[Disclaimer: I own physical gold, physical silver, gold stocks and silver stocks. This is not investment advice and is provided for information only. This considers the economic case for gold and is not a recommendation to buy. Do your own research and consult a financial advisor.]

Gold is not talked about much by governments, central bankers, economists or the media.

But gold is money and of current forms of money it is the one with the longest history.

While it’s got plenty of popularity in pockets of online media, it’s quite rare that the role of gold in the monetary system will entire the mainstream discussion.

Ron Paul’s presidential campaigns in 2008 and 2012 are the only events in recent memory that even offered a hint of gold filtering through to public consciousness.

This invisibility suits central bankers and governments just fine. While most central banks around the world quietly hold or even accumulate gold, they would rather keep this out of the public eye.

That’s because our monetary system is a fiat system. That means currency you hold, either physically or in your bank account, has no hard asset backing. Therefore new units of currency can be easily created and added to the money supply.

Such a system relies entirely on the confidence of the public in central banks and governments. Therefore to them, gold, as the alternative to this system, is best left unspoken about.

Yet the fact that central banks hold gold is a tacit acknowledgement of its status as money, no matter how disparaging the rhetoric towards gold might be.

And that is one of the most important arguments in favour of owning gold.

Gold has been money for thousands of years, it continues to play a monetary role today and it will almost certainly play a monetary role in the future.

Read More: Why Gold Is Important To The Monetary System

A Brief History of Gold as Money

Gold has played a role as money since King Croesus of Lydia minted the first gold coins around 550 BC.

The Lydian use of precious metals as money spread across the Ancient World, and was most notably adopted in Greece and Rome.

gold-aureus

Roman gold aureus

After the fall of Rome, gold and silver continued to be used in the Byzantine empire and also in the Islamic world.

Silver was still the monetary standard in Western Europe but there was quite a shortage of the metals themselves as hard money flowed to the more prosperous economies of the east.

England adopted an official silver standard in 928 with the introduction of the pound sterling. France did the same in the 13th century with the silver gros tournois.

In 1252 the city-state of Florence issued the first gold coin in Europe since the fall of Rome, the florin.

In Asia, silver and copper were the primary forms of metallic money.

Paper money was first used in China during the Song dynasty (960-1279) and was adopted in Europe in the 17th century first by Sweden and then by Britain.

However, this use of paper money was never an attempt to displace gold and silver as money. The paper was redeemable for the metal, which always retained its monetary status.

Prior to the 20th century Britain only ever suspended payment in gold and silver during two occasions of either civil unrest or war, during the Jacobite Rising and the Napoleonic Wars.

The same was true in the USA where, prior to 1934, paper money was always redeemable in gold and silver. The only exception to this was during the war of 1812.

1905-gold-certificate

1905 gold certificate

The French experienced two paper money disasters, John Law’s Mississippi Bubble of 1718-1790 and the assignat inflation of the 1790s, before returning to a bimetallic gold and silver standard.

In the 1870s, the world moved off the bimetallic gold and silver standard that had prevailed for centuries and adopted a monometallic gold standard. This lasted until 1914, when most European powers abandoned it to finance World War One.

The USA maintained the gold standard until 1934 when it was abolished by President Roosevelt. Roosevelt put an embargo on the export of gold, confiscated gold from US citizens and then devalued the US Dollar by raising the price of gold from $20.67 to $35 per ounce.

Even though the official gold standard had been ended, the US Dollar was still fixed to gold at this $35 per ounce rate in a quasi gold standard situation.

After World War Two, the Bretton Woods agreement set foreign currencies to the US Dollar at a fixed rate, while the US maintained the fixed price to gold. Foreign central banks were free to redeem their US Dollars for gold at that set price.

This all changed in 1971 when President Nixon “closed the gold window” by preventing foreign central banks from exchanging their US Dollars for gold. Since the US Dollar had been the last currency tied to gold, the world entered a new era where no currency was tied to gold.

