The Gold Question
In 1974, when I entered the business, Gold was trading at $140, and by the end of that year, 1974, it had rallied strongly to $195.
By 1980, it had almost reached $1000. And by 1997, Gold was trading back down at $280.
Today we are about $1800.
For much of the past 20 years, we have had Gold bulls talking about a price of $6000, and yet we have never come close to this well-researched figure. However, that has never stopped people promoting the buying of Gold as a hedge against inflation.
So, what is the actual situation?
Over the past 50 years, since the USA came off the gold standard in 1971, western governments have fallen out of love with Gold, and opted to use financial instruments as collateral for supporting their currency.
During the same period of time private demand and the price for Gold has rocketed, as people continue to lean on Gold as a hedge against potential economic problems.
Chinese buying has been massive since the turn of the millennium. In the past 20 years the country bought over 1500 tonnes of yellow metal, which has helped underpin its value.
Financial and economic experts have varying or opposite views on the rights and wrongs of owning Gold. And much of this opinion is based upon a western political ideology rather than sound economic science.
There is also the question of location. If you live in a country which has no gold, you are at a severe disadvantage to a country with high deposits, so your opinion will be biased.
More importantly, politicians and central bankers would have much less control over their economy and currency if they were to return to the gold standard.
And we all know how governments hate not being in control!
Much explanation is available concerning Gold and the gold standard, so I will not repeat what you can find elsewhere. The main point is that western governments will not want to return to the gold standard because it means relinquishing control of the economy and, dare I say it, private wealth.
Western economists and politicians can argue about Gold's value and prospects. But what will happen when the west is no longer controlling global affairs?
The first thing to note is that since dropping the gold standard, our politicians have not done an excellent job managing our economies and I would suggest they have played silly buggers with the economic tools they have used.
Printing money and maintaining low interest rates might have proven expedient in the short term.
Yet, as we are seeing today, with western debt entirely out of control, the ability to play with the economy through the clever use of financial instruments has yet to improve the financial security of most individuals or their countries.
We do not have to look too far back, just to 2008, when our politicians decided to sell the Gold we had left, at under $400, in order to solve an economic crisis much of which was caused by them.
Considering the current price, western economists and politicians are less bright than they believe.
In 2008, a bloke called Satoshi Nakamoto realized that these western economic policies were flawed, and launched Bitcoin, basically digital Gold.
And we all know what a success that became.
Before Bitcoin, various people talked about moving back to gold-based currencies. The most famous was probably Qaddafi, who wanted to launch a Gold Dinar. (Just before America bombed the hell out of him)
The problem with adopting commodity-based currencies is that this would seriously threaten the American dollar. America will do anything to protect the dollar's status as the world's reserve currency.
However, the USA is no longer in the driving seat regarding economic might or political influence, so we must expect things to change regarding western FIAT currencies.
How that change will manifest itself is very difficult to gauge, but for the past 18 months, I have suggested adding physical Gold to portfolios because if the shit does hit the fan, it will always be a way to exchange and barter.
More importantly, citizens can store Gold out of sight of the wealth-sucking government!
It is not about the dollar value of gold. It’s more about the ability to hold a physical asset that I can use to trade for what I might need.
I am not overly pessimistic; I hope everything works out well in the future, in which case we have nothing to fear, but we should consider and plan for all possibilities and contingencies.
I will add that since I have promoted owning physical Gold, we have seen the invasion of Ukraine by Russia, and this has made the geopolitical picture worse.
I want like to discuss something other than politics here. However, it is impossible to ignore some recent significant developments which western politicians should have appreciated, and developments that much of the media is still choosing to ignore.
Putin has been moving his reserves away from the dollar for many years and has opted to increase his stockpile of Gold. Moreover, he encouraged Russian citizens to buy Gold, and in 2022 alone, Russian citizens bought over 50 metric tonnes.
So we have Chinese and Russians citizens buying Gold, and we can also add many people in the Middle East and other countries making similar purchases.
Suppose we forget the western media narrative about what's happening in Russia and look at the global view. The picture is different from what we are being told.
America is weak, as is most of Europe.
Pulling out of Afghanistan, or how America pulled out of Afghanistan, was embarrassing, and the sanctions we applied to Russia have not worked. Indeed, they have magnified how weak we are to non-western governments.
That has emboldened our enemies, and we are seeing some countries who have been reluctantly friendly towards the west, now looking at other countries of influence for support.
China has sat (supposedly) on the sidelines, but it has also increased its trading with Russia, especially with energy supplies. Likewise, India has made some noises about Russian aggression but it is considering expanding its trading ties with Russia.
Then we have a lot of Islamic countries that are not exactly friendly to the west, looking at how they can better position themselves geopolitically.
The most significant talking point has been about moving away from the dollar and using alternative methods of international payments, using other forms of FIAT or physical commodities.
The powerhouse economies outside the west are the BRICS nations: Brazil, Russia, India, China and South Africa. It is plausible that these countries will ultimately cooperate with each other and create a commodity-backed currency. This backing could be exclusively Gold, or a mixture of metal and energy products.
Such a development would severely damage the dollar's attractiveness and, along with it, probably the Euro, which could lead to a severe slide in the value of these currencies.
Such a slide might help decrease the massive dollar-denominated debts the west has built up, so over the very long term it might help the west get out of some of its problems, but it will be a painful few decades for western citizens.
With a slide in the dollar, we should expect commodity prices to increase handsomely. Should we discount that Gold will reach $6000? Perhaps not.
If these changes occur, they will not happen overnight. However, to deny there is a potential for such monumental changes is ignoring what is happening.
I could make this longer, but I think I have said enough to indicate reasons why holding Gold should not be discounted.
Grabbing something shiny to hold onto might be a good idea in a world full of magicians' smoke.
I look forward to your feedback.
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