If you can get your friend to stop laughing, and actually give you an answer as to why it would be a bad idea to return to a classic gold standard, you will invariably get one of the following responses. As we will see, some of these are either just plain wrong, or they are at best misunderstood.
1. Nobody wants heavy gold coins weighing down their pockets
This response is usually accompanied by some quip about going back to medieval times, with gold ducats carried around in purple drawstring pouches. But this just shows a lack of understanding of the essence of a gold standard. Yes, under a gold standard, you could transact in actual gold coins, which is what happened earlier in history. But people eventually figured out they could use paper currency that represented claims on the gold actually stored at banks and in vaults. The only stipulation for a gold standard is the ability to convert or redeem your money into gold, if so desired.
Therefore, you can still have currency and even units like ‘dollars’ as long as they represent a fixed amount of gold. This is what is meant by ‘gold-backing’. The option to convert to gold keeps banks and governments honest, but as long as citizens are unconcerned that banks or governments would ever default on this pact, then they will happily use the dollars and leave the gold in the vaults. In fact, our monetary system wouldn’t look much different; you would still have your checking and savings accounts, debit cards and credit cards, all denominated in dollars. The only difference is the additional option to convert those dollars to gold at any time.
2. Gold is a barbarous relic
Economist John Maynard Keynes and even talented investors like Warren Buffet and Charlie Munger have described gold in these terms. It has been suggested that if aliens saw humans digging up gold from the ground – refining it and shaping it into coins and bars, only to bury it back in the ground in vaults and guard it – they would think we are crazy. Perhaps this is not an unreasonable remark, considering the wasted resources on all of this energy, equipment and labor.
Now that the dust has settled somewhat after Monday’s incredible market rout, it is helpful for investors to take stock of where we are in terms of equities, bonds, gold and other asset classes and to look at what to expect for the future and how to best position our portfolios.
Stocks undoubtedly had a wild ride over the past couple weeks. The S&P 500 is now down over 6% for the past month, even after clawing back about half of its severe losses from Monday. Year-to-date, the S&P is still down 4%, faring better than the Dow Jones Industrial Average which is down over 7% YTD, but worse than the Nasdaq composite which is still slightly positive for the year.
Gold has been the big out-performer over the last month, up over 3%. Compared to stocks, which are down over 6% in the same period, gold has outperformed by nearly 10% over the past month! As Anthem Blanchard, CEO of Anthem Vault, states:
“Given that gold has been the best performing major asset class in August, it is pretty amusing to see all of the negative reports.”
It certainly has been interesting to see the media continue to be so negative on gold, even as investors are obviously ignoring the pundits. Historically, negative media reports are actually a good contrary indicator for gold which may be forming a solid bottom. The out-performance of gold during this past month also confirms gold’s ability to act as a hedge or dampener to a portfolio which is why it is helpful to always have a small portion of gold as insurance.
Anthem Blanchard, CEO, appeared on Mornings with Maria on FOX Business to discuss gold. Anthem’s long term approach on gold is incrementally storing it as a wealth preservation tool. Saving your wealth in gold is the safest place during inflationary economic environments we live in today. See more on what Anthem discussed about one of his favorite topics yesterday:
To sign up for an Anthem Vault account to begin saving in gold and silver, follow this link.
News stories of high-frequency trading, market rigging and interest rate manipulations make the average individual investor feel like they have no chance of making any money in the markets. It seems like the guys on the inside track, such as the hedge funds, private equity funds and other “accredited investors,” only have access to all of the great deals. But there is a huge advantage you, as an individual investor, have over Wall Street and the entire investment management industry – independence.
What I mean by this is you as an investor of your own money only have to answer to yourself. Almost every hedge fund or investment manager in the industry is managing money for someone else and therefore have to answer to to their clients every month or quarter and report on their performance. This is of course a good thing in itself, but it can be a hindrance to the manager and something you can use to your advantage.
For example, hedge fund manager David Einhorn has recently been under fire for his bet on gold. His publicly traded reinsurer, Greenlight Capital Re, is down 18% year-to-date partly due to the fund’s gold position as well as other positions that have not been working out.
Top highlights from the interview.Five of the ways that inflation is misunderstood in today’s world:
1. “Demand pull” inflation (Keynesian concept) a.k.a. an “overheated economy”
2. “Cost push” inflation (Keynesian concept) e.g., increase in the price of oil can spark inflation.
3. Velocity can exacerbate or mitigate inflation (when it reality it does not exist and is a poor proxy for monetary demand).
4. Demographics directly impacts the price level (e.g., an aging population is “deflationary” per people like Harry Dent), the impact is really indirect and only results from the nature of fractional reserve banking
5. The Federal Reserve can not successfully control inflation, it can only contribute to the price increases with its ability to print money at its leisure.