Whatever You Do, Don't Buy Gold!!! (yet)

in #investment5 years ago (edited)

Gold is money, right? I mean, while we're all constantly bombarded with the idea that these funky pieces of paper from THE state approved printer are money, the fact is that they are not. They're currency, sure. But they're fiat currency = a centrally controlled and state enforced monopolistic #ponzi scheme. Fiat currency does not fit under the definition of money simply by the fact that it does not have a limited supply.

Cypto-Rabbit Trail

Of course, cryptocurrency kinda messed up our beautiful Aristotelian definition of money, but not quite. According to Aristotle, money must be durable, portable, divisible, recognizable and have intrinsic value. Many good economists have pointed out that intrinsic isn't really accurate, because "worth" is not intrinsic to inanimate objects. Human life has intrinsic value. But we can probably say that real money has inherent value. Also, Aristotle didn't write in English, so we can play with the nuances a bit. The goal is to get the point across.

So crypto fits how? It's divisible and clearly portable, almost more portable than the word can convey. It's generally recognizable and quality isn't necessarily an issue. For the non-centrally controlled cryptos, it does have inherent value due to its limited supply.

But is it durable? No, it is not. You see, if there's a fire in your house and the loss is complete, what happens to your gold? It melts, right? But the amount of gold does not change. As long as you can reclaim the same weight in gold, you still have the same gold value (numismatic value is not applicable). Not so with crypto. If it was stored on your hard drive without proper backups, it's gone. Or if you had a paper wallet, same.

It could be argued that the coins still exist, but are inaccessible. Okay, that's fine. But they have no bearing on the market anymore, and never will unless/until someone figures out a way to claim them. The security implications are a little concerning though, so let's consider them gone.

Back to the Point

The point is, because of its scarcity, difficulty in mining, durability, portability, easily recognized (simple tests can prove its purity) and its excellent capacity to store value, it's the king of the hill. When a good economist thinks of money, #gold will come to mind. Of course, many economists today think Federal Reserve notes are money these days, because of the direction our colleges have gone. We'll let that go for now though.

What if I told you that if you are invested in gold that you are possibly cutting your investment potential in half? You'd think I was nuts, right? I mean, if gold goes up from $1300 to $2600, you're not going to complain about doubling your purchasing power with the yellow stuff. But what if you could take that $1300 in gold and turn it into $5200 in the same timeframe?

Now I have your attention, right? It's simple, but most investors in precious metals don't really think it through. Part of this is because they haven't been exposed to a simple aspect of how precious metals move through cycles.

This simple aspect is the ratio. The idea is to quit thinking of precious metals in terms of dollars. Think of them in terms of their own value as real money. Now, how much silver can you buy with an ounce of gold? Okay, now much gold can you buy with an ounce of silver?

The AU/AG Ratio

Historically, that's been anywhere from about 10 to 20 oz of silver for each oz of gold. The inground ratio is about 8 to 1, but silver isn't really mined directly very often (a few notable exceptions, especially in Australia), so our above ground ratio is more like 18 to 1. Of course, that's a bit of a guess, because a great deal of our silver has been lost to photography and other industrial applications that renders it difficult to reclaim. This, along with central banking shenanigans, has resulted in a severe shift in the price ratio, even if we don't know the actual above ground ratio. 

So what to do? Hopefully this info gives you enough to start thinking it through. But I'm working on another article that'll dial in the details and provide some actual analysis to help you discern what to do next. A few points re: this article

  • No, I'm not baiting. Actually, I thought I'd get to the point faster here, but this article is getting a little long. 
  • I think the other one will stand alone better without this intro. So, please watch for it. 
  • Don't vote this one up if you feel baited. Just ignore it and wait for the next one. It'll have more actionable insight.
  • There are some thoughts here that I wanted to share anyway.
  • I'll post a link to the next article here as soon as I get it published.

Thanks for reading!

Rockin' on,
Another Joe

My introduceyourself HERE.

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decent post, try to dress it up a little more next time, less info more pics.