September 1st, 2023 | Grant Johnson

Gold Is Portable, Stable And Timeless

It isn't a long-term growth investment, but it will save you.

Twenty years ago I racked up a bunch of debt and needed to get it paid back. When I was able to save up about $500 I would head to the local coin shop and purchase a one ounce gold bullion coin called a Maple Leaf. This is a coin minted in Canada with a face value of $50.00 and a gold purity of 0.999, which is pretty much the highest in the world.

I used gold coins to store my savings, because back then George W. Bush was invading the world, the price of oil was skyrocketing, and there was a lot of chatter about the end of the U.S. dollar as a reserve currency. After a couple of years, I cashed in my gold coins and paid off my debts. The price of gold fluctuated during that time, but it didn’t go supersonic like I had hoped. Nevertheless, it provided a decent way to store wealth and I moved on to investing in gold mutual funds.

After a few years of watching gold mutual funds basically do nothing for me, I gave up on gold and started investing more in the stock market. The big banks had just started introducing Do It Yourself online investing platforms and I jumped into it with glee. I got my degree from the school of hard knocks and finally built a portfolio of stuff that works for me, but the idea of gold has stuck in the back of my mind for awhile now and I’ve recently decided that I’m going to restart my coin collection.

Today, the price for an ounce of gold in the form of a Maple Leaf coin is roughly $2600.00 in Canadian currency. In my younger years, I was impatient, thinking that economic developments would unfold in a matter of years when the reality is that ‘big history’ more often unfolds over decades. If I had kept those coins, they would have increased in value over 500% in twenty years.

According to the empirical data, Gold over the long, long run doesn’t do much more than match whatever the rate of inflation is, so if you plan on keeping your gold coins in storage for three hundred years you might find that they aren’t that great of a growth investment. Nevertheless, gold can be valuable in times of turmoil and upheaval. Portability and stability are two main reasons for gold’s endurance.

Portability

I recently watched Schindler’s List and a scene that really struck me was one in which Oscar Schindler, played by Liam Neeson, is negotiating with a Commanding Nazi Officer. He attempts to bribe him with diamonds that he lays out on the table. The officer stares him down and pretends to be offended. Schindler calls his bluff and informs him that the war is going to be over soon, and that portable wealth will be necessary. The officer accepts the deal and swipes the diamonds off the table and into his pocket.

I remember another anecdotal story about a man who had his wealth tied up in stock markets in Germany during the Weimar years. Hyperinflation hit and wiped out everything he had. Starting from scratch he rebuilt a nest egg…again in the markets. Then the Nazis arrived, and World War 2 wiped out his wealth a second time. He then moved to Argentina and kept any savings he could muster in precious metals and precious metals only.

Another story from Nazi-era Germany: A man and his family decided to flee Germany when it became obvious that the Jews were in trouble. At this point Jews were encouraged to flee from Germany, but they could only take with them whatever they could pack for the trip. This allowed Nazis to record that they had left the country and then seize whatever was left behind, property, businesses, assets, etc.

This guy knew that if he tried to lug cash or valuables onto the ship, the emigration inspections teams would find and seize his wealth. So, he bought platinum and had a metalsmith melt it all down and fashioned into coat hangers. When he arrived at the docks and the luggage was searched, all they found was clothing and essentials, nothing valuable. He and his family were able to start over somewhere new with thousands of dollars worth of platinum coat hangers. This is a much better situation than starting with nothing but wooden coat hangers and the clothes that were hanging off them.

A more modern context is the situation in Ukraine. When Russia began amassing troops and weaponry around the borders, many Ukrainians shrugged and assumed that war wouldn’t happen. They thought Putin was grandstanding. Surely, this was just a show of force intended to shame NATO!

They were wrong.

Millions of Ukrainians are now refugees. People tried to flee with what they had, but unless they were prepared, they likely left most of their wealth behind. You never want to find yourself in a position where you’re trying to take out your life savings from a closed bank on your way to fleeing your country. Bitcoin was featured as an option that some Ukrainians were able to exploit, but as we’ve seen in recent times, Bitcoin can be a rollercoaster. Gold is accepted everywhere.

The point of all these anecdotes is that people can’t take for granted that they’ll never find themselves in a position in which big historical things happen. The Ukrainians sleeping in church basements in Poland probably never thought this would be their life right now. The Jews in Nazi Germany kept telling themselves, “It can’t get any worse than this… right?” The Canadians with Covid vaccines probably think that their bank accounts will never be frozen because they simply won’t honk their horns in Ottawa. I hope they’re right. They might not be.

Believing in institutions is great, but resigning all responsibility to institutions isn’t savvy or smart or conservative. Think for yourself and have tangible, hard assets on hand for times and situations that may be hard to realistically imagine. An ounce of gold (or silver or platinum) can hold a lot of wealth no matter where you travel. It fits easily in your pocket, and it just might be enough to save your life.

