I enjoy owning gold as a store of value, as currency, and as systematic insurance. It is the only currency that has repeatedly survived hegemonic collapse. As mentioned earlier, gold is a:
Store of value looooooongstanding
Gold and silver have a history as a store of value that can be measured in millennia. Yes, it is a convention, but a convention so powerful and so ancient that it has become a useful hypothesis. We can suppose the attraction of gold on man as we can suppose the attraction of gravity.
gold is money
I also enjoy owning productive land and running businesses, but it’s also nice to have a store of value that doesn’t change. I am not thinking of the value of gold and silver denominated in US dollars or any other fiat currency; instead, I think of the value of gold as it is denominated in gold. Neither its supply nor its demand changes much over the period that concerns me. One can deny that gold is money, but if gold is not money, then nothing is. I would say it holds more of the qualities of money as historically and correctly understood than any widespread paper money in circulation today.
I could rightly be accused of being so safety-conscious that I’m on one side or the other of paranoia. I take radically elaborate steps to maximize financial and physical security. I kinda like the subject matter, so there’s little downside, but I guess some really bad things happen, set them up, and then everything else is just upside down to enjoy. To this end, many things can be assured. However, there is no particular way to buy systemic insurance through financial instruments. If our integrated, complex and tightly coupled modern world breaks down – even for a short period of time – we may need systemic insurance.
Is it really necessary?
I think the best way to think about it is that dozens of preeminent civilizations have collapsed throughout human history, and it was almost always quick and almost always unexpected. Although there were no opinion polls at the time, I suspect few members of previous hegemons would have expected their demise. But that doesn’t stop the demise, and such a demise looks like a multigenerational decline in wealth, security, and technology. For the most part, no one expected it and no one was prepared for it.
This time is different – We are in a New era
Following the Spanish flu pandemic and World War II, Western civilization experienced a golden age without events that revealed systemic vulnerabilities by wiping out large swaths of the population. This has a superficial impact as well as a more substantial impact on our thinking about the weaknesses of our system. Superficially, it has worked so far and so the appearance of stability has lulled people into a sense of complacency. More concretely, it has extracted from modern society all the skills and elements necessary for a basic level of survival in any environment except the one we have recently created.
We live in the least adaptable and most evolutionarily precarious civilization there is. If things were going terribly wrong, the American pioneers of the late 1800s were well versed in the skills and use of technology of earlier civilizations. If necessary, they would be perfectly passable Iron Age workers. Likewise, you can send a worker from the Iron Age to the Bronze Age or even the Stone Age without causing too much trouble. Such a technological turnaround would elicit a few shrugs before getting back to work. But if their technology was disabled, what would most modern office workers do?
If we were forced to lose our newest and most tightly coupled technology, even for a few years, we wouldn’t be able to smoothly transition to an earlier level of technology – we don’t have the skills and we don’t have not the material. On average, we have fewer practical skills than our grandparents possessed than any known previous generation. At the same time, we need all of our most advanced infrastructure and logistics to support our current population density. This density would decrease precipitously in a few months (and this would not be the ideal way to solve the problem).
It is precisely when it is most counter-cultural and varied that it is most relevant to have contingency plans for systemic risk. I think it’s a good idea for professionals to know at least one professional skill in case their chosen profession becomes stale and irrelevant. Even with a trade, it’s a good idea to know enough primitive skills to be able to survive entrenchment at the civilization level. And finally, it makes sense to have a means of trade and a store of value. The mediums of exchange and the store of value that bridged the previous hegemonic breakdown were gold and silver.
In short, owning gold. Owning gold in inverse proportion to your faith in our central government and our central bank conducting sound fiscal and monetary policies. If you anticipate frugality and caution, this might not be necessary as you can hold US dollars confident that they will not be downgraded. But if you observe profligacy and corruption – permanently piling up debt on one side while promoting inflation to alleviate the cost of that debt on the other – then you will need something else and gold is your best bet. Other fashionable alternatives have come and gone, but gold has stored wealth for millennia.
fields of gold
A good way to invest in gold is through Gold Fields (GFI).
At their nine mines in five countries, their all-inclusive costs for mining gold are $1,297 an ounce, with that gold currently trading at $1,825.89 an ounce.
Although GFI costs are lower than the spot price of gold, you can do even better by getting discounted GFI through Yamana Gold (NYSE: AUY). Gold Fields buys them for 0.6 GFI per AUY. It requires the approvals of both shareholders as well as the approvals of the South African Reserve Bank, Competition Canada and Investment Canada. The net spread of $0.76 offers an IRR of 44% if the deal closes by November. The rebate is the equivalent of your gold purchase at an all-in cost of $1,126 per ounce, or approximately 62% of spot.
Unless you trust the administration and are fed to protect the value of the US dollar, you should own gold. GFI is a good way to do this indirectly and AUY is a good way to get back to GFI at a discount.