I figure there is no better way to start out a blog than with a post that goes right to the core of why the blog was established in the first place. This one was set up to answer the question of why you should own gold.
Why You Should Own Gold
Pure and simple gold, and its pretty cousins silver, platinum, palladium and rhodium are real money. Gold and silver, in particular, have served us well as mediums of exchange for at least the last 5,000 years.
It does not rot, corrode, rust or degrade in any way. You can leave 10 ounces of gold in a hole in the ground and come back in 1,000 years …or 2,000 or 10,000 years and you will still have 10 ounces of gold.
Not so with money in the bank, as any saver in the country of Cyprus can tell you. Many of them went to bed on Friday and woke up on Monday morning to find that the European Union had given all Cypriot savers of any significance a 30% haircut. 30%. Ouch.
Just ’cause. (Remember us saying that as children? “Why did you do that?” Whatever ‘that’ was the answer was a perfectly reasonable to the child mind, “Cause.”) Well, that is not exactly true. The EU Central Bank had justifications (don’t they always?) as to why the seizure was made. I am quite sure it was of great comfort to the Cypriots who could not make payroll or who could not get paid because of it. You can read about it here.
There simply is no more simple or reliable store of value or capital than gold.
Why I Personally Like Gold
I like gold, gold in particular and metal in general, even copper because
- It has no counterparty risk.
- It cannot be inflated away.
- It is extremely difficult to seize by judicial or NGO edict.
- Its track record of preserving value is unequaled.
No Counter Party Risk
If you own bonds, the bank will loan you perhaps 50%. Stocks? Perhaps less. I’m not going to get into the numbers as to whom will loan how much against what. That is a question for your banker. If you don’t have a banker, you should get one. A banker wants to loan money. Make one your friend and let them educate you. Anyways, moving on.
Gold is liquid and easily divisible. A bond is an asset but it is someone else’s liability. A share is an asset but it is a share of something that someone else has possession and control of. Gold you can unload at spot with anyone for a small exchange fee if you need to convert it into cash. Gold, in your possession, is something you control.
Gold, in your hand or in your possession, is a pure asset in that it has no counterparty risk. It is not someone else’s liability against which they can seek protection from the creditor, which is you.
It Cannot Be Inflated Away
If you have ten ounces of gold socked away somewhere, inflation is not going to magically over time turn it into 7.5 ounces. Or, if we apply inflation’s effects on the dollar since the Federal Reserve Act, inflation would have decreased your gold down to two tenths of one ounce of gold. Yes, indeed, perhaps that image will help you to truly embrace the devastation of inflation. Because we still see the number of dollars, in many cases they have even gone up, it is easier to lie to ourselves and say we are doing okay. If inflation were really dealt with as a reduction in the number of dollars we have we might vote differently and spend differently.
The dollar’s buying power has been reduced by a whopping 96% relative to what it would buy in 1914.
Guess how many ounces great grandma would have between her mattress and the box springs if she had not been a good American and complied with FDR’s outrageous gold grab.
Exactly. Ten, 10,diez ounces of gold.
It is extremely difficult to seize by judicial or NGO edict.
Now, I am not advocating taking any action that could in any way be seen as illegal, immoral or unethical. I am simply pointing out that what you have in your hand is a hell of a lot harder to take by a bureaucracy when it is in your hand than when it is in your local friendly banker’s possession, friendly as he may be or appear to be.
As I pointed out to some folks before, had the European Union had to go door to door in Cyprus to seize 30% of the nation’s savers and businesses’ money the argument might have gone much differently. Sitting in an office somewhere and issuing an order to make the transfer digitally has no emotional or gritty component. Like a military contractor sitting in an office piloting a drone there is a disconnect from the consequences of one’s actions.
The line between the courts and the None Governmental Organizations that legislators seem so itchy to turn power over to is probably at its most blurry in the European Union. I suspect it is very difficult to know where government ends and NGO influence picks up.
The argument could be made and has been made that the government can always just decide to seize your savings even if they are in a protected, hardened and secure safe in your home. While I agree that this is true, it is also true that should that day ever come we have other problems already that are far worse than trying to hold on to our wealth.
Gold’s track record of preserving value is unequaled.
Over time, gold has bought pretty close to the same thing no matter the year or even the millennium for that matter. A nice pair of shoes, a suit and the necessities of presenting oneself as a serious business person has been available for the price of one troy ounce of gold.
