I love the late great Richard Russell’s response when people called him a gold bug: “I’m not a gold bug—you’re a dollar bug!” I was lucky enough to meet him and see this line delivered with grace and humor.
I’m reminded of it now because a very astute reader of mine just sent me a copy of a presentation on gold he recently delivered. His case was built on the systemic risks all investors in today’s financial world face, but few recognize.
This is precisely why I like to say that we are all speculators now, and the advantage goes to those of us who know it.
It’s also why my friend Doug Casey has long said that the reason to own gold is not for speculation, but prudence.
Simply put, gold is the ultimate financial insurance.
How can I say that with gold down almost 50% since its 2011 peak? What kind of safe haven fluctuates that much in just a few years?
Well, I could snark that Bitcoin fluctuated that much in a month, but that’s not really relevant. Don’t get me wrong; I like Bitcoin. Great idea. Revolutionary, in a good way. But Bitcoin is just not in the same asset class as gold.
More relevant is that the Dow dropped almost as much during the crash of 2008—a year gold finished in the black.
Despite the nonsense claims of gold being a “barbarous relic” and the even more ridiculous claims that Bitcoin is the new gold, the most important and undisputed facts are:
- Gold has held its value for thousands of years.
- The US dollar—the reserve currency of the world—has lost 96.1% of its value since 1913.
- Cryptos have only existed for a few years and have already manifested extreme volatility. Reliability TBD.
This is all any rational person really needs to know.
But I’ll give you a bit more color. Gold isn’t like the kind of insurance one buys to cover every sniffle and stubbed toe. Such perfect financial protection does not exist. Gold prices do fluctuate. In the short term, this can be frustrating—or even dangerous if one forgets it. Gold is more like the catastrophic insurance healthy people buy, knowing it’s cheaper to simply pay for sprained ankles and such routine things out of pocket. It’s still a great comfort to know that if something major comes up, one is covered.
Whether it’s sudden unemployment, the next stock market crash, or the next global economic depression, gold is the best insurance you can buy. I have, in fact, experienced this financial life-saving aspect of precious metals myself.
But can one truly rely on gold?
Well, it has held value better than anything else—absolutely everything else—for over 4,000 years.
What about the worst case, a Mad Max-style collapse of civilization itself?
People say that you can’t eat gold. It’s true. You also can’t eat shoes, iron ingots, or the knowledge of how to build a windmill, but all of these things are valuable.
Gold happens to be a unique, easily identified metal with many uses that give it value in and of itself. It’s also convenient, consistent, durable, and divisible. It has all the attributes of good money.
And you don’t need the Internet, a computer, or even electricity to use it.
Better still, you don’t need a government to pass laws requiring people to accept it. Without such government fiat, the little pieces of paper people call money today would never have been accepted. And what happens to those pieces of paper when governments fail? Ask the folks in Zimbabwe.
People who imagine they’re safe putting their savings in US dollars, euros, rubles, francs, rupees, yen, yuan, or any other such intrinsically worthless scraps are all folks I think of as dollar bugs.
Gold is the best form of wealth protection ever devised. Period.
What if one’s goal is not to protect wealth, but to create wealth?
Well, that’s where rational, disciplined speculation comes in. For this, gold’s famous fluctuations turn out to be a good thing; we can speculate on quality gold stocks when gold is oversold, and gain leverage on the rebound.
But in this regard, I’m not religious about gold. I’m willing to speculate on other metals, other commodities, and other assets entirely—if and when I’m convinced that I’ve found a truly great speculation.
Finding those is not easy, of course. That’s why readers of The Independent Speculator pay me to help them.
Caveat emptor,
