Gold skeptics are ignorant

Most people would never put even a tiny fraction of their savings into gold bullion or coins. Not even in an investment climate where everything is either in a bubble or does not return a significant yield. In a period where nearly all banks rely on bailouts and bailins to stave off bankruptcy, people keep putting their faith in paper: Stocks, bonds, investment accounts, bank balances and the like. This is extremely risky behavior, but they do not realize this. They believe that paper currency is a rmore reliable store of wealth than physical gold and that stocks and bonds will yield more than gold. These people do not have sufficient information to make a proper judgment - they are what we call ignorant. We will call them "paperbugs", as a contrast with what they call people who convert their currency into actual money by saving in gold, "goldbugs".

Paperbugs have opinions about gold ownership that are by definition wrong, otherwise they wouldn't be paperbugs.  Their wrong opinions are based on erroneous or incomplete information, often exacerbated by flawed reasoning. We will provide a comprehensive list of paperbugs' arguments in disfavor of saving in gold bullion and coins vs. investing in paper assets:

"When the shit hits the fan gold is useless, you can't eat gold, if you are a doomer, stock up on seeds and tools and alcohol and guns and ammo, they are more useful in a Mad Max scenario".

This argument is both a "Straw Man" and a thinly veiled insult, lumping gold-savers in with the "lunatic fringe". Gold savers don't convert their currency to gold because they expect intercontinental thermonuclear war or a giant asteroid strike, they simply don't trust the banks and the various paper markets to be reliable stores of value or reliable long-term investment strategies. What they're preparing for is not a multi-year complete collapse of civilization - something that has never happened in known human history - but they fear something that has happened countless times in contemporary history: Economic collapse, hyperinflation, bank- and government defaults. Those talking about "Mad Max" scenarios never experienced either severe economic turmoil nor an actual "total societal collapse" so they're armchair theorists in those matters. Whereas yours truly lived through a time of extreme inflation, in the early nineties in the former USSR. In the span of less than a year, I saw the Ruble lose three quarters of its value, while people's pensions and wages did not rise significantly. Prices remained largely the same. The result: Approximately six million mainly elderly people died in less than a decade, across the former Soviet Union. I saw some of them die. I saw old women, seventy, eighty years old, sleeping on cardboard boxes, covered with old blankets, trying to sell their meagre household items in order to be able to feed themselves. I saw them blessing people for money, begging in front of church entrances and stealing a potato here and a small bundle of herbs there in the markets. Millions died of starvation-induced illnesses, far away, in their unheated houses somewhere in nameless towns in the Siberian plains. In Russia in the early nineties, the shit truly had hit the fan. Not in a Mad Max post-apocalyptic kind of way but in a much more common, Weimar/Argentina/Russia/Zimbabwe/Venezuela/etc. kind of way. I lived with rich people at the time. They saw their savings dwindle by the week. The solution was simple: Buy silver vases, called "Kovsh":

The word "inflation" was never used during that time. People only complained how prices kept rising, and the richer, smarter ones started to notice how silver and gold appeared to rise even faster than for example the prices for imported shoes. So those smarter ones moved heaven and earth to aquire precious metals, because those prices reflected the global prices in hard currency. Nobody owned bullion, neither was it for sale at the time, but plenty of people had silverware and they were willing to sell it at the right price - so that they could eat. That way, rich people were able to aquire antique silverware and the sellers of those items survived a couple of years of severe inflation. What if those people who died had owned stock or bonds? They would still have died because those investments had either lost their value or were so expensive that noone would be able to afford them - if they had wanted to buy them at all.

"But you can't even buy a loaf of bread with a gold coin, what are you going to do, buy ten thousand loaves of bread?!"

Neither can you buy bread with your stocks, bonds or inflated fiat currency in such a scenario. Well, of course currency will still work, but you'll need lots and lots of it. How things work in such a scenario is very simple: You trade large bars of gold for several smaller ones (or you were clever enough to own smaller bars or coins), and you sell those smaller ones, one at a time, and immediately buy large quantities of sugar, flour, onions, toilet paper, potatoes, rice, cooking oil etc. with the proceeds. If you think some will have spoilt before you consumed it all, you barter the excess for other goods and services with friends , aquaintances and family (or even online, but that option did not exist in 1992's Georgian Republic). This way, you will completely have preserved your wealth in times of trouble. Even better: You will likely be able to purchase real estate for pennies on the dollar, and most will gladly accept your precious metals as payment because fiat would lose its value rapidly.

"But the value of gold is purely psychological and arbitrary, gold is intrisically worthless like a pet rock, it's a barbaric relic!"

