, says ‘thank you’, and walks off.

Sounds strange — but the fact is, scenes just like this may be on their way to retailers across the country… including your local stores.

In fact for the first time in decades, the use of bullion-coins is actually being supported by a state government. And at $38/ounce, the one ounce silver coin used in the example above would serve as a popular alternative to paper cash.

It’s a radical change that comes to us courtesy of Utah’s Legal Tender Act of 2011, passed this March on the back of strong Tea Party support for a precious metals-backed dollar.

Utah is the first state to pass such legislation, but other states — Minnesota, Idaho, and Georgia among them — are currently taking steps to follow suit.

To many, scenarios such as this smack of political conspiracies, radical conservatism, and alarmist propaganda. But the sad fact of the matter is that as reactionary as a new precious-metals-based economy may sound, it’s becoming more and more practical in a world where gold and silver are just about the only forms of currencies gaining value instead of losing it.

This, of course, is not news…

With gold rallying more than 60% in the last two years and more than doubling since just September of last year, the precious metals market has caught the attention of investors worldwide.

may 2011 gold chartHere is what is new, however, and what can — and most likely will — push both gold and silver prices even higher in the near future…

Utah’s Legal Tender Act of 2011 is a major (albeit symbolic) move toward creating a currency market for both gold and silver.

And it’s not the only one…

Earlier this year, the European Union’s Committee on Economic and Monetary Affairs decided to put to a vote to the European Market Infrastructure Relation. If passed, this law will allow gold to be used by central counter-parties as collateral in business transactions.

This is a first for precious metals, and it confirms a deeper and more universal transformation of these commodities to a currency status.

Again, a largely symbolic and convenient law, it will also put a strain on international gold and silver supply as these metals are monetized for use in business. Inevitably, this added demand will drive prices up further and further as supply fails to keep up.

Let’s back up a little bit here, though. Are these policies sustainable on a global scale? Hardly.

The U.S. dollar was among the first to abandon the gold reserve system 40 years ago, as part of a series of economic mandates that came to be known as the “Nixon Shock“. Since then, every other major world currency has done the same.

With national economies now running on the fiat capital system, in which money is conjured into existence by governmental decree, there is simply not enough of any precious metal to back up all financial transactions everywhere.

But will this stop minor forays back into a gold/silver-backed system?

Clearly not. Remember, it is not so much what the predominating trend is, or even what is legally mandated, that’s important to bull markets…

As common perception starts to reevaluate gold and silver as currencies rather than commodities, everyone from market makers to amateur investors will do what they always do during times of adversity: They will diversify heavily into this once-fringe market.

New demand will drive up prices, and increasing media coverage of inflating currencies will continue to feed the market.

New production will work overtime to feed demand, sending mining and exploration stocks flying.

But with investors hoarding the metals, there will likely still never be enough available to ever back any major national currency again.

So while planning for a global economic reversal to the gold standard is at best premature and at worst, delusional, the prognosis for this market is pretty clear…

Expect gold and silver to not slow down anytime soon. Another 50%-100% growth is possible over the next 12-18 months. And expect any company involved in exploration, mining, and production to see banner years for at least 2011 and 2012.

For my latest plan on how to leverage the precious metals bull market into quick gains that outpace increases in bullion prices by factors of 2, 3 — even 5 or more — read my new report.

Good investing,

Luke Burgess
Analyst, Wealth Daily
Investment Director, Hard Money Millionaire

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