Yet instead of dumping all their now supposedly unnecessary gold, central banks continue to hold it. And in the case of the US Federal Reserve, that gold is on the balance sheet at $42.22 (where Nixon repriced gold), rather than at a market price that would obviously be much higher.

Gold now freely circulates at a market rate, but continues to be used by central banks as a reserve asset.

While we don’t currently have a formal tie to gold, the fact that gold is still used as a monetary reserve by central banks means our fiat currencies do have a tenuous tie to gold.

This is what Jim Rickards describes as the “shadow gold standard.”

Read More: The History of Gold as Money

Why Gold is Money

This brief journey through history was designed to illustrate one point – gold is money.

gold-coins
Human beings have long recognised gold as money because of its unique properties that make it ideally suited to that function.

It is scarce but not too rare. It is malleable. It is durable. It does not rust, explode, or dissolve. It is also pleasant to look at.

Gold should not be seen as an investment. While many people do view it through that lens, it is far more accurate to see gold as money given it has all the characteristics of money and the weight of history behind it.

An investment needs to have a yield. The yield is the return you get in exchange for the risk you take in holding the asset.

As Jim Rickards explains, gold does not match this definition:

“Gold has no yield; it’s not supposed to, because it has no risk. If you buy an ounce of gold and keep it for ten years, you end up with an ounce of gold—no more, no less. Of course, the “dollar price” of a gold ounce may have changed radically in ten years. That’s not a gold problem; it’s a dollar problem.”

Gold always trades within a range based on short to medium term factors. For this reason many people trade or “invest” in gold in short to medium time frames, buying and selling due to changeable market conditions.

But gold is best viewed through a long term lens, where its long term price direction is driven by fundamentals, even while the short term price chops around in a range. With this lens it is then possible to understand that gold’s price is largely driven by its status as money and is very sensitive to central bank policy.

Why Buy Gold

If you accept that gold is money, suddenly there emerge a number of reasons why you may consider it wise to hold.

Some of these reasons are timeless, while others are primarily applicable to our current times.

1. Gold is Financial Insurance

The global economy and financial markets are complex systems with a lot of inherent risk.

Gold is the ultimate insurance against any kind of risk, volatility or change in the financial system. Whether it is inflation, deflation, a stock market crash, a monetary system reset or even a geopolitical shock.

In all of these circumstances gold will either perform well or will lose you less than most other assets, which is still a win.

During inflation, gold’s price will rise to preserve its purchasing power, as it did in the 1970s.

gold-price-chart

Gold priced in USD 1970s-present

In a deflationary environment, even as gold goes down, other prices will go down further and faster, so gold will retain and possibly improve its purchasing power.

In a stock market crash, gold often falls initially as people sell everything. But it falls less, recovers faster and then rises as it acts as a flight to safety.

Similarly, in a geopolitical shock markets often sell off and there is a flight to safety. Gold benefits in these circumstances.

In a monetary system reset, as has happened many times over millennia and several times in the 20th century, gold will always persevere. Authorities have not yet figured out a way to remove gold from the monetary system completely. As much as they don’t want to admit it, they need gold, as it is universal global money.

2. Gold is a Store of Value

[Disclaimer: The argument that gold is a store of value applies to the long term. In the short term gold can experience volatility and steep price declines and you can lose money.]

The price of gold is quoted in fiat currencies, primarily the US Dollar, and its price rises and falls when measured this way. Yet you are under no obligation to view gold as a commodity that is priced in USD.

Once you see gold as money there is another way of looking at this. When the price of gold rises, you could see it as the dollar falling against gold. When the price of gold declines, you could see it as the dollar strengthening against gold.

Dollars, or any other fiat currency, are not a stable store of value. Their value falls over time. So it doesn’t actually make a lot of sense to use them as a constant to measure gold against. While it may make some sense to use fiat currencies as a measure of gold in the short term, it makes very little sense in the long term.

Over the long term, the rising price of gold is more accurately seen as the falling value of fiat currencies. Those currencies are losing value because you require more of them to purchase the same weight of gold as you did before.

Over time you also require more fiat currency to buy a basket of goods. This is consumer price inflation. Gold should preserve your purchasing power against the same basket of goods.