Yup. Sure it is. The only problem with that reasoning is that only paperbugs think that way (and only before TSHTF). The people that matter treat gold as gold has been treated since the Dawn of Man: As money. Money is a store of value as well as a medium of exchange. Paper currency is currency, not money because pieces of paper do not preserve their "value" over time and gold always has, on average. If gold wouln't be money, why do you think the central banks of large countries such as China and Russia keep accumulating it? Why do you think the US hold so much gold, why do you think the Netherlands and Venezuela repatriated their gold and Germany wants to do the same? Why do you think the IMF has been socking up on gold by the thousands of tommes? When the central banks of the major nuclear powers hold 35% of the world's gold, don't you think there may be a good reason for this? You think they would waste hundreds of billions of dollars on barbaric relics? 1.3 billion Chinese think gold equals money. A similar number of Indians think gold equals money. The US central bank thinks gold equals money. When so many people and financial institutions think gold is money, gold IS money. It becomes money by the very beliefs and actions of those people that matter. When the rulers of nuclear powers, when the rulers of the largest economies, as well as their citizens treat gold as money, gold IS money, whether you think it should be a useless rock or not.  When there were sanctions on Iran, Iran sold their oil for gold. Gold has always been money and likely will remain money until your grandchildren died of old age.

"But why gold, gold is useless, it does not yield a profit, it is not even used in industry! Why not silver?"

Exactly becasue gold is absolutely useless! Imagine you buy silver and the shit hits the fan. You think your silver will rise tremendously in value? Nope. Silver is used in large amounts in a variety of industrial processes. That means that in a SHTF scenario, during an economic collapse, those industrial processes will have slowed down or ceased completely. Result: Gigantic quantities of silver flooding the market without sufficient buyers. Result: Severe drop in the silver price. With gold this does not happen, because the world production of gold is very small in comparison to silver, whereas silver is a side effect of copper mining. Central banks hold gold but not silver. There is not even enough gold in the world to give every person an ounce, and most of the gold is not for sale, it is in bank vaults, under Chinese matresses and around Indian's necks. Gold is exceedingly rare and totally useless except as money - it can not be created and it can not be destroyed. People, including the financial leaders of economic superpowers think it is money. That gives it its wealth-preserving utility. It is the most convenient money imaginable. No other element or human invention comes close to the suitability of gold as money. Gold is so valuable that a quantity, sufficient to live off for the rest of your life can be moved across borders on your person or hidden in your car, invisible to X-rays when taped against an I-beam. It can be buried and a million years later it will still be there, just as rare and shiny as it when it was put into the ground.

"But gold is not a reliable investment, it sometimes drops tremendously in value and then it takes years to crawl back up again!"

Gold is not an investment because it carries no risk and yields no dividends. Gold is money. Gold savers buy gold to preserve their wealth, not to speculate. Gold is a hedge against inflation and bank defaults. It is a hedge against bailins, government confiscation and even a hacked financial system. Gold is made out of neutrons, protons and electrons, wheras a bank balance only consists of electrons. Saving in gold is not an "investment", it simply is converting fickle currency to a store of value, "money". That means that when you buy bars of gold, you intend to convert them later in life back to fiat currency, in order to buy the essentials of life. Let's say I accumulate five kilos of gold. I expect to be able to live a year off the proceeds of 250 grams. That gives me twenty years worth of savings. I could live the final twenty years of my life off that gold, even when it dropped in value. At least I don't have to worry about economic turmoil and the inevitable evaporation of people's investments that goes with it. So the idea is that you buy gold for gradual liquidation over decades, decades from now. This will very likely result in a financially secure old age, since gold has proven to be the most secure store of value over longer periods. You buy gold and keep it until you need to sell it to live. That's the only way. You save in gold. Of course it is a very good idea to have passive income besides that, no one forces you to save everything in gold. You can engage in any commercial activity you like and invest in that. This is more reliable and more profitable than buying dividend-yielding stocks.

"But gold can and will be confiscated, it happened in the past!"

Of course it could, theoretically but it has not really happened in the past because in practice, this is not enforceable. In the US, private gold ownership was illegal for a long period, but bank deposit boxes were not even searched for gold and only a handful of people had their gold confiscated, and those people were under investigation for tax evasion. Ordinary people with gold never had their gold confiscated, not even when they kept it in safe deposit boxes. Note how gold ownership was made illegal exactly because the government understood too well that gold was real money and Federal Reserve notes was fiat paper, and they wanted to hoodwink people out of real money.

"But why not stock up on something useful, like barrels of oil, tools, grain, seeds etc.?"

Try to preserve those items over the decades, and try to sell it, year after year, so you can live of the proceeds. Or do you plan on producing everything you need yourself when you're retired, or barter with the baker?

By Frank de Groot.

 

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