Longtime blog readers will know that I have long been a non-fan of gold as an investment or as a collapse strategy. I base my opinion about gold (and silver) on several points which I think are often overlooked:
- The gold standard has been gone for over 42 years (1971). The first “adjustment” actually occurred in 1932, from $20 oz. to $35 oz., which significantly decreased the value of the dollar.
- Since 1971, the “value of gold” has been highly manipulated. The recent massive drop is but one of hundreds of examples in the last 42 years of manipulation.
- Gold bugs argue that real money “is gold”. This was historically true. It is not true anymore. What is true is what people use now and in the future.
- Gold bugs argue that a return to the gold standard is essential. This is true, but it will not happen because fiat currency and fractional reserve banking are incredibly powerful tools that will not be given up by either the Federal Reserve or the federal government — or any bank. They make trillions of dollars off of these accounting techniques, virtually fabricating “money” out of thin air. It is extremely unlikely that this will be stopped (somehow). All efforts to return to a gold standard have failed.
- Money today is digital. Digital money is no more “real” than fiat currency, but it is widely accepted in the form of bank transfers, wire transfers, credit cards, checks, loans and payments, all done by computer (ie, “digital money”). No real assets are transferred, it’s just computerized accounting now. This too is extremely unlikely to ever “go away” or be replaced by the actual transfer of “real money”. Transferring real money is problematic (slow, cumbersome, risky and outdated). It’s not important that you may object on moral grounds to this point, what’s important here is what is actually occurring and what is likely to continue to occur.
- Nobody will accept gold as a form of payment – not even a bank. You cannot buy food, fuel, land, cars or any tangible asset with gold or silver. You cannot pay off a loan with gold. You cannot even deposit your gold in your bank as a “deposit”.
- In order to do any of the above, you must first convert gold or silver into cash, but it’s harder to do than most realize. You must find a coin dealer / gold seller or a pawn shop and exchange the gold coins / bullion for a check (they won’t even pay you in cash anymore). Your gold is now “fiat currency”, the only kind of money that can actually be “spent” these days.
- Gold and silver must be “timed” correctly to realize a profit (higher price) than what you paid. The market is very volatile and it is not always easy or convenient to do this (you may have to wait a long time, ie., years, or accept a loss if you’re in a hurry to spend your gold).
- Gold dealers charge you a premium for gold and silver coins and bullion. Essentially, you’re always “paying more than what it is worth”. To realize a profit, it must then be sold for at least as much as what you paid.
- Dealers and buyers are limited. They are not ubiquitous. There are none in my area for example, I would have to drive at least 90 miles round trip to find one. There are many places in the United States where you simply cannot find any.
- Gold and silver must always be converted into cash, a multi-step process, in order to “spend” on anything. This can take a bit of time, from a few hours of your time to a few weeks, depending on who you sell it to and how long it takes to get paid (mail companies can be quite slow).
- Gold and silver have no practical value (actual usefulness) to the investor. You can’t use it for anything but jewelery and some electronics applications, but in reality, even this is beyond the average investor. You can’t eat it, spend it readily, or put it into your gas tank. It won’t grow food, it won’t multiply, it won’t do anything.
- The value of gold and silver is completely outside of your control. Its value is “what they say it is”, ie., the “market”, which has long been known to manipulate the value of gold and silver.
- From a practical standpoint, it’s a poor vehicle for investors or those seeking to hold onto their wealth.
- Inflation affects gold and silver just as much as it affects the dollar or the price of goods. Since gold or silver must be converted into cash to spend, you are still paying the current inflated prices on whatever it is you are spending your gold-into-cash on. You’ve actually saved nothing. Nor have you “profited” anything either, even if you sold your gold at a higher price then you paid. The cost of goods you may need have also gone up during the time you held your gold hoping for higher returns.
- Investors hope that gold appreciates in value faster than other goods appreciate (or inflate) over the same length of time. Sometimes this does happens, sometimes it does not.
- It makes more sense to avoid gold and silver altogether, and simply obtain (at today’s lower price) the things that you need, versus having and holding gold and silver, going through the hassle of exchange for fiat currency, then buying what you needed all along.
- Gold and silver has been confiscated during times of economic collapse. There are no guarantees at all that any gold or silver you have will be worth anything. Confiscation usually means “at a set price” (which is not market prices, but far lower), with violators facing arrest and jail for refusing to relinquish their metal. This has happened a number of times in history.
- Inflation is often the claimed reason to invest in gold or silver. Inflation affects everything, including gold and silver. It also affects the goods you would be buying after converting your gold and silver into fiat currency.
- Gold investors also fear a financial collapse. Yet if this did happen, gold would be nearly useless, as you would have find someone who still wanted gold (instead of food, fuel, or material goods for example). And if there WAS a total collapse, what would you rather have?
- Gold in a total collapse is also useless (money of all types will be useless).
A revealing video on what the average person thinks of gold:
The truth is, gold and silver are only “valuable” as long as they say it has value and at what price they say; and only as long as there is a market to buy and sell this commodity. A financial collapse by no means guarantees a market for gold or silver (good or bad), it only means that fiat currency has either collapsed or inflated — and so has everything else. Gold confiscation is certainly possible. Even in a financial collapse, the computers will still work (digital money, fractional reserve banking and fiat currency still exist). Gold will forever remain a secondary store of value for this reason. We would have to lose all the computers, and the Federal Reserve, and all the cash (fiat currency) before anyone could reasonably hope to see gold used as money again. This is extremely unlikely — and if it did happen, you would STILL need to dump your gold to buy food, seeds, tools, ammunition, land, fuel and everything else you would need to survive. Gold would be basically useless in such a collapse.[...]