While the nominal price of gold may rise, over a long period of time 1 ounce of gold today should buy more or less the same basket of goods in the future, regardless of the gold price quoted fiat currency.

In the short term this is never entirely accurate due to the fluctuation in the short term trading range of gold, nevertheless the principle is sound. This truism is often explained with the idea that, from Roman times to the present day, an ounce of gold could always buy a high quality men’s suit. This is affectionately known as the gold/suit ratio.

Seen this way, gold may experience some short term price fluctuations but over the long term it is a stable store of value that will preserve your purchasing power.

This is why gold is often held by old money families who seek to preserve their wealth over multiple generations.

3. Gold Allows You to Remove Wealth From the Banking System

Most of our financial lives are digital.

Yet there are some significant advantages that come with the fact that gold is physical and not digital.

You can hold it in your hand or store it in your home safe.

Unlike a bank account it cannot be hacked, you cannot be locked out of your account and you are not at risk of identity theft.

You cannot be subject to a bank bail in, like Cypriots were in 2013, nor will you be vulnerable to a bank freezing your account.

bank-of-cyprus

Bank of Cyprus

Even if there was some problem with the internet or electricity at some point in the future, your gold would still be accessible.

4. Gold has no Counterparty Risk

Were you aware that when you make a bank deposit you are actually providing an unsecured loan to the bank?

What that means is that “your money” becomes a bank’s liability. In other words, it exists on their balance sheet as a figure that they owe you and is no longer your property.

This is important because it means that it isn’t “your money” which they are holding in custody on your behalf, despite the fact that is what it looks and feels like to you.

As long as the bank is solvent, this isn’t a problem. You can recall your loan at anytime and withdraw “your money.”

But if the bank were to fail, there is a chance you may lose some or all of your deposit.

This is what is meant by “counterparty risk.” There is some other entity that you require to remain solvent in order for your asset to retain its value.

Bank deposits, physical cash, bonds and stocks all have counterparty risk.

Gold does not.

5. Gold is Liquid

Gold is considered a highly liquid asset. This means it is easy to convert into cash.

This is due to the fact that the gold market has a large number of participants – both buyers and sellers – who recognise the spot price of gold.

The spot price is determined by futures trading activity on commodity exchanges in the world’s major financial centers.

By comparison other asset classes that people use to protect against inflation and preserve purchasing power, like real estate or collectibles, are not very liquid at all.

These things can only be sold for whatever a market participant is willing to pay. Since there are far fewer market participants and they have a subjective value of the price, it is more difficult to sell. A sale in an illiquid market may take a long time, or if you are desperate you may have to sell for a lower price than you want.

With gold, you can buy and sell to almost any bullion dealer in the world quickly and easily at the spot price, plus or minus the dealer’s premium.

6. Gold is Easy to Store and Maintain

On one hand physical gold is less easy to store than money in the bank or shares in a brokerage account.

But again when comparing to real estate or collectibles, the other assets in the same purchasing power preservation class, gold is in fact very easy to store. It packs a lot of value into a very small space.

You can use a home safe, arrange a safety deposit box or allow an online bullion dealer to store it in their vault and pay a small custody fee.

Maintenance is easy with gold. You can just store it and forget it, with one annual payment for storage and insurance.

Compare that to the hassle and ongoing costs when dealing with real estate which may include dealing with tenants, taxes and local regulations.

That’s not to say that real estate is not a great investment. It is. It just comes with a lot more hassles.

7. Central Banks Continue Easy Money Policies

If central banks were better stewards of fiat currencies, the case for gold would not be as compelling. Any actions that they take to improve the soundness of their currencies would be bearish for gold.

Unfortunately, central bank actions since the 2008 financial crisis, have primarily led to a loss of confidence in the long term health of fiat currencies.

The central banks have been devaluing their currencies and undertaking quantitative easing in an effort to generate inflation and prop up asset prices.

