The New Case for Gold

1. Gold is money, not an investment or commodity

Gold has no yield; it's not supposed to, because it has no risk.

Gold as pure money. Unlike stocks, bonds, or commodities, gold doesn't generate returns or have industrial uses. It serves as a stable store of value and medium of exchange. Gold's lack of yield is not a drawback but a feature of its risk-free nature as money.

Historical perspective. For thousands of years, gold has been recognized as a universal currency. It has outlasted countless fiat currencies and economic systems. In times of economic uncertainty, gold often regains its monetary role as people lose faith in paper currencies.

Unique properties. Gold's physical characteristics make it ideal as money:

• Scarcity
• Durability
• Divisibility
• Uniformity
• Portability

2. Physical gold offers protection against financial instability

If there's a demand shock or a buying panic for gold and the price of gold is skyrocketing, that's exactly when these paper contracts are going to fail, because there will not be enough physical gold to satisfy all the claims.

Insurance against systemic risk. Physical gold provides a hedge against financial system collapse, currency devaluation, and economic instability. Unlike paper gold contracts or ETFs, physical gold cannot be defaulted on or manipulated by financial institutions.

Preservation of wealth. During economic crises, gold tends to maintain or increase its purchasing power while fiat currencies lose value. This makes it an effective tool for wealth preservation in uncertain times.

Liquidity in crisis. Physical gold remains liquid even when other financial markets freeze up. It can be easily traded or used as a medium of exchange when conventional financial systems fail.

3. Central banks manipulate gold prices, but manipulation ultimately fails

Manipulations can last for a long time yet always fail in the end.

Motivations for manipulation. Central banks and governments attempt to suppress gold prices to:

• Maintain confidence in fiat currencies
• Control inflation expectations
• Manage economic perceptions

Manipulation techniques:

• Physical gold sales
• Leasing gold to banks
• Creating paper gold derivatives
• Coordinated market interventions

Inevitability of failure. Despite powerful forces behind gold price suppression, these efforts always fail in the long run. Physical gold demand eventually overwhelms paper markets, leading to price discovery and higher valuations.

4. Gold's resilience shines in times of economic turmoil

Gold has maintained its resilience through monetary collapses in the past, and it will do so in future collapses.

Historical performance. Gold has consistently preserved wealth during periods of economic instability, currency devaluations, and market crashes. It often outperforms other assets during times of crisis.

Hedge against multiple scenarios. Gold performs well in both inflationary and deflationary environments:

• Inflation: Gold price rises as currency value falls
• Deflation: Governments likely to devalue currency against gold

Global demand. In times of uncertainty, individuals, institutions, and central banks increase gold holdings, supporting its value and demonstrating its enduring appeal as a safe-haven asset.

5. The international monetary system is heading for collapse

We are getting closer to a collapse of the international monetary system. That doesn't mean tomorrow morning necessarily, but it does mean that it will happen sooner rather than later.

Systemic instability. The current global financial system is characterized by:

• Excessive debt levels
• Currency wars
• Central bank interventions
• Interconnected markets prone to contagion

Historical context. Previous international monetary systems have collapsed roughly every 30-40 years. The current system, based on fiat currencies and floating exchange rates, is showing signs of strain.

Potential triggers:

• Loss of confidence in major currencies
• Sovereign debt crises
• Geopolitical conflicts
• Cyberattacks on financial infrastructure

6. Cyberfinancial warfare poses a new threat to digital wealth

Digital wealth is subject to power outages, infrastructure and exchange collapses, hackers, and online theft. What good is even a billion-dollar portfolio if it can be wiped out overnight?

Vulnerability of digital assets. As wealth becomes increasingly digitized, it becomes more susceptible to cyberattacks, system failures, and government control.

Geopolitical implications. Cyberfinancial warfare could be used as a tool for economic coercion or retaliation between nations, potentially destabilizing global markets.

Gold's advantage. Physical gold is immune to hacking, power outages, or digital erasure. It provides a tangible store of value outside the vulnerable digital financial system.

7. Aim for a 10% allocation of investable assets in physical gold

I've consistently recommended a modest allocation—10 percent of your investible assets for most investors, or 15 to 20 percent of your investible assets if you're somewhat more aggressive.

Balanced approach. A 10% allocation provides significant protection without overexposure to gold's price volatility.

Calculation method:

1. Exclude home equity and business assets
2. Calculate 10% of remaining liquid assets
3. Invest this amount in physical gold

Risk-reward profile. This allocation limits potential losses while providing substantial upside if gold prices rise significantly, as the author predicts.

8. Gold's price is poised for significant increase in the coming years

My intermediate-term forecast for the gold price has not changed despite volatility and retracement in the nominal dollar price. Gold will ultimately be making its way to the $10,000 per ounce range.

Factors driving price increase:

• Central bank policies promoting inflation
• Growing global debt levels
• Potential loss of confidence in fiat currencies
• Increased demand from emerging markets

Potential catalysts:

• Financial crisis or market crash
• Geopolitical conflicts
• Widespread adoption of gold as a monetary anchor

Timeline. While exact timing is uncertain, the author believes this price increase could occur within the next 5-10 years.

9. The war on cash strengthens the case for owning physical gold

The war on cash is more than just a prelude to negative interest rates. Eliminating cash also makes it easier to force bail-ins, confiscations, and account freezes.

Government motivations:

• Implement negative interest rates
• Increase financial surveillance
• Facilitate tax collection
• Control capital flows

Implications for individuals:

• Reduced financial privacy
• Vulnerability to bank bail-ins
• Exposure to negative interest rates
• Limited ability to transact outside the banking system

Gold as an alternative. Physical gold provides a way to hold wealth outside the digital financial system, preserving privacy and avoiding potential confiscation or negative interest rates.

10. Proper storage and acquisition of gold are crucial for wealth preservation

My advice for third-party custody would be to go with private gold storage companies, not bank storage. The reason is that banks are heavily regulated, and gold held there can easily be confiscated by the state.

Storage options:

• Home storage (for smaller amounts)
• Private, non-bank vaults
• Allocated storage with reputable companies
• Jurisdictional diversification

Acquisition strategies:

• Buy physical gold, not paper substitutes
• Avoid leveraged gold investments
• Consider dollar-cost averaging
• Choose reputable dealers

Key considerations:

• Security and insurance of storage facilities
• Ease of access during crises
• Protection from potential government confiscation
• Diversification across jurisdictions

Last updated: November 18, 2024