A bet on Gold is a bet on Freedom

Today I thought I’d have a little rant on gold.  As we said late last year, gold remains a horribly misunderstood metal.  Most earnest thinkers still struggle to get their heads around why gold, of all things, should hold its value. 

The first point is that measuring gold’s value in terms of volatile and unsound paper currencies will always get your head in a spin.  We are heading into perhaps the most volatile period for currency-based gold prices in history where $50-100/oz daily swings are going to become commonplace.  Until gold is actually used for its rightful purpose as money and remains traded like two-bit speculative chump change on the Comex by a bunch of skittish investors, you can expect more and more volatility.  It is far better to evaluate gold’s ability to retain value against other goods and services over time.

Gold is a patient metal, the monetary pillar that has stood the test of time for thousands of years.  Gold had a good millennium, a good century, a great decade, an excellent year, and will continue to hold firm as the world’s best marketable, liquid store of value.

Historically, the most marketable good a society has access to is always used as money.

In fact the best and simplest definition of ‘money’ is that money is the most marketable good. This can range from petrol or motor cars in Zimbabwe, to bottled water in war-torn Iraqi villages, to salt in ancient desert nations, to cell phone airtime in poor African states, to goats and sheep in agrarian economies. All manner of interesting marketable goods have been used as money from time to time with varying degrees of success and for various reasons (availability, scarcity, geography, value etc).

However, the most successful and efficient societies always, without fail, settled on gold and silver as money. This was not done by some regulatory decree, but was arrived at through hundreds of years of monetary trial and error by the market.

The tried and tested (over 5000 years) form of money is gold (and silver). This is not to say gold is “inherently” money as such, but it has proven over time to be the most marketable good and has the best collective properties of money of any other marketable good. Yes, there are more durable substances than gold, but are they scarce enough, divisible enough, or standard enough? There are more convenient monetary substances, but are they durable enough, marketable enough, and do they retain their value?

You can do the research until you’re blue in the face and you will not find another substance that has all the best attributes of money to the degree gold has. It really is as simple as that.

It has been a fairly recent phenomenon of monetary history that we’ve used unbacked paper currency. Government has “engineered” paper currency’s marketability by monopolising money production and use through legal tender laws and legislative fiat. Why else do you think government and their central banks would rather they own gold instead of letting free citizens own it, and why else have governments throughout history repeatedly confiscated gold?

The answer is simply that they have to do this to perpetuate the fiat currency fraud.

Paper currency is basically propped up by government regulation, and the fully unbacked dollar is actually only still a very young experiment (1971). If the dollar were to go belly up in the next decade, its life-span on the timeline of human history would have been ridiculously short, in fact a barely perceptible error smudge.

Yet most investors out there see the dollar and unbacked paper currency in general as cast in stone and immovable, as inevitable and constant as the changing seasons or shifting tides – a perennial certainty. This would be funny were it not so sad.

So basically, paper currency vs gold money is a war between regulation and the free market, government bureaucracy and market dynamism.  In the end it’ll be seen as really no contest. Yes, regulation can prove a stubborn nut to crack, but, as we have seen in recent years, no amount of government regulatory trickery can beat the market indefinitely.

To survive, paper currency needs a vast government and central banking monopoly, founded on debt, protected by complex and onerous banking regulation, Draconian laws on free citizens, and restrictions on capital and commerce, all administered by thousands of bureaucrats, police, corrupt constitutions, cronyism, favours, lobbying, and propaganda.

Folks, that’s the kind of artificial government regulation it takes just to prop up paper currency, and even then we can’t manage to keep it from losing value and ultimately collapsing.  It’s that weak.

Gold doesn’t need all that.  Gold is anathema to all that government scampering and squirming.  Gold is the domain of freedom and free markets.

As a historical rule, freedom always triumphs over coercion.  In the same way, free market money will eventually win out against the dollar, euro, yuan and all the other protected pretenders.