In these circumstances the case for holding some gold is strong.

jerome-powell

Federal Reserve Chairman Jerome Powell

8. Central Banks Are Buying Gold

While the largest holders like the USA and Germany haven’t been adding to their gold holdings recently, other nations have.

The last decade in particular has seen Russia and China buying up significant amounts of gold, while Japan, India, Turkey, Thailand, Poland and Brazil have been adding notable amounts to their holdings over the last few years.

Not only does this mean that large purchasers are bidding up the price, but it is a signal that central banks see gold playing a monetary role in the future.

If they want to hold it, then that is a good case for you, a private individual, to hold some.

How To Buy Gold

Generally speaking there are four ways of investing in gold. Either through physical bullion, ETFs, shares in gold miners or royalty companies and through derivatives such as options or futures.

Personally, I just stick to physical bullion and mining shares.

1. Physical Bullion

Purchasing bullion in the form of coins or bars is the most straightforward way of buying gold.

You get ownership of the physical metal, rather than a mere paper financial instrument.

You will pay the spot price plus a premium to the dealer, making it very easy to understand price entry and exit points.

There are dealers all over the world who will ship the product to you and plenty of line options who will arrange storage in their vaults on your behalf.

2. ETFs

ETFs (exchange traded funds) are a way to get exposure to the gold price but without the benefit (or hassle) of purchasing the physical metal.

For example GLD is an ETF, backed by gold, that you can purchase from your brokerage account. It gives you convenience but the downside is you cannot take delivery should you choose.

Other ETFs are also available that allow you to buy a diversified range of gold mining companies, without the need to do your homework at the individual company level. This way you can invest in the sector while avoiding company specific risk.

Popular examples are the VanEck Vectors Gold Miners ETF (GDX) or the VanEck Vectors Junior Gold Miners ETF (GDXJ).

The downside is that you get the bad companies with the good companies.

3. Gold Mining Shares

Buying shares in gold miners directly is seen as a form of leverage to the price of gold. The miners are much more volatile than the metal itself. When gold rises, they will rise more. When gold falls, they will fall more.

This is because miners have a cost incurred to mine each ounce and make a profit on the difference between the price of gold and the cost to mine it. For example over the last five years (2016-2021) the all in sustaining cost has ranged between $850 and $1050 per ounce.

gold-mine

Gold mine in Kalgoorlie, Australia

Therefore a rise in the price of the metal creates a larger profit margin for a miner, driving up their share price. Conversely, a fall in the price of the metal reduces their profit margin, putting downward pressure on the share price.

If you are considering buying gold, it is recommended that you start by purchasing physical bullion first, learn about the market and get comfortable. Once you are ready to get a bit more aggressive and have established a physical position, you can then look into buying mining shares.

One other interesting and less risky way of getting exposure to gold is through a royalty company like Franco-Nevada (FNV). A royalty company doesn’t own the metal or the mines but instead provides financing to miners in exchange for a percentage of the profit. This gives it similar upside leverage but with less of the downside risk as it is not subject to increasing costs. Its costs are a one time thing when they purchase the royalty.

If you are happy assessing the quality of a company yourself, then it is better to buy company shares than an ETF, since then you just buy the best. If you are not comfortable with this but want the upside the miners provide, then you could consider an ETF .

4. Derivatives

Personally I stay away from derivatives because of the higher level of risk and higher level of knowledge that these investments require.

Without going into too much detail, derivatives allow you to speculate on the future price or even short gold. Get it right and you can bank big wins, get in wrong and it can leave you significantly in the red.

This option is for advanced traders only.

Should You Invest In Gold?

This is a personal decision that only you can answer. Remember, this is not investment advice.

But here are the two key questions you to consider:

  1. Do you value the insurance benefits gold can provide?
  2. Are you willing to accept short term price volatility?

If the answer is yes to both, then perhaps you could consider buying gold.

When it comes to buying physical gold bullion just try not to think of it as an investment or a speculation that you hope to make money from in the short term. Think of it as long term savings in an international currency that you will hold for decades.

