Investing in Gold: Gold and silver as insurance

Keeping gold and silver in physical form is not only a hedge against currency, but also a type of insurance. We have grown so accustomed to trading in our own dollars that it almost seems unfathomable that the dollar could one day be defunct. But, in a number of societies throughout history their currency just seemed to vanish overnight.

We have to ask ourselves what currency really means to us. It is a piece of paper that represents value. Currency is nothing more. If the currency is not backed by something that the world values it can fall away into nothingness through rampant inflation.

Germany during the time of Hitler is a prime example. The money in Germany was being printed at such an alarming rate that their money was literally not worth the paper it was printed on. One of Hitler's favorite jokes was, "A woman used to go to the market with a purse full of money and return with a cart full of groceries, now she goes to market with a cart full of money and returns with a purse full of groceries."

Recently Zimbabwe experienced rampant inflation. The numbers actually became staggering as notes were printed in thousands, then millions, then billions, and then trillions before being debased.

What once cost $1,000 Zimbabwe dollars ended up at $100,000,000,000,000. Yes, one hundred trillion dollars! How long did this slide take one might ask. Centuries? Generations? Decades? Actually it took about two years. If you were a millionaire in 2006 you'd have been literally penniless by 2009 had you stored your money in Zimbabwe dollars. It is an interesting thing to look up on the internet. Just search for Zimbabwe inflation.

For years, U.S. currency was backed by either gold or silver, items still valued around the world, but today it is only backed by the promise of the U.S. government. While our currency is still much more stable than Zimbabwe's it is not impermeable to losses of value either. During the rampant inflation of the 1970s our dollar was losing value quickly. Interest rates soared, commodities rose, and values that were stored in currency deflated.

When the U.S. government went off of the silver standard in the late '60s you could turn in your Silver Certificates for silver. One person had done just that. Today that silver bar was worth about $1,800. Had they saved their Silver Certificates the value would have been $100 in spending money, or about $125 in collectable value.

It was not unheard of for merchants in the 1970s to advertise things for cheap prices with the caveat being that it had to be paid in silver coin. One example was a gas station advertising a gallon of gas for 10 cents, in silver of course. Or, I have a friend that owned a furniture store during that time. He would advertise a piece of furniture for a fraction of the regular price, the catch of course was it had to be paid with silver coins.

We may not be trading in gold and silver, but if history repeats itself we may see merchants again wanting payment in something they see as valuable, gold or silver. Having some around could be considered just a little extra insurance.

• Allen Rowe is the owner of Northern Nevada Coin in Carson City.