OPINION: Just Because It's Shiny Doesn't Mean It Has Value
Updated: Nov 7, 2020
Let's talk about gold *Peter Schiff has entered the chat*. The reason that gold is a bad investment is simple, it's useless. It's what we call a "non-performing asset" meaning it doesn't do shit, it just exists. It won't ever produce more gold or make money producing a good or service, it's just shiny. That's it.
Well not exactly, it's a precious metal which actually has a purpose in manufacturing because it's a good conductor. But that's it. Forreal this time. It has value in manufacturing electronics because it is used as a conductor, but other than that, it's just shiny. The reason gold used to be a good investment was because it was used in transactions when people couldn't use a normal currency, like the US dollar, or a Euro, or even stamps. People could always rely on gold to be used in transactions when they didn't have paper money. Well that doesn't exist anymore, gold hasn't been used in transactions since the 1950s. You can't purchase anything in gold unless you make a private agreement between buyer and seller, but Whole Foods and Trader Joes aren't going to let you walk out the door after dropping a little pouch of gold on the checkout counter. Take that energy back to the Wild West.
We aren't cavemen, we don't give value to things just because they're shiny. And outside the fact that it hasn't been used in 70 years, economically it's a terrible thing to peg a currency to. Bear with me for 1 paragraph, I promise I can explain this:
Pegging a Currency:
Currencies are all exchangeable with each other, it helps us do business in other countries that don't take dollars. So the value of each currency compared to others is measured every second, and to prevent massive, unprovoked volatility among currencies, most of them are pegged. Imagine someone walking a dog on a leash; the dog can wander a little bit but it can only go so far from the leash-holder. When currencies are pegged, it means there's a limit as to how far apart they can be in value, but they can be as close together as they want.
Alright, we did it. So the Gold Standard back in 1950s pegged the US dollar to the value of an ounce of gold. It ended in 1971, and the US dollar was unteathered; since then it's lost over 95% of its value. So there's a push from some people to revert back to the Gold Standard, but there are so many reasons why that's a fuckin' awful idea. Let's take a look.
Firstly, we don't know how much gold there is on Earth. We don't have an accurate measurement, which means we don't have a finite supply, and if we strike gold someday it would have the potential to cripple the value of every currency in the world. And it's entirely likely that asteroid mining will be a very lucrative industry in just a few hundred years, in which precious metals will become more and more abundant. It's unreliable, which is what you don't want in a currency.
Secondly, Gold isn't used in transacting, it hasn't been used in a really long time. It's not surprising, we don't wear fuckin' togas anymore. We get in really fast cars and fly spaceships, why do we give value to something just because it's shiny? Seriously! I want to know. It's used in jewelry and manufacturing electronics, but other than that? Even bitcoin is used in transactions nowadays.
My advice to investors: don't buy the hype (or gold). Precious metals look pretty, but unless they're pegged to a currency that actually has value, or they're used in transactions (like I could buy a cup of coffee or a car with it), then they're only worth whatever the manufacturers will pay for it. Instead, invest in companies that you're familiar with and understand how they operate. The best investors will play the stocks that they think will change the world.
And if you're wondering what the hell we're going to do about the US dollar losing 95% of its value, the Federal Reserve announced they are looking into developing a digital US dollar to act as a central bank digital currency. This digital currency would take the place of gold during the Gold Standard, and would be held in central banks. It'll be used to regulate the value of the US dollar and provide us with a vast amount of economic mobility.