Also if you aren’t sure about whether or not to buy, you can dip your toe in and buy a little and build your position over time. This will also have the added benefit of dollar-cost-averaging your entry price.

Be aware that gold is not the sort of thing you should go all in on. Depending on who you listen to, even the most ardent gold bugs would only suggest a portfolio allocation between 5% and 20%.

Most recommend about 10%.

Since gold is money and not technically an investment, you should still have the bulk of your portfolio in investments with yield such as stocks and real estate. Gold should be considered in the same category as cash – it’s always good to keep some on hand but not something to over allocate.

A good rule of thumb from Simon Black is to own the amount of gold where you can still sleep at night if the price bounces up and down. If worrying about the dollar price of gold keeps you up at night or has you constantly checking the price then you probably own too much.

When to Invest in Gold

I learned the hard way when not to invest in gold. As a young and naïve rookie, I bought the 2011 peak. I was so sold on the gold narrative and no understanding of investment cycles that I jumped in during the euphoria phase right before the top.

Thankfully, I only went in with a tiny amount. I held on all the way down and all the way back up, dollar-cost-averaging in larger quantities with more attractive prices from 2013 onwards.

Now I’d consider myself a much better gold investor, but still just an educated amateur.

Rather than make my mistake, you should be aware that gold trades in a range. It may be in a bull (rising) or bear (falling) market at any given time but it will bounce around in the short term with some volatility, even while it trends in one direction or the other.

Obviously if gold is in a bear market, the best thing to do is wait and the best time to buy is at the bottom. Sadly it is impossible to tell when the bottom is in and, even if you could, these buying opportunities don’t come around that often. So you can’t always wait for the bottom of a bear market in order to buy.

Gold bull and bear markets last can last many years and the trends are only fully visible in hindsight. We are currently in a long term bull market that began in the early 2000s and had a retracement from 2013 to 2016. This was a medium term bearish trend within a longer range bull market.

Chances are most of us missed out on low prices in the early 2000s. The best time in recent history to buy would have been the bottom of the medium term bear market in January 2016.

You can absolutely buy in a rising market as well. The key is to try and identify gold’s trading range and aim to buy at the bottom of that range as it chops up and down.

It is also wise to buy gold (or any asset for that matter) when mainstream sentiment towards it is low. Aim for what famous equity investor John Templeton called the time of maximum pessimism. This sounds counter-intuitive but it means when the majority are negative, there are very few sellers, since everyone who wants to sell will already have done so. Conversely there will be a lot of people to buy when sentiment eventually changes, as it always does, driving the price up. When this happens and you got in early, you will reap the biggest gains.

If you buy gold when mainstream sentiment is positive (like I foolishly did the first time), then you will be buying closer to the top of the market. When everyone is jubilant then most people who could buy have already bought. There are fewer buyers to drive the market higher. When sentiment turns, as it inevitably will, buyers turn to sellers and the market drops.

Read More: How To Be A Better Gold Investor

Should You Buy Silver?

Silver is an interesting case and is often seen as the little brother to gold.

It is a monetary metal that has been used throughout history because it shares the same properties as gold that make it suitable as money.

It is also more volatile than gold, which means higher highs and lower lows, providing the opportunity for more upside potential in a bull market.

silver-coins
Silver was first used as a monetary asset by the Sumerians who issued the silver shekel. The shekel wasn’t used as a day to day exchange money, instead it was kept as reserves in vaults as a unit of account, while transactions were inscribed on clay tablets.

When later empires such as Lydia and Rome adopted metal coins as money they used a bimetallic standard where the value of silver was fixed in relation to gold in what is known as the gold/silver ratio.

The use of a bimetallic standard continued on and off in various nations right up until the modern era. Shortly after the birth of the United States, Congress adopted a bimetallic standard with a ratio of 15/1 in the 1782 Coinage Act.

However there have always been several problems inherent in the bimetallic standard.

One is that governments have fixed the ratio between silver and gold, while the market price based on supply and demand does fluctuate. This causes a problem when the market price moves too far from the fixed rate, because the face value of a coin becomes different to the metallic value.

