In the newly published edition of The Independent Speculator, I closed with some quotes about gold:
“Gold is money. Everything else is credit.”
—J.P. Morgan
“Gold is the only financial asset that is not simultaneously someone else’s liability.”
—Doug Casey
“Every piece of gold jewelry or coin ever made still has value. Can you say the same thing about stocks or bonds?”
—Nicholas Colas
“If it were possible to cure evils by lamentation and to raise the dead with tears, then gold would be a less valuable thing than weeping.”
—Sophocles
“Because gold is honest money, it is disliked by dishonest men.”
—Ron Paul
These are all important insights I think every investor and speculator should be well aware of.
Taking them together got me to thinking…
- A gold coin or ring is always going to be worth something in a market.
- Assets on paper are subject to default and other counterparty risks. This includes legal tender, not just stocks and bonds.
- Cryptocurrencies don’t even have a counterparty one can go after if they fail.
- So… Cryptocurrencies could go to zero, while gold can’t.
Now, before all the Bitcoin, Ethereum, and other crypto fans out there start sending me hate mail, let me say that I’m not anti-crypto. I love the idea of non-government money competing with the worthless paper governments have to pass laws to get people to use. May the best forms of private money succeed.
I’m convinced that the underlying distributed ledger technology is going to be the basis of real and valuable businesses in the future.
It’s like the Internet being real and valuable, even if most of the dot-com companies of 20 years ago no longer exist.
But that doesn’t mean that any one cryptocurrency can’t fail. And the eventual success of blockchain or the underlying distributed ledger technology doesn’t mean that their application in cryptocurrencies can’t fail.
I do understand that, at least in theory, something like Bitcoin itself can’t be hacked and is this inflation-proof. But that doesn’t mean that the exchanges can’t be hacked—and we’ve already seen huge data breaches costing users millions. It’s also true that users can be hacked. And these things can undermine confidence in the value of cryptocurrencies.
So, even if the technology behind Bitcoin, Ripple, and so forth is sound, that doesn’t mean the value of the units is sound. It rests on confidence—and that’s no different from government fiat currencies.
Not so with gold. Warren Buffet and other mainstream financial types like to say the gold has no real value. They say it serves no useful purpose to justify its valuation. This simply not true.
As a metal, gold has unique properties which give it many uses. It’s the most malleable and ductile element in the world, and it resists corrosion like nothing else. Scientists are discovering new uses for gold nanoparticles on a steady basis. Such utility is what made gold so valuable—in and of itself—that people began using it as a means of exchange and a store of wealth thousands of years ago. And they still do.
This underlying physical use value gives gold an advantage over all paper and digital assets.
So, while I could see trading in cryptos based on a convincing thesis, I can’t see myself ever putting savings into them any more than I ever would stash away large quantities of paper currencies. I save in gold.
That gold—and silver—can’t go to zero also makes me much more comfortable speculating on related stocks than I would be in the crypto space.
This is particularly important, because 2019 is looking more bullish for precious metals than any year since 2016. I’ve written a free special report detailing my case for gold and silver in 2019, which you are welcome to download.
Key point: it’s dangerous assume that if the trade war ends and the global economy rebounds, it will be bad for precious metals.
That’s why I’m deploying cash into gold and silver speculations, not cryptos.
Caveat emptor,
