The Future of Gold and the "China Put"

Lot of people have takes on the short-term price action in gold and silver. Some say it'll go up, some say it'll correct back down - good arguments are made on both sides.

My focus is on the longer-term fundamentals and trends, and I've been good at predicting them the past several years. Here's the economic scenario America faces:

We're heavily indebted and won't be able to grow our economy enough to pay off our national debt and unfunded liabilities, like Social Security and Medicaid. So the federal government and Federal Reserve (which really isn't federal) have decided to crank up the printing presses and try and inflate our way out of this mess.

The problem is that it devalues the purchasing power of US Dollars, and the wealth of Americans who save and invest in US Dollars. Foreign companies and governments holding large quantities of dollar-denominated debt (like U.S. Treasuries) want to get out of this type of debt so their wealth doesn't decline either.

China is the world's largest holder of US Treasuries, and is now a net seller of Treasuries instead of a net buyer. And last September, the Chinese government recommended to its one billion citizens to invest in gold and silver.

With this kind of strong demand for gold and silver, this makes me even more bullish on the longer-term prospects of precious metals. That's on top of my bullishness because of absolutely insane monetary policy from our Federal Reserve. Put options allow you the right to sell a stock or product at a given price, on or before an agreed-upon time. This eliminates the downside risk if the stock or commodity you've purchased goes down in value.

When a country with the population and increasing wealth of China is focused on buying gold and silver, that's the biggest put option on the planet today with the least downside risk. Now - can the price of gold go down in the short-term? Absolutely.

We could see another round of deleveraging like we did in the fall of 2008 - where investors were hit with margin calls, and needed to sell everything possible to raise cash for short-term obligations. Eventually, investors in America and around the world will turn away from financial paper assets, and look to invest more in tangible assets such as gold and silver.

It's not a guarantee that they will "always" go up in value. However, tangible assets always hold some value - and have never gone down to zero throughout the history of the world. And with the kind of demand that China has for precious metals, I believe that these so-called "barbarous relics" are among the safest places you can invest your wealth in the turbulent times we live in.

Why You Shouldn't Contribute to a 401(k) Plan

What I've said may sound like heresy to most people, because it goes against "conventional financial wisdom" (which really isn't wise) and everything you've heard repeated from friends, family and the media.

However - in the next few minutes I'll make the case for why you shouldn't contribute to a 401(k), and you can judge for yourself. Here are the reasons why:

1) A 401(k) is a good savings plan - NOT a good retirement investment plan. Even with matching employer contributions, most plans only offer stocks or mutual funds to invest in. And if the stock market doesn't go up, your account won't either... and you won't have a comfortable nest egg for your retirement. Betting on the stock market to keep going up in these times is far from a sure bet.

2) Most 401(k) plans don't give enough investment choices. Most plans offer a basket of mutual funds to choose from, and I'm not a big fan of mutual funds. Why? Because they have annual fees that whittle away the value of your portfolio over time. And mutual funds only increase in value when the value of the stocks they're invested in go up.

3) 401(k) plans tie up your money until you get to retirement age. In the meantime, you could invest these funds in alternative investments that could provide passive income (and/or capital gains) - such as real estate (bought at a reasonable price/terms), buying or developing a business, or trading stocks, options and/or FOREX accounts.

4) The declining value of the US Dollar means that you'll lose purchasing power with all dollar-denominated assets. If - or more like when - the US Dollar declines further in value, it's a "stealth tax" on your wealth. The only way to hedge against a dollar decline is investing in tangible assets, such as physical gold and silver. Your portfolio will be a sitting duck if its in financial paper assets.

Some 401(k) plans allow investors the option to put their money in whatever profitable investments they want - such as residential/commercial real estate, precious metals and tax lien certificates - and that's good.

I prefer the "Rich Dad" philosophy of Robert Kiyosaki, where you develop one or more businesses or assets that provide recurring passive income that will take care of your in your golden years.

Kiyosaki's latest Yahoo column shows the "Lost Decade" where most investors in stocks didn't make that much on Wall Street-based investments. This is the biggest problem I have with financial media including CNBC - they always tout stocks and promote the stock market. Always telling you when to buy, but almost never when to sell - until its too late and the stock has plunged in value.

This is my two cents - and then some - on 401(k) plans. Leave a comment below whether you agree or disagree, and explain your position.