A second problem is that without international agreement different countries were setting the rate at different levels.

For these reasons in the 1870s the world abandoned bimetallism and moved to a monometallic gold standard.

Doing this effectively demonetised silver and its value dropped massively against gold. Under the bimetallic standards throughout history the ratio was normally between 10/1 to 15/1. Compare that to the 20th century average of 47/1 and a low of over 120/1 as recently as 2020.

This history is worth keeping in mind when thinking about buying silver in the current environment.

Central banks own gold but they do not own silver. Gold still has some shadow status as money in the current system but silver does not. Without this shadow money status, silver won’t reach those old ratios to gold.

Yet silver price movements generally follow a similar pattern to gold. Despite being demonetised by governments, the market recognises that silver still has the properties of a monetary metal. So macroeconomic trends, inflation expectations, strength of the dollar and Federal Reserve policy can move the price of silver in the same way they move the price of gold.

Silver also has significantly more industrial uses than gold, so this commodity role also has an impact on its price.

I own silver and I think it is wise to consider gold alongside silver for the same reasons as you would buy gold. But keep an eye on the gold/silver ratio as well as its USD price, to see whether silver is over or under valued relative to gold. If in doubt, just buy a little of both.

Of course the real curve ball in the silver market would be if central banks started buying silver to add to their reserves. That would change the market dramatically. I would say this is extremely unlikely.

Should You Buy Gold or Bitcoin?

This has been a hotly debated topic over the course of the last decade.

Those who understand the problems of fiat currencies look for protection and safety.

Traditionally that has been gold but Bitcoin’s emergence raises interesting questions.

Is Bitcoin a better safe haven than gold? Is Bitcoin a worthless experiment that will ultimately go to zero? Or are both gold and bitcoin valuable?

Some sound money advocates are very vocal against gold given how much Bitcoin has outperformed it over the last decade. Others think gold is better and that Bitcoin won’t last.

gold-or-bitcoin
This argument is perhaps best typified by Peter Schiff and his son Spencer. Peter loves gold and disparages Bitcoin, while Spencer sold off all his gold and has gone exclusively into Bitcoin.

I’m firmly in the camp that both are valuable.

I agree with Saifedean Ammous’s argument in The Bitcoin Standard that Bitcoin fulfills all the functions of gold but does it better. Particularly because Bitcoin has a fixed supply while gold does not.

But anyone’s personal view will be completely redundant if the market rejects Bitcoin. Gold has thousands of years of history behind it, Bitcoin has just a decade.

While I think it is unlikely, it is entirely plausible that Bitcoin could collapse. I would be foolish to rule that possibility out altogether.

Gold is far less likely to collapse. The only two scenarios where that could plausibly happen would be that it was superseded by something better i.e. Bitcoin or that the supply massively increased because we started mining asteroids. In both cases it is not likely that it would be complete collapse, but the price would be depressed.

Gold has less risk but Bitcoin has more upside. Both protect you against inflation, systemic risk in the financial system and any potential changes to the monetary system.

Of course it would be easy to sit on a pile of Bitcoin profits and trash talk gold but I think it is still far too soon to make a judgement.

No one can predict the future. So when in doubt have an allocation to both. What ratio that allocation is would then depend on your personal preference and risk tolerance.

Criticisms of Gold

It wouldn’t be fair and balanced unless the criticisms of gold were also mentioned.

These are most famously made by the great investor, the oracle of Omaha, Warren Buffett.

1. Gold Has No Yield

If you view gold as investment then it doesn’t seem like a good bet. Valuations should have some relationship to earnings and if there are no earnings then there is no value.

So it’s true that gold has no yield. In fact it has a negative yield because it incurs costs through storage and insurance.

But when you view gold as money then this criticism holds no water. Gold has no yield because it has no counterparty risk. Yield is what you earn in exchange for either investment risk or counterparty risk.

While it may seem odd, as Buffett says, to spend money digging a shiny metal out of the ground just to rebury it in a vault, it’s an effort we go to because of gold’s utility as a medium of exchange.

