Have you ever seriously thought about buying gold?
Global trade tensions between the USA and China, the uncertainties around Brexit in Europe, increasing tensions between Iran and Saudi Arabia, and a return to monetary easing by central banks may very well mean that now is the time to begin accumulating the most historically sound asset of all time – if only to hold a safe haven investment impervious to the trends in other markets.
Not only is it rising in popularity once again, but it’s becoming much easier to access for all, particularly those that have traditionally been excluded from the financial system.
Michael Gelband’s Exodus Point launched in 2018 with $8.5 billion in assets. Expectations were high that the former Millennium Management executive would be able to take the skills he had learned at Izzy Englander’s hedge fund and replicate its performance, after a decade of running its fixed income business. The fund looks to be proving Read More
The Long History of Gold
Gold has, for thousands of years, been a tremendously important asset to cultures around the globe, acting as a material that could serve as a store of value, unit of account and means of exchange.
The evolution of society cannot be decoupled from that of gold. Not only did it become a sort of ‘language for value’ in ancient civilisations, enabling individuals to communicate value with one another, but it drove development in entire regions (such as California or Australia), where economic incentives pushed huge numbers of aspiring gold prospectors to migrate to these.
We’re far removed from paying for our daily coffees with gold sovereigns now, and instead rely on fiat currency for purchases. In fact, the idea of paying for goods or services with physical fiat (i.e. cash and coins) altogether is losing appeal, as societies around the globe migrate towards a cashless paradigm – as seen most notably in nations like Sweden or China.
For this, we can chiefly blame the abolition of the gold standard – the United States brought the Bretton Woods Agreements of 1944 to an end in 1971, meaning that the dollar, which was once pegged to the price of gold, became unbacked. Following this, the demand for gold saw its value soar over 20x by 1980.
Many lament the loss of the gold standard, given that it now allows a central party to devalue an individual’s savings, simply by printing more of it. Fiat is not inherently valuable and it’s cheap to manufacture – a challenge for wealth preservation, as commercial banks operating on a fractional reserve basis can increase the money supply while lending.
A large part of gold’s appeal is an inelastic supply and costliness to produce, meaning that it cannot be created at will and, therefore, the total supply retains its value much more effectively than an inflationary monetary system.
Gold as a Store of Value
Gold’s value, or rather, what makes it good money, is derived from a number of properties such as fungibility, portability, divisibility and scarcity.
This might not sound particularly appealing if one is living in a country that enjoys relative stability and an expanding economy, but its value is certainly recognised in areas where this is not the case. Time and time again, we’ve witnessed the collapse of economies, wherein banks can close shop at the drop of a hat, taking with them an individual’s life savings – one need only look to the recent Greek example.
There is also the threat of hyperinflation to consider – reckless government printing, which violently decimates the purchasing power of a national currency. Many will remember viral photos that circulated earlier this year, showing worthless cash strewn in the streets of Venezuela. This has had a devastating impact on the economy and in society at bay, but is by no means an isolated incident. In fact, hyperinflation is a risk that not even the most developed of nations are impervious to.
Though the exact forces causing this rapid economic collapse are complex, the lesson is straightforward: people need a reliable store of value to live with security, and to function as a society.
A store of value is an asset that maintains its value over time. When national currencies are unstable, it makes transactions such as buying a house or a car difficult. How can I sell my car today, if I lose 30% of my purchasing power in the coming week?
Precious metals like gold have long held their place as an appreciating safe haven, whose value increases during economic shock.
Store of Value and Beyond: Gold as Part of a Balanced Portfolio
History tells us that it would be foolhardy to assume that the good times will go on forever. Even if one resides under what appears to be a stable economy, parking all funds in a national currency is risky – especially when you consider that the only thing giving that money value is the word of the issuer.
At any age, taking the initiative to learn more about money, wealth creation and management should be a high priority for individuals – understanding the different classes of assets (cash, bonds, metals, cryptocurrencies and real estate, to name a few), and figuring out how to best allocate funds is the first proper step for anyone serious about protecting themselves and their wealth.
Of course, gold isn’t the only asset that has drawn the attention of those wanting to diversify their portfolios. Around the globe, more investors (both veterans and newcomers) are flocking to cryptocurrencies – this is a feverish global experiment in asset creation and diversifying wealth that is particularly common among young people, as digital currency feels native to their digital lives. Some immediately obvious advantages of cryptocurrencies are being able to instantly transact across borders with minimal fees which highlight the limitations of our current banking system with regard to freedom of financial movement. That is, it should be much easier, and cheaper than it currently is to move your own money.
The Next Stage of Gold’s Development
Technology is driving a rapid evolution in gold markets, as blockchains enable the tokenisation of one of the world’s oldest and most stable assets.
This opportunity is well summarised by the World Gold Council’s Head of Research and Chief Market Strategist, John Reade, who stated that the tokenisation of gold “could be as big a change to the gold markets as the development of ETFs, but with the added advantage of appealing to younger generations.”
This is gold fit for the digital age. Tokenised gold will embrace the liquidity and portability of traditional cryptocurrencies, freely circulating between digital asset exchanges and cryptocurrency wallets. To draw on a somewhat overused cliché in the space – it presents a tremendous platform for banking the unbanked, as anyone, anywhere will be able to take financial sovereignty into their own hands.
About the Author
Andreas Ruf is CEO of InfiniGold, the developers of The Perth Mint’s GoldPass, a full-service gold investment app that allows The Perth Mint customers to securely buy, store and sell physical gold via digital certificates. InfiniGold is the issuer of the Perth Mint Gold Token (PMGT), a digital asset that allows users to conveniently trade and hold physical gold stored at The Perth Mint on public blockchain in a trusted and cost-effective way.