Dearest readers, here is one exclusive article from my brief time on Patreon that I wanted to share with everyone because it is just too good and too important not to share.
Interestingly enough, the topic today is gold- my favorite precious metal ;) I have been wondering over the years if gold is a good investment for the future. I talked to people who invest long term and did research online at different points in time and the general consensus has been that gold is not a great investment at all. Hell, even Warren Buffet says so! However, over the last year, I have been wondering about this a lot more because it does not make sense to me. Gold has inherent long-term value as money and for industrial and manufacturing purposes, and in fact all of us know that currencies around the world have been based on the gold standard rather than fiat (faith) since the dawn of currency. So, in order to look at this the right way, I decided to get a perspective outside of North American trends and look at different times in human history to answer one question. When you invest in gold, what is it that you are really doing? The answer has surprised me to an extent and it may surprise you too.
Our typical investments such as RRSP's and 401K's involve regular contribution of money to units of diversified portfolios managed by banks, all in hopes that through regular contributions and compounding we will have lots of money to retire on down the road. It is a long, slow, arduous process with lots of ups and downs. Hopefully when you retire, it is not around a market top followed by a market crash because hey, you actually cannot take it all at once without paying a lot of tax and besides the most of it needs to stay in portfolios in order to generate income for you that will supplement your (always insufficient) pension cheque. Gold, on the other hand, is bought tax free with after-tax money. This gives it a certain amount of power, as it is something you can utilize all at once without tax penalties. Therein, dearest readers, is where we find our first advantage. Gold is an excellent forced savings method for most people out there because it is a hassle to impulse sell it and spend the money on stupid crap so you just end up holding it. In addition, it can be gifted easily to your kids or grandkids or other family members just before you die so the government cannot have a piece of it. Finally, whenever there is a financial crisis and the economy is weak, it becomes cheaper to buy things like cars, homes, land and other valuables. In times like these, gold price usually spikes on top of you already getting a great deal on a depreciated asset or other valuable when you sell the gold and then proceed to buy it.
Then, there is inflation of everyday goods versus the value of gold. I talked to a family friend who is a bit of a gold bug due to World War 1 his great grandfather used to share. We will get to one such interesting story later. For now, let me share another one. He mentioned one really interesting thing. Back in 2000, the price of gold per troy ounce was around CAD (Canadian Dollars) $407. Back then, you could get a smaller packet of around 6 chicken drumsticks for $2.20 or so. Today, when the price of gold per troy ounce is $2,334, the same size chicken drumstick packet is close to $7. Now, we all know that us humans need to eat. Well, in 2000, you could buy around 187 of those chicken packs with one troy ounce of gold. Today, you can buy 333. So, if you research this further, I am sure you can name some more items- both essential and non essential- that you can buy more of and/or better with one troy ounce of gold now than in 2000. Pretty powerful stuff.
Now, on to the final point- that World War 1 story that may have piqued your interest. So, my family friend's great grandfather fought on the side of allies and during the first half of the war had to go through a poorly planned out tactical retreat with the army in which he served. As they were moving through villages, many individual soldiers and especially officers from better off families were worried about the prospect of supply lines being cut or supply trains being attacked so they tried to stack odds in their favour by buying up food and other essential goods at local markets. Knowing the situation, the farmers who decided to stay put and not resist whichever army ended up taking control were bringing out their excess goods and selling them to the soldiers. The farmers knew that bad times could not last forever, and they knew that they were staying on their land and would likely keep producing goods as if nothing had happened (more or less). In addition, they knew that the retreating soldiers were going to spend a good deal of time in a very precarious situation. The resulting situation motivated them to go after gold and silver. Gold jewelry, gold and silver watches, jewelry with gemstones- anything of value that had precious metal in it or on it was legal tender. Surely, at that time, soldiers have overpaid for supplies based on what the price would have been in regular currency during regular times. However, it was wartime and they knew they were not buying supplies- they were really buying life extension and well, how much is that worth to a human being? A lot, as it turns out. Once they got the gold and silver and gemstones, the farmers made sure to hide it and not touch it until the war was over (if at all possible). Once order was established again, a new currency became legal tender, supply and supply chains stabilized, and prices of goods went down. Oh, and there was a window of opportunity to buy a lot of land, half destroyed homes and more with that gold and silver.
So, dearest readers, I hope this wonderful piece of infotainment will make you think about this topic. Where I stand right now is right in the middle of the "there's no bad time to own gold" camp, however small it may have become over the years due to this huge misunderstanding of gold's role in the world.
