In 2012, my father showed me a video of the Federal Reserve’s money printing machines. Amazed, I watched as the machine magically produced enormous amounts of cash, more than I would ever hold, in seconds. This gave rise to an important question, one that has shaped my outlook on economics. Why would I, or anyone else, work hard to earn currency that the Federal Reserve had produced out of thin air? My conclusion was this: nobody in their right mind should work for paper money, as the only value it really contains comes from the material, the value of paper. But this gives rise to another question. How then should the populace at large store the value of their labor? History alone provides enough evidence for the answer: gold. Through the ages, all paper currencies, backed by nothing but popular belief, have failed grandly (Lewis). Nothing but precious metals, primarily gold, endured the test of time, and differing opinions, ranging from distrust to blind faith, remain prevalent to this day. Recent volatility in the stock market has, however, increased interest in precious metals, and though many still disapprove of them, private investors now open up to the idea of a stable and trusted alternative to currency, a safe haven to store their money in during the financial crisis. And they have done so in the past, with good reason (Emspak). Gold offers the only safe store of value because of its intrinsic value, physical properties, and ease of exchange.
Since time immemorial, all civilizations have considered gold as a precious and desirable commodity. Above all other metals, such as platinum and copper, gold dominated the market of coveted metals. Its color and natural shine encouraged ancient civilizations to use it for jewelry, dating back to 5000 B.C. in Egypt (Cartwright). Relative scarcity and expensive mining also contributed to its popularity, promoting it as a status symbol, and, with the advent of technology, gold’s uses increase. Most computers contain gold, as it conducts electricity better than most metals and does not corrode easily, increasing the world’s demand for it (Tardi). Considering the historical data, gold’s value will likely remain constant in the future, prompting investors to further confide in it.
Before 1971, anyone who owned U.S. Dollars could turn them in to the central bank in exchange for physical gold. However, President Richard Nixon, in response to increasing inflation, removed the gold standard from the dollar, thus turning it into a fiat currency, a currency whose