"Gold, unlike all other commodities, is a currency...and the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating." … Alan Greenspan, ex-US Federal Reserve Chairman, August 23, 2011
WRONG! The best answer for someone who is wealthy and looking for a place to invest is that they should be putting at least 1/2 of their wealth (really more) into physical gold and silver. Ultimately any paper "investment" is only as good as the guarantor behind that investment. Does anyone really ultimately trust the U.S. Government? Seriously. At some point the Government will have issued so much debt that in order to pay it back, it will have to restructure. This can come in many forms. But here's one very plausible scenario: let's say that you are invested in 3 month T-bills and it is obvious to everyone that the Government can't pay these off unless they print money. Well, they don't have to print money. They can hold the equivalent of a gun to your head and offer this deal: they exchange your 3 month paper for a new piece of paper that matures in 10 years and pays a coupon that increases each year, but starts at zero. You'll have no choice but to take this deal because otherwise the Government will default, rip up the bond indentures and start over. You get nothing. The problem is that the new bond will trade at something like 30-50 cents on the dollar, because the market will price in heavy default risk and the fact that it will pay little or nothing to start. Now how does it feel to have all your money in short term Government paper?
Think this can't happen? 10 years ago did you think ANYTHING that's happening now couldn't happen? Look at Greece. Spain, Italy and Portugal are next. It just so happens that as I was composing this commentary, zerohedge.com posted a report that contained a Treasury pitchbook for issuing floating rate debt: LINK Clearly the Treasury is looking for gimmicks to induce demand. And, quite frankly, the outsized demand for short term Treasury debt issuance is largely coming from European banks who buy the short term paper and then turnaround and use it as collateral to obtain 3-yr financing from the ECB.