Why every single American needs to hold gold
This interview is on one of the most popular topics in the newsletter world… gold.
But despite the attention, gold is still grossly misunderstood by most people.
To learn why gold is so valuable – and why it’s so important to own– we sat down with Doug Casey, chairman of Casey Research and one of the world’s best-known experts on gold and resource investing.
If you still don’t own any gold, this interview is required reading. And if you have family or friends who think gold is only for “fringe” types, be sure to pass this along…
Stansberry & Associates: Doug, can you explain why the “idea” of gold is important? Why have we humans used gold as money for thousands of years?
Doug Casey: Well, the truth is, there’s nothing magical about gold. It’s just uniquely well-suited among the 92 naturally occurring elements for use as money… in the same way aluminum is good for airplanes or uranium is good for nuclear power.
But first we should ask: What is money? It’s simply a medium of exchange and a store of value. So lots of different things can and have been used as money for periods of time.
Cows have been used for money. That’s where we get the word “pecuniary,” from the Latin word for cow, pecu. Salt has been used for money, that’s where we get the word “salary,” from the Latin word for salt. Sea shells and cigarettes have been used for money. And of course, paper has often been used for money because it’s convenient for governments and political purposes.
But gold is ideally suited because it possesses all five characteristics of good money that Aristotle pointed out back in the fourth-century B.C.
First, it’s durable. Money needs to be durable for obvious reasons. It needs to last and not disintegrate in your pocket or in a bank vault. This is why you can’t use a commodity like wheat as money… It rots, it can be eaten by pests, and just won’t last very long.
Second, gold is divisible. Good money must be divisible to pay for items of different value. It’s why you can’t use diamonds or famous artwork as money… You can’t divide them up without destroying their value.
Third, it’s convenient, which is why other elements like copper or lead aren’t good money… it takes too much of them to be of value. Can you imagine carrying around hundreds of dollars’ worth of copper or lead to make a purchase?
Fourth, gold is consistent. This is why you can’t use real estate as money. Every piece of real estate is different from another, whereas one piece of gold is exactly like every other piece of gold.
Finally, and perhaps most importantly, gold has value in and of itself. Paper has next to no intrinsic value of its own, which is why paper is such terrible money.
For all these reasons, I suspect that within a generation – and probably much sooner at this point – gold will again be used as money in day-to-day transactions.
S&A: You mentioned paper money has little intrinsic value. Can you elaborate on why this is so important? Why is paper money in particular so terrible?
Casey: Well, there’s actually a sixth reason that Aristotle didn’t mention, because it wasn’t relevant in his context, but it explains why paper money is so dangerous: a government can’t create gold out of nothing.
Not even the worst kings and emperors of Aristotle’s time – who routinely clipped and diluted their coins – would have dreamed it possible to pass off worthless paper, which can be created without limit, as money. No one would have accepted paper money for trade.
Yet, that’s precisely what the United States started doing when Richard Nixon removed what was left of the dollar gold standard in 1971. Up until then, the U.S. Treasury promised foreigners it would redeem $35 with an ounce of gold, so the dollar was, theoretically, a warehouse receipt for gold. Since 1971, it’s literally become an “IOU nothing.” And we’ve been treated to a real time case study in the dangers of paper money ever since.
Having no real money – gold – in the system allows politicians to come up with all sorts of ridiculous spending programs. There are only three ways a government can get money: taxing – which no one likes; borrowing – which is just putting taxes off to the future, with interest; and inflating the money supply – which drives up prices, but can be blamed on oil companies, farmers, merchants, and anyone else who actually supplies goods and services.
Inflation causes the business cycle, which results in recessions, and eventually depression. It discourages saving, which is how wealth is accumulated. It encourages borrowing, which allows people to live above their means. Inflation makes it easy for governments to finance unpopular wars, like those in Vietnam or Iraq. And inflation will eventually destroy the dollar itself, which will be the ultimate economic catastrophe.
A strictly observed gold standard prevents all these things.
S&A: We’ve heard why gold is the ideal money. Should it also be viewed as an investment?
Casey: Well, an investment – if we want to define the word – is an allocation of capital to produce more capital. For this reason, gold is not an investment, and has never been an investment.
Gold has been an excellent speculation – which is defined as an allocation of money to profit from politically-caused distortions in the economic system – from time to time over the past four decades. But it has never been an investment.
Gold shares can be an investment because you’re allocating capital in a mine to produce more wealth in the form of gold. But gold itself is not.
I consider gold to be cash in its most basic form, much more so than the U.S. paper currency we currently call money.
So in the same way it’s always good to keep some savings in U.S. dollars – or whichever paper currency you’re currently obligated to use – it’s always good to keep some savings in gold.
S&A: That’s great advice. Thanks for talking with us, Doug.
Casey: You’re welcome. It was my pleasure.
Summary: Gold is money… because it is durable, divisible, convenient, consistent, valuable, and cannot be created out of thin air by the government. Just as it’s always a good idea to keep some savings in your local currency, it’s also a good idea to keep some savings in gold.