Interestingly enough, the topic today is gold- my favorite precious metal ;) I have been wondering over the years if gold is a good investment for the future. I talked to people who invest long term and did research online at different points in time and the general consensus has been that gold is not a great investment at all. Hell, even Warren Buffet says so! However, over the last year, I have been wondering about this a lot more because it does not make sense to me. Gold has inherent long-term value as money and for industrial and manufacturing purposes, and in fact all of us know that currencies around the world have been based on the gold standard rather than fiat (faith) since the dawn of currency. So, in order to look at this the right way, I decided to get a perspective outside of North American trends and look at different times in human history to answer one question. When you invest in gold, what is it that you are really doing? The answer has surprised me to an extent and it may surprise you too.
Our typical investments such as RRSP's and 401K's involve regular contribution of money to units of diversified portfolios managed by banks, all in hopes that through regular contributions and compounding we will have lots of money to retire on down the road. It is a long, slow, arduous process with lots of ups and downs. Hopefully when you retire, it is not around a market top followed by a market crash because hey, you actually cannot take it all at once without paying a lot of tax and besides the most of it needs to stay in portfolios in order to generate income for you that will supplement your (always insufficient) pension cheque. Gold, on the other hand, is bought tax free with after-tax money. This gives it a certain amount of power, as it is something you can utilize all at once without tax penalties. Therein, dearest readers, is where we find our first advantage. Gold is an excellent forced savings method for most people out there because it is a hassle to impulse sell it and spend the money on stupid crap so you just end up holding it. In addition, it can be gifted easily to your kids or grandkids or other family members just before you die so the government cannot have a piece of it. Finally, whenever there is a financial crisis and the economy is weak, it becomes cheaper to buy things like cars, homes, land and other valuables. In times like these, gold price usually spikes on top of you already getting a great deal on a depreciated asset or other valuable when you sell the gold and then proceed to buy it.
Then, there is inflation of everyday goods versus the value of gold. I talked to a family friend who is a bit of a gold bug due to World War 1 his great grandfather used to share. We will get to one such interesting story later. For now, let me share another one. He mentioned one really interesting thing. Back in 2000, the price of gold per troy ounce was around CAD (Canadian Dollars) $407. Back then, you could get a smaller packet of around 6 chicken drumsticks for $2.20 or so. Today, when the price of gold per troy ounce is $2,334, the same size chicken drumstick packet is close to $7. Now, we all know that us humans need to eat. Well, in 2000, you could buy around 187 of those chicken packs with one troy ounce of gold. Today, you can buy 333. So, if you research this further, I am sure you can name some more items- both essential and non essential- that you can buy more of and/or better with one troy ounce of gold now than in 2000. Pretty powerful stuff.
Now, on to the final point- that World War 1 story that may have piqued your interest. So, my family friend's great grandfather fought on the side of allies and during the first half of the war had to go through a poorly planned out tactical retreat with the army in which he served. As they were moving through villages, many individual soldiers and especially officers from better off families were worried about the prospect of supply lines being cut or supply trains being attacked so they tried to stack odds in their favour by buying up food and other essential goods at local markets. Knowing the situation, the farmers who decided to stay put and not resist whichever army ended up taking control were bringing out their excess goods and selling them to the soldiers. The farmers knew that bad times could not last forever, and they knew that they were staying on their land and would likely keep producing goods as if nothing had happened (more or less). In addition, they knew that the retreating soldiers were going to spend a good deal of time in a very precarious situation. The resulting situation motivated them to go after gold and silver. Gold jewelry, gold and silver watches, jewelry with gemstones- anything of value that had precious metal in it or on it was legal tender. Surely, at that time, soldiers have overpaid for supplies based on what the price would have been in regular currency during regular times. However, it was wartime and they knew they were not buying supplies- they were really buying life extension and well, how much is that worth to a human being? A lot, as it turns out. Once they got the gold and silver and gemstones, the farmers made sure to hide it and not touch it until the war was over (if at all possible). Once order was established again, a new currency became legal tender, supply and supply chains stabilized, and prices of goods went down. Oh, and there was a window of opportunity to buy a lot of land, half destroyed homes and more with that gold and silver.
So, dearest readers, I hope this wonderful piece of infotainment will make you think about this topic. Where I stand right now is right in the middle of the "there's no bad time to own gold" camp, however small it may have become over the years due to this huge misunderstanding of gold's role in the world.