Over the last century, the role of gold and silver has changed in the global financial system. Its 5,000-year history as money will always remain because of its attributes of being tangible, portable, and of cultural value. However, we must also deal with the reality that gold and silver have not been widely used as monetary items for nearly sixty years.
Since the collapse of the Bretton Woods agreement in the early 1970s, these two metals have steadily moved into a position of being a form of insurance to hedge against a) whatever monetary schemes governments conjure up and force on their citizens by fiat and b) the stability of a nation’s government, which interestingly has historically been directly correlated to their ability to manage the former.
Today, we are dealing with an economic and monetary system that has become globally intertwined, highly complex, and unstable. Given their historical correlation, it is no coincidence that, simultaneously, the geopolitical landscape is also deteriorating.
The question is, how important is it then to hold some gold and silver as “financial insurance?”
The decision to buy insurance of any kind, be it car, homeowner, business, or financial, is determined by its cost relative to the risk of what it is insuring. As an example, a healthy twenty-year-old would see paying $75 per month for a $1 million term life insurance policy as expensive relative to the risk of their dying. If that were the price, they would likely choose not to buy it. However, a healthy sixty-year-old would see paying $100 per month as inexpensive. If it were offered at that price, they might jump on the opportunity.
Likewise, a $1,700 per ounce price of gold in a geopolitically and economically stable world might seem expensive. Given the price action of gold over the last ten years, a price between $1,900 and $2,100 per ounce in a world experiencing the economic and geopolitical challenges present today seems inexpensive relative to the risk they are insuring.
In absolute terms (the price per ounce), could they become even less expensive? Of course. The state of the global financial system is increasingly tenuous. A major disruption could cause panic selling of “paper” gold assets to raise liquidity, resulting in a sharp, albeit temporary, drop in the price.
However, that scenario is not guaranteed to repeat this time. Over the last few decades, the “flight to quality” for panic sellers needing liquidity has been to hold currencies and government bonds. Today, those very bonds back most global currencies and yet are a known primary source of our present financial system instability. What will they consider a “flight to quality” when the previous “quality” instruments are highly suspect?
Now you see why we have been more vocal over the last several months that now is the time to accumulate these metals. However you choose to do so, be it on a schedule or all at once, and whether held in a depository or at your home, we are here to serve you.
All the best,
The OWNx Team
