What could be a better indicator that it is time for Americans to consider adding Gold to their portfolio, than having one of the most iconic American investors doing just that? Yes, even Warren Buffett himself has begun to board the Gold train. We will discuss this more in depth in the next article, but wanted to mention that he has begun to liquidate holdings in the banking sector, and replace them with Gold mining shares of companies with proven reserves of Gold. We don’t know if he has been reading our blog over the past few years, but we agree with the new direction he seems to be moving in. When we consider how well Gold has performed over various periods, it causes us to wonder why the majority of Americans have not considered adding Gold to their portfolios before now.
Gold as Money
To answer that question, we first want to look at when and why Gold began to be used as a financial asset, and why it’s use has persisted in many cultures outside the United States. There is some disagreement about when man first discovered Gold, with periods ranging from 40,000 B.C. to 3,000 B.C., depending on when someone believes life began on earth. Even the Bible itself discusses Gold’s existence from the beginning of creation, as described in Genesis chapter 2, verses 10-12. “A river flowed from the land of Eden, watering the garden and then dividing into four branches. The first branch, called the Pishon, flowed around the entire land of Havilah, where gold is found. The gold of that land is exceptionally pure; aromatic resin and onyx stone are also found there.” Gold has been found around streams and rivers worldwide ever since.
It is more universally accepted when Gold began to be used as coinage or money, around 700 B.C. or BCE. Electrum was a naturally occurring alloy of Gold and Silver used to make these coins, which were further refined to separate the Gold and Silver in about 550 B.C. Gold is a very dense metal, with 1 cubic foot weighing in excess of 1200 lbs. To compare, 1 cubic foot of water weighs 62.4 lbs. Gold is also very rare, with properties very difficult to duplicate or imitate. Whereas the United States produces 10,500 tons of steel every hour, there are believed to be 2,000 tons of Gold produced worldwide - each year. This makes Gold difficult for an individual to locate, mine, and refine for themselves, and why it has been considered valuable as a store of value for thousands of years.
Americans Used Gold as Money Before
The weight of Gold also makes it difficult to carry in large quantities, which is why the United States developed the “Gold Certificate” paper currency system, used from 1863 to 1933. These paper Dollars were convertible into Gold, but were much easier to carry around. The $100 bill pictured was the equivalent of 10 $10 Gold coins (pictured), of approximately 1/2 ounce of Gold each. The $10 Gold coin pictured was originally purchased and passed down to future generations from my Great-grandfather, William A. Stack the 1st. Perhaps some of you have similar Gold or Silver coins that have been passed down, reminding us all that Gold and Silver can be used as money. Incidentally, the value of the Dollar was more stable when backed directly by Gold, than it has been since de-linked from Gold in 1933.
Why would we depart from a stable monetary system to one entirely made of paper, and how do we get back to Gold? The answer is somewhat complex, but we can brush over the main concepts here briefly. Since Gold is rare and universally recognized, it has been naturally used as money throughout history. But sometimes governments and politicians want to spend more money than they have - for wars, domestic spending projects, etc. In other words, they often want to spend more money than they have. Gold production cannot be easily increased to create more money, but paper and ink remain plentiful. Today, paper and ink have largely been replaced with electronic entries in a computer network - which can be even more plentiful.
While the keystrokes of today can create currency to fund every project a politician can imagine or the public can demand, such profligate spending tends to devalue the currency in question. This has been the history of paper currencies for time immemorial. When the currency available is infinite, so is the potential for loss of value in that currency. Another way to describe currency devaluation, is price inflation. That is, when it takes more Dollars to purchase the same amount of goods this year as purchased last year. We have discussed previously why the consistent calls to raise the Minimum Wage could be abandoned, if our currency was still backed by precious metals. $1.25 (minimum wage of 1964) would be worth $25-30 today, if paid in Silver quarters.
Creating Your Own Financial Reset
There are rumblings of a global financial reset, which we have all heard about for the last few years. Gold has recently been declared a “Tier-1 Asset” for bank reserve purposes. There is legislation pending to restore precious metals to their rightful place in our currency creation process. And officials with views friendly to the Gold and Silver community have been recently nominated to influential positions within the Federal Reserve. World powers have begun to conduct significant amounts of trade outside the Dollar universe, with the trend increasing since we mentioned it in the 2018 article. When taken together, these bits of information seem to support the idea that Gold and Silver are due for a comeback on the monetary scene.
But we do not have to wait for world leaders to do what we can and should be doing for ourselves. Gold and Silver have been protecting citizens of the world from profligate spending governments for millennia. The propaganda against precious metals has been effective with Americans in the past, as seen in this video. 5 years ago, every American polled in the video chose a Hershey chocolate bar over a 10 oz bar of Silver. While those of you reading this would obviously choose the $270 bar of Silver, many Americans are now beginning to realize the same thing. With food costs rising, and traditional investments teetering on the cliffs’ edge, Gold and Silver are beginning to catch the eyes of leaders many Americans look to for financial inspiration, such as Warren Buffett. The easiest way for Americans to protect themselves from a depreciating Dollar, is to exchange them for Gold or Silver.