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Wealth

The Power of Gold

Why you should include gold in your financial kingdom.

Ownership of gold can be a fairly polarizing topic within the financial community. Many people will say that it is a waste of resources since it has such a low ROI (2020 being a notable exception to that). Others counter that argument by pointing out that it acts as a safety net for your finances. Having a percentage of your wealth in gold protects you from market volatility.

I fall into the second category (or close to it). Not only should you make gold part of your financial foundation, it should be in the form of actual physical gold as opposed to investing in gold through an ETF (for example).

America’s Turbulent Relationship with Gold

The United States has had an on-again off-again relationship with gold. Without going into too much detail, after the Great Depression, FDR made it illegal for private citizens to own gold while Congress changed the law regarding payments of debts in gold. Later, Nixon annulled the Bretton Woods agreement, taking America (and the world) off the gold standard completely.

It wasn’t until 1974 that it was once again legal for American citizens to own gold. In that brief period of time, gold went from $20 per ounce to $124 per ounce. Since then, as the American money supply has risen, so has the price of gold. On January 1, 2020, the price of gold was just over $1500 per ounce. On August 4, it broke the $2000 mark and, in the month since then, has been floating between $1900 and $2000.

Because the United States is not on a gold standard, you should be. In 2009 through 2011 America tried to recover from the global economic downturn by a process called Quantitative Easing. That’s fancy economist talk for printing a bunch of money. This process quintupled the American money supply in just a few years.

In 2020, again the United States fired up the printing presses. To soften the blow of massive unemployment, the government handed out stimulus checks to individuals and businesses. This pumped more fiat currency into the world. Every time a government increases its money supply, the value of gold goes up as the value of its currency goes down.

Gold and You

The most certain way for you to stabilize your own personal finances in the face of these moves by the government is by owning gold. There is only so much gold in the world. That amount grows a little bit each year, but it is a very predictable process. Because of this, governments can’t tamper with the value of gold and as an owner, you can be confident in its value.

There are three basic levels at which a person can interact with gold. The first is to simply ignore this advice and stay away from gold altogether. Many savvy financial people follow this path. They do so because they trust in our financial institutions to remain stable. They feel that money put into a slow mover such as gold could be put to better use in a high return area such as the stock market.

The next step up from that is to invest in gold through a variety of means. First, there are several exchange traded funds (ETFs) that predominantly carry gold. Other methods include buying gold futures contracts or investing in companies that mine gold. The most direct of these methods is the ETFs.

The Upsides

The third level is my favorite. Physical ownership of gold comes with many advantages and a couple of disadvantages also. The advantage that it shares with investing in gold is the hedge that it provides against the devaluation of currency. Since there is only so much gold in the world, its value will always go up in response to inflation or increases in the money supply.

Physical ownership of gold goes one step further. Instead of putting your trust- haha. See what I did there? Trust…. Sheesh, tough crowd. Anyway, instead of relying on other investors and fund managers half a world away, being in possession of the gold yourself puts all of the control in your hands. We’ll circle back around to this when we talk about disadvantages but for now, having the gold in your possession gives you an extra layer of security against an overreaching government.

Owning gold (as opposed to investing in gold) also comes into play if you are considering potential doomsday scenarios. While I’m not a prepper, I do believe that it behooves a person to fortify themselves against every possible problem. If we ever ran into an event where the government stopped functioning, paper money might not have any value. It is generally believed that gold would return to its former status as the primary means of exchange. Having gold – especially in small amounts – would be incredibly important.

The Downsides

Let’s talk about the other side of the coin. The biggest concern you’ll have with owning gold is keeping it safe. If you invest in gold, that’s taken care of for you. When you take on the mantle of owning gold though, you bear the responsibility of keeping it safe from burglars or just kids with sticky fingers.

There is also no guarantee that the government won’t make it illegal to own gold again. If that happens, you’ll be put in the position of whether or not to turn in your gold. If you do, you lose a big piece of your financial stability. If you don’t, you become a criminal. But, of course, if you don’t physically own the gold, you won’t even have an option.

Conclusion

The strength of gold doesn’t lie in its ability to make more money for you. Rather, it directly counters the roller coaster effect of the fiat currency systems used by most governments around the world. Because these governments are susceptible to mismanagement and corruption, it is important for citizens to protect themselves.

There are various ways to own gold, either physical ownership, certain ETFs, or by investing in it through the stock market. Physical ownership of gold ingots from reputable mints is the best way for most people. While security is an important consideration, having the direct control that this provides unlocks the true power of gold.

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