The following inverted pyramid is an illustration adapted from the teachings of a former Vice President John Exter of the Federal Reserve Bank of New York, who was in charge of NY Fed international banking and precious metals operations in the late 1950s.
John Exter created Exter's Pyramid which was used to visualize the organization of asset classes in terms of their overall risk of bankruptcy and notional value. In Exter's inverted pyramid, gold bullion forms the smallest base as the most reliable asset class. All other asset classes on progressively higher levels are prohibitively more risky in terms of their percentage chance of default and eventual worthlessness. The larger sizes of asset classes at higher levels represent the larger total notional value of those asset classes worldwide. While Exter's original pyramid placed Third World debt at the top, today it is derivatives which hold this questionable honor.
Investor demand for physical bullion products has substantially increased this century and especially since the 2008 Financial Crisis, where the middle or median American lost 43% of their wealth on paper. This was also in part due to the internet’s increasing ability to communicate the fundamental investment drivers and reasons to own physical bullion products (coins, bars, and investment grade rounds).
For instance, physical silver bullion investment buying has surged amongst investors. In 2006, silver bullion buying only accounted for just over 5% of total silver demand. By 2015, one quarter or 25% of all silver demand was driven buy silver bullion coin, bar, and round buyers alone.
Many modern day bullion buyers believe the unprecedented measures taken by government central banks around the world have not fixed the structural issues still affecting the world’s economy today (i.e. poor demographics, retiring baby-boomers, underfunded and unfunded liabilities, exploding debt levels, five thousand year record low interest rates, and consistently debasing and failing fiat currencies issued by all nation states today).
The trillions of dollars, euros, yen, etc. that have been created in response to the Global Financial Crisis (QE1, QE2, QE3, etc.) have merely helped prop up less than quality corporate balance sheets, bond, equity, and various real estate markets.
The drive for many modern day precious metal (i.e. silver, platinum, rhodium, palladium, and gold) bullion buyers seems to be set a guaranteeing for themselves a return of their capital (more so even than a possible return on their capital invested).
Throughout this educational series on understanding the basics and fundamentals on buying bullion products, we believe we will also lay a case for bullion being not only a great way to preserve wealth, but also if purchased at today’s prices, a potentially rewarding and profitable way to store wealth further into the 21st Century.
Click here to learn more about “How” safe and secure bullion buying happens today.