World War 3, The Big Q: Should We Own Gold?
The Greek philosopher Aristotle, student of Plato, teacher of Alexander the Great, and the Father of Logic, listed 4 characteristics of any sound form of Money e.g. Gold and Silver:
- Durability. It should not be perishable. That’s why, despite all claims to the contrary by “preppers”, stocked, canned food does not make for good Money.
- Portability. It should hold a large amount of value compared to its weight and size. That’s why flat-screen TVs do not make for good Money.
- Divisibility. It should be easy to separate and distribute, as well as re-combine. That’s why artwork does not make for good Money.
- Intrinsic value. It has value in and of itself; it does not derive its value from something else. That is why un-backed paper (fiat) currencies, meaning all of the modern world’s currencies, do not make for good Money.
You can see that most things people would consider good investments would not make for good Money.
Take real estate or farmland, for example, which can be a great asset to have in your portfolio. However, it falls short in the portability and divisibility departments. It cannot be carried around in your pocket, and you cannot divide it into tiny pieces to pay for, say, a loaf of bread.
Commodities like Crude Oil & Nat Gas lack portability. Driving around in a massive tanker truck for your weekly grocery shopping is not seem a super idea.
Stocks and bonds are paper assets, which tells us that they do not carry any intrinsic value.
Stocks and bonds are largely uncorrelated to Gold, which as a hard asset serves as insurance against corrections in those sectors.
Silver lacks Gold’s inherent portability.
At current prices, you would need 546 ozs (37.4 lbs.) of Silver to carry $10,000 around with you. That is a lot of coin.
$10,000 in Gold, on the other hand, or 8 ozs, fits comfortably in the pocket.
Right after World War 2 my grandfather told me, “Paul do not own anything that you cannot carry with you.”
It’s certainly no coincidence that Gold has kept its reputation as a store of across millennia.
The 1st recorded use of gold as money was around 700 BC, when merchants in Lydia, an Iron Age Kingdom in the western part of modern Turkey, produced the 1st coins by stamping lumps of electrum, aka Green Gold, a natural Gold-Silver alloy.
Counterparty risk means that as soon as one or more entities are involved in a monetary transaction, they might be unable to fulfill their financial obligations.
The USD, backed by nothing but the “full faith and trust of the US government,” has counterparty risk. If the US government defaults on its debts and/or America faces hyperinflation, the Buck could become worthless, we have seen with many paper (fiat) currencies around the globe.
In contrast, Gold is intrinsically valuable, and so the ultimate form of Money. In its history, Gold’s value has never gone to Zero.
We cannot say the same for stocks and bonds, Gold is money, and its seem prudent that every balanced portfolio has some, Yes?
Have a terrific weekend.