Here in America, it's Independence Day, so it's only fitting that I write about the one type of money and asset that is truly independent of governments. Gold has value, and it doesn't need the government to "incorporate" or "guarantee" it. Gold has value because of its own free market properties, not because of artificial demand cooked up by the government.
But on to the point of this article. A couple of days ago, I responded to an article by fellow SAer Skyler Greene. In the article, he basically missed the point of gold completely, suggesting that it was a bad inflation hedge -- or the "worst ever".
This was fascinatingly wrong on such a fundamental level, I simply had to respond by explaining why gold's attackers were wrong.
Then, Skyler wrote up another article essentially "refuting" my argument. In his article, he, unfortunately, ignored almost everything I said about the history of gold, and the fact that his charts were essentially just random comparisons that were meaningless.
First, it's important that we understand that there is no perfect security. It's impossible. The only question is the degree of security. For example, buying penny stocks is about as risky as it gets for a 40-year-investment, and gold coins are about as boring and safe as it gets.
I'm not about to argue that gold doesn't have "flaws" in the sense that you could lose out completely. My point is that gold is better than the alternatives, and I honestly can't see how any well educated person could reject this.
Still, it's important that we squash the anti-gold-bug arguments because blindness is always a bad foundation for investing, whether it's for or against an asset. Let's look at Skyler's points in his new article.
It's important to note that silver can be appreciated for many of the same reasons. I buy both every month.
1. Gold can be confiscated.
This is, of course, true. It's also only true of some forms of gold. If you own off-the-books gold coins and aren't planning on doing anything illegal, of course, with them, then there's no reason to think that the government would find those coins.
Even then, so can corporations, currencies, and your dog. This is a non-unique "flaw" with gold. It would be like me saying, "don't buy bonds, you might die in a car accident". It's missing the point, because the car accident would happen with or without the bonds.
2. The government can kill you, or something.
The general gist of this is that only a handful of people will trade in gold. That's sheer foolishness, however. Any look into different biographies even of the most tyrannical regimes show the victims using bribery to save their skins.
Either way, the only thing worse than gold in such a situation would be paper bonds or stocks. Seriously, the idea that gold isn't better in a doomsday environment is honestly just bizarre.
3. Gold is worthless during "the apocalypse".
I'm assuming he's being facetious here, but it's honestly a legitimate concern. Sometimes, really bad things happen.
And no, it's not at all worthless during the apocalypse, because as civilization begins picking the pieces up, a money is always needed, and that gold will represent current or future money. And you know what's worth less than gold during such a situation? Any other hard asset.
That said, yes, bullets and beans or whatever is nice, too, and there's no reason you have to pick one over the other.
What Skyler Ignored
Skyler ignored the fact that his charts he was using were comparing completely unrelated data points. He was comparing the inflation rate changes year-to-year, and comparing them to gold prices. That's apples and oranges. He should have compared gold and dollar-value rate changes.
He also ignored the fact that no one is looking to gold to beat out inflation in the very short run. It's a medium-to-long term play, and his argument was essentially a straw man.
In the end, gold is far more secure that stocks, bonds, or paper currencies. It's a safe haven against economic collapse, war, tyranny, hyperinflation, and even economic fear itself.
Skyler's responses have mostly ignored my points, cherry picked a few of them, and then ignoring that wherever gold is "insecure", everything else is worse.
So what's the conclusion? Gold wins, because gold has been winning every major argument for several thousand years, and its not going away anytime soon. And that's why I buy gold and silver bullion every month, and will do that for the rest of my life, hoping I never have to use either.
Additional disclosure: I own physical gold and silver and will be buying more regularly.