Stability

Talk of the U.S. dollar losing reserve currency status is once again a hot topic, but we’ve heard this all before. The U.S dollar has been the world leader since World War 2 ended and it has functioned without gold backing since 1971. It is a completely fiat currency based on the value of the enduring stability of the United States government.

Gold isn’t a real currency anymore, but it has intrinsic quality as a precious metal and that means that it holds its value relative to other measurements overtime. The U.S dollar is always declining in value…consequently the value of gold is always increasing. Yes, I know…it bounces around like stocks, but go back to 1971 and see what an ounce of gold cost. It was $40 U.S an ounce (or about $250 adjusted for inflation). Gold is $1900 U.S an ounce today. Not a bad profit if you put everything you had into gold coins in 1971.

The timelessness of gold and precious metals means that it will endure. Pirates 500 years ago knew what gold meant. The Romans 2000 years ago knew what gold meant. Go back 5000 years and the Egyptians used gold for currency. Gold is timeless.

Instability of our fiat times

Gold is portable and holds value, but that doesn’t mean it isn’t susceptible to events. Throughout history the price of gold bounced around like it does today. Most recently we saw gold turn into a bubble during the 1970s as inflation and malaise convinced too many people that America’s best days were behind it and the currency was near the end. Federal Reserve Chairman Paul Volcker changed everything and caused a twenty-year trough for gold, leaving gold bugs furious. September 11th, 2001 and the subsequent wars in the Middle East kicked off a new round of increasing gold value. Today gold is extremely valuable compared to when the gold standard was lifted in 1971 and the increase doesn’t show any signs of slowing down.

The world has been, is and always will be a volatile place. Many gold bugs get way too invested in apocalyptic notions about civilizational collapse and the end of the financial system as a result. They rage about printed money and fractional reserve banking and view the whole thing as a scam. They put everything they have into gold and then hope for chaos and destruction so they can walk to the top of the ash heap with their sack of gold and say, “I told you so!”

Don’t be that guy.

However, it’s been 52 years since the world started this experiment of a fiat global reserve currency system and since then the price of gold has increased 7.8% annually.

Fiat currencies throughout history all follow the same pattern of declining quality, followed by inflation, followed by eventual collapse. Romans making coins with a steady decrease in the use of precious metals in order to mint more and more money ultimately phased out their currency altogether. The accounts of Marco Polo in China showed the same thing happening in Asia a 1000 years later. Colonial America had problems with fiat expansion and inflation. The U.S Civil War is an example of fiat drama. The obvious example of Weimar Germany and the wheelbarrow full of cash just to buy a loaf of bread is a hallmark of hyperinflation due to fiat currency printing. A friend of mine gave me a $100,000,000,000,000.00 bill from Zimbabwe when he visited Africa. That one paper bill was worth about 3 cents American.

Will the United States follow this same path? The answer is yes, in fact, it has already happened. The bigger question for us is whether or not this path is going to speed up within our lifetimes.

The United States has such an enormous amount of debt that it is unable to raise interest rates as it did in the 1980s in order to combat inflation. If they tried to do what Paul Volcker did today, they would precipitate collapse and bankruptcy. We are already seeing the financial systems straining under interest rates that are only about 5%.

The demographic situation regarding declining fertility rates around the world is going to upend many assumptions regarding economic growth. It’s also going to radically undermine the Ponzi-scheme social welfare systems that first world countries take for granted. These systems in many cases are already underfunded and the temptation in a democracy will be to just give the people what they want and kick the can down the road. In this case, kicking the can down the road will mean more money printing, and more debt. Fiat currency knows no bounds.

On top of this, there are parallel powers in the world that dislike the status quo. China and Russia are purposefully working together in order to be a counterbalance to the United States. This means they understand too well the impact of a fiat global reserve currency and they are working together to get around those limitations. Russia buys a lot of gold. So does India. So does China. While the U.S. is still world leader for gold reserves…they have less in their holdings today than 20 years ago. (Some think a lot less than officially reported.)

How much gold does Canada have in order to “back up” our currency?

Zero.

There are many factors involved with this issue and if you’re interested in going down the rabbit hole you can check out a thing called “the internet”, but the main takeaway for this article is that gold is timeless, portable and stable and we are living in volatile times with many fiat related edifices in our society. Fiat currency always fails and current events are showing us elements of failure right now. These things take time though…remember Marco Polo marvelling at China’s paper money? It lasted for 90 years before failing.

Start saving a little bit of fiat cash each month and when you’re ready, head to a coin shop in your area. If you’re looking for bullion you should be able to find it in various quantities. If you want to have it shipped to you try sites like this one https://canadianbullion.ca/.

There are some tax implications to be aware of…no PST/GST should be charged on your purchase for example. If your coin increases in value by more than $1000.00 it is (forward from that) subject to capital gains tax upon selling.

An, “in case of emergency”, gold coin collection shouldn’t be sold unless emergency strikes, though, so don’t worry about taxes. Hopefully our society lurches along well enough that you can gift these coins tax free to your grandchildren someday. Until that day, it’s prudent to be aware and be prepared.

Always be prepared.