That cannot be said for any fiat currency extant or extinct. When I first began researching for this particular post, I was going to make the statement that most fiat currencies only last 200 years or so. Much to my horror and hilarity for some reason I was so very wrong. According to more than one source, the average lifespan of a fiat currency is 27 years.
I am 55 years old. I am twice as old as the average lifespan of money. Wow.
According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. Twenty percent failed through hyperinflation, 21% were destroyed by war, 12% destroyed by independence, 24% were monetarily reformed, and 23% are still in circulation approaching one of the other outcomes.
The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month. -Chris Mack (You can read the entire article here.)
If you want to save money (and you should, you certainly should) and you want its buying power to be preserved as I know you do, you will want to save at least some portion of it in gold. I am going to restate what I opened this section with:
Over time, gold has bought pretty close to the same thing no matter the year or even the millennium for that matter. A nice pair of shoes, a suit and the necessities of presenting oneself as a serious business person has been available for the price of one troy ounce of gold. -Tim Singleton
Gold Does Not Pay Interest
Warren Buffet hates gold. He says it does not pay interest and is therefore worthless as an investment. I agree. Gold does not pay interest; I don’t consider it an investment. It not being an investment is perhaps related to the fact that gold is not someone else’s liability as I explained earlier. It is, I suppose, a necessity that earning interest involves some amount of risk. I will leave it at that because the theory of what is, or is not, an investment is getting into the tall weeds that is beyond the scope of perhaps a 1,000 or so word post.
In my opinion, gold is a preserver or capital and a savings vehicle, period.
Short History Lesson
Used to, I was an insurance agent. I started with Metropolitan Life, a good, storied New York based insurance company. At the time I was a Correctional Officer. Since my clients as a State of Alabama Correctional Officer did not appreciate my efforts, I began to look for another way to support myself and my family. I started with them because I was a Peanuts fan.
They wanted me to sell a product called universal life. Being the eager, young newlywed I was at the time I saw visions of having thousands of clients who were trusting me to deliver money to their loved ones one day should the day ever come they were no longer able to. Then, I read the fine print on the contract. Universal life, at the time, was a good product only in times of high interest rates. Assessing the risk as best I could at the time, I decided that I could only recommend whole life to folks I cared about which, in my case, was every single one of my clients. This led me to looking for who delivered the best whole life insurance policy. At the time, A.M. Best said that company was Northwestern Mutual Life. Now, at the time …1986, I think… Northwestern Mutual had been the top dividend performer for something like 17 out of the last 20 years and even in the three years it was not Number 1, it was in the top 5 or 10, I think.
As I worked my way through the Million Dollar Round Table proceedings books about how who sold how much and how they were able to be a successful agent and take care of their clients, one concept was brought to my attention that has always stayed with me.
You have to save before you invest.
This sounds simple enough, but if you take into account the impatience that seems so epidemic and tie that in with the supreme self-confidence that applies to many folks, you begin to understand why savings rates amongst folks, especially Americans, is so low. Also, you need to come to grips with the concept that the banking system regardless of what they say, does not particularly want you to have significant savings. They want to staggering under a crushing load of debt. The why does not matter for now. You need savings before you can invest. If you roll that around in your head for a bit, I am sure you will see the truth of it without me making this already long article even longer. But, there is one final issue I want to address.
Conspiracy Theorists, The Federal Reserve, and So On, Ad Infinitum
There are some folks out there who think the prices of gold and silver are being manipulated. The idea seems to be based on the idea that if all the available dollars were to be backed by the available gold that it would be worth some astronomic price per ounce. Here are a few ideas for your consideration.
- Is there anything you can do to have any effect on the situation? No? Then spend your time on something else.
- Rich, powerful, influential men work together to improve their place, their power and their wealth. And? See #1 in this list.
- Say for the moment they are suppressing the price of gold, that they want to keep gold from being the canary in the gold mine. Please send me a list of reasons why this is a bad thing for those who want to build up their savings in gold. Again, see #1 in this list.
Whatever the case may be, it matters not if you cannot change it. It is very easy to get lost in all the boards and videos on this stuff and not one comment or video is going to make your own accounts grow by one penny.
Focus on the activities that can improve your personal economy.
Accumulating Gold for the Average Person
At a current as of today spot price of $1,197.00 an ounce, buying an ounce of gold is a hard proposition for most folks. Buying in grams and 1/10s of a gram makes far more sense. Gold, in addition to being immune to rot and corrosion, is also very soft and easily damaged. This is one of the properties that makes it good for money; it is easily divisible.