Liberty Maven

The title above should be the proper title of a recent Q and A article at EWI. Instead the title is, “Does GOLD Equal Wealth Preservation?“.

Instead of answering the question directly the author analyzes the behavior of gold during times of inflation. The conclusion is that gold (at times) goes down during inflationary events:

Zoom out and the big picture gets even more interesting: The March 20, 2009 high in gold is below the February 20 high, which itself was well beneath the March 2008 all-time peak. Since then, the Fed’s campaign to breathe new life into the economy via cash infusions and credit creation has been tireless. (Last estimate: $12.8 trillion.)

In the end, the evidence speaks for itself. Gold has not fulfilled its promise as hedge against “inflation,” or an economic safe-haven. This scenario, while shocking to the bevy of gold bugs who swarmed around the metal at the onset of the Fed’s bailout binge — is no surprise to EWI subscribers.

While the stats given do not lie, I take issue with the general claim that “Gold has not fulfilled its promise as hedge[sic] against inflation or an economic safe-haven“. The author makes the mistake of assuming that “trading” in gold is the same as accumulating gold for wealth preservation. Sure, if the value of gold goes down it is worth less and those who are trying to trade gold for profit are going to be hurt. But those of us accumulating gold will just purchase more.

Why? The simple answer is, because gold always has value. It certainly has fluctuations in value, but it has always had value and it will likely always have value. No one can make that claim about fiat currencies with a straight face.

Perhaps an extreme hypothetical scenario is in order to answer the EWI article’s question effectively. Let’s say it’s 1997, you live in Zimbabwe, you have a bank account with Z$100,000,000  in it, and a safe with one ounce of gold in it. Your Z$100,000,000 would be totally worthless today. Your one ounce of gold would be worth around US$900.  Now US$900 may not seem like much, but what if we compare apples to apples and convert that to Z$  (as of 4/4/2009) using this conversion calculator:

US$900 = Z$33,711,099,300

I think that speaks for itself. Sure, these days 33+ billion Z$ are completely worthless, but 900 US$ are not.

The conclusion is that gold does protect wealth. It not only protects wealth but enhances wealth because it allows for flexibility. It may not always be worth US$900 but it will always be worth something. There may be better trading/investment options at any given time, but accumulating and holding gold in a portion of an investment portfolio is an insurance policy for wealth no matter what happens with inflation.

Making the decision to hoard gold for wealth preservation is akin to choosing what to do on 4th down while on your side of the field in football. Punting is hoarding gold to fight another day. “Going for it” is trading gold like a stock against all the odds. If you know football then you already know what choice the best coaches make. It is truly the difference between winning a little or losing it all.

I choose to punt. What do you choose?

(Check out The Great Credit Contraction Book for more information about our monetary system and wealth preservation. It is an excellent read. See our review here. A portion of sales go into supporting this site.)