You wouldn’t hold most of your portfolio in cash with no yield, so in the same way you shouldn’t hold most of your portfolio in gold with no yield.

Buy investments for yield and buy gold for sound money.

2. Gold Has No Intrinsic Value

Nothing is truly intrinsically valued. All things only have value because the market deems them to have value.

Most commodities have value because they have some kind of utility. For example lithium can be used to make batteries, iron ore can be used to make steel and lumber can be used to build houses.

However, gold has limited industrial use. The critics say it’s just a nice looking shiny yellow metal.

This same criticism can be directed at Bitcoin. It’s just a digital token that only exists in cyberspace.

However, for both gold and Bitcoin, the value is primarily driven by their use and function as money.

Gold has unique chemical properties that make it ideally suited as money, which is accepted by the market. This is where it derives its value.

3. Gold Has Under Performed Stocks

A common criticism from those who don’t see gold as money, is that gold under performs stocks.

Of course this depends on the parameters you choose to look at. There are periods where stocks outperform and there are periods where gold outperforms. For example if you cherry pick 2000-2021 then gold does in fact outperform stocks.

Yet generally stocks will do better.

However, this is not really a problem. Stocks should outperform gold because a productive investment with earnings should always do better than mere money.

Arguing that stocks do better than gold is like saying stocks do better than cash. Well they do most of the time, except in a crash. That doesn’t negate the role of cash nor does it negate the role of gold.

4. Gold Has Under Performed Bitcoin

Those who see gold as yesterday’s sound money and see it as inferior to Bitcoin are another group full of vocal criticism.

Bitcoin has massively outperformed gold over the last decade and therefore they will tell you to forget about gold.

Well it’s clear that Bitcoin has outperformed. You can’t argue with that.

But is gold done? I don’t think so.

In terms its use and function as money, I agree that Bitcoin is far superior to gold. The technology beats the metal.

But Bitcoin’s phenomenal rise is not only down to its function, but the rate of adoption. This is the same for any new technology.

If Bitcoin is to survive in the long run its value will stabilise as the number of users increases and rate of adoption slows. When everyone is using Bitcoin it cannot rise in value like it is now.

Which means getting rich on Bitcoin is a one time thing. Early adopters are going to do very well but when its value stabilises it will behave more like gold.

Will there be room for both of them in the market? I think so.

So having an allocation to both makes sense.

Conclusion

Gold has a long history as money.

Despite the fiat nature of our system since 1971, gold still has a shadow role in the monetary system as a reserve asset of central banks.

Given the risks inherent in the system it may make sense for you as a private individual to hold some gold as well, if you are willing to accept the short term price volatility.

Holding gold for the long term should serve you well whether we face inflation, deflation, a monetary system reset or a financial or geopolitical shock.


Home > Why Buy Gold

Sources

Ammous, Saifedean. The Bitcoin Standard : The Decentralized Alternative to Central Banking Hoboken, New Jersey: John Wiley & Sons, Inc, 2018.

Bernstein, Peter L. The Power of Gold : The History of an Obsession. Hoboken, N.J.: Wiley ; Chichester, 2012.

Rickards, James. The New Case for Gold. London: Penguin Business, 2019.

Image Credits

Pile of Gold Bullion Coins by Zlataky on Unsplash

Gold Aureus is in the public domain

1905 Gold Certificate is in the public domain

Royal Canadian Mint Maple Leafs by Zlataky on Unsplash

Gold Price on Trading View

Bank of Cyprus is licensed under CC-BY-SA 3.0

Jerome Powell is in the public domain

Gold mine in Kalgoorlie by Matthew de Livera on Unsplash

Pile of Silver Bullion Coins by Zlataky on Unsplash

Bitcoin and Gold is licensed under CC-BY-2.0

About Me

My name is Thomas Maurer. I am a high school History teacher and a student of monetary history who has been investing since 2011. My economic philosophy is predominantly Austrian. This website was created to help you understand the economic and monetary paradigm we are living in, how we got to this point and how to both protect yourself and prosper in these challenging times. Read more about me.