I reached out to a long-time client and asked him for his thoughts on the current gold market and the economy as a whole. I found his response both perfect in its foundational simplicity on the rationale for gold ownership and motivations for its inclusion in an investment portfolio, and incredibly insightful in his apolitical conclusions regarding the BIG question we all have – ‘Does the US debt actually matter?’. With his permission, we share his response below.
After thinking about this forever, I’ve concluded that US debt doesn’t matter, UNTIL:
There are better alternatives for lenders (who won’t be paid back with worthless currency).
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The dollar loses its status as world reserve.
No matter what anyone says, it’s only different than an individual or family debt because the US can print more and back it up with a strong military. Why would a bank (or anyone) loan to a person already swimming in debt?
Either: it’s still the bank’s best bet compared to alternative – or the bank is forced to lend at gunpoint.
Seems to me, gold is not just behaving like a haven lately, but rather an undervalued asset (as well as a haven). Ignoring day-to-day or even month-to-month fluctuations, ignoring relatively minor dependence (inverse of course) on interest rates … gold is going up because the dollar, by and large, is going down. The Fed just can’t print enough to satisfy pandering politicians.
As a currency, the US Dollar (like all paper fiat) is faith-based, whereas gold is science-based.
What exactly do consumers put faith in when they embrace the USD? They put faith in the hope that more won’t get printed. Period.
Gold has been valued as the “reference standard” for currency for millennia, for reasons that have nothing to do with faith. When you look at all the requirements that a medium-of-exchange must have (rarity, hard to counterfeit, easily divisible, chemically inert for preservation, etc.), gold simply checks all the boxes.
This is not a matter of faith, culture, or advances in technology … it’s simple science.
You buy gold either as a very long-term store of value … which will hold, as long as a brand-new source of massive amounts of gold are not found … or you buy as an investment, which will perform quite well as long as there are pandering politicians needing more money printed to buy votes.
Well said. And I feel compelled to add…at one time, ‘UNTIL’ was reserved for conspiracy theorists and economic doomsdayers, but today, feels a far more realistic outcome of the current economic and fiscal climate than ever before.
Jonathan Kosares – Owner
