Disclaimer – I am long silver/miners and have a small position in a gold/silver/BTC/ETH backed crypto called Kinesis. The intention of this writing is NOT for investment purposes – but for education and discussion purposes.
Purpose – I plan to refer to this article many times in the future to point out risks of gold.
Background – I’m 45 and have worked in IT since I’ve been 18. I have been in the PM sector about 18 months.
I wanted to be somewhat fair here and do risks on BOTH gold AND bitcoin for my third piece coming out on this.
Prologue – I am a gold/silver guy, and have interest in cryptos from a technology standpoint. So while I’m VERY much for SOUND MONEY, it doesn’t make sense for me to lug 65 pounds of silver to a car lot to buy a car. I don’t want to store 10 gold coins at home and be robbed of my wealth. I cannot pay for groceries with an ounce of gold. Paper currency has been used for CONVIENCE of not having to lug 60 pounds of silver to the car lot. Since 1971, they severed the connection and have now just printed paper to oblivion. They have now bypassed the printing press and just now print “digitally” to bypass everything.
It is clear we all want sound money, but what risks does gold bring?
Numbers game – if there are 5 billion ounces of gold on the planet and 8 billion people, that means there’s .63 ounces per person in reality. This does not make it feasible for commerce today. Even if people did accept gold as payment, you can’t really get change for $50 in groceries if you hand over an ounce of gold.
Practicality – as mentioned above, it’s not practical for such a dense store of wealth to then be used for day to day items. This is where silver comes in more, but even that will run into problems quickly. Back 5000 years ago, you may have had 30 things to buy. You might have bought a bunch of potatoes with an ounce of silver. Now we have 300,000,000 products of all different costs and whole numbers of ounces doesn’t make a lot of sense. This is why we had smaller change in silver and paper dollars.
Security – as such a dense store of wealth, you run the risk of being robbed at your house. Therefore, you want to store this stuff in a more secure area. It’s more practical to have small amounts of junk silver at home for practical purposes, and leave more dense stores in the bank.
Counterparty risk – IF you want to mitigate the risk of storing your gold in a bank, you now risk the bank, the government, or a person working there to steal your gold. You can remove this risk by having it on you, but again, this is a problem in itself.
Major discovery – what if there’s a Comstock Lode like in silver, and a massive pile of gold is found? Not likely, but what if? Could gold value plummet? Remember the value of gold to everything else. At times there’s more gold and this makes the cost in gold higher. Other times there is less gold, and it makes the cost in gold smaller. So while a major discovery is POSSIBLE, significant de-valuing of gold from a discovery isn’t likely.
No one using it – what if bitcoin takes off and everyone sells gold to go to bitcoin? As of now, it is estimated that Bitcoin has affected gold’s price by $128. Could a time happen in 10 years when gold is completely de-legitimized as a store of wealth and ONLY used for pretty jewelry? You have all central banks hoarding gold, so not likely – but it is a risk to mention.
Losing it – could you store it somewhere safe in your house and lose it? What about melting it in a fire? Burying somewhere and a guy with a metal detector finds your stash?
Payment method – I can’t buy anything online with it. It sits there and looks oooooohhh to pretty. But I cannot pay with it. I can’t take it to the store.
While I’m sure there are others – I wanted to list some of the drawbacks of gold for an upcoming article I’m creating and you can reference. Do you have things I should add? I want to be fair.
May 23, 2021 at 7:22 pm
While I don’t anticipate that silver/gold coinage is in our future, the “divisibility” issue is probably not a big deal. You could have alloyed coinage with higher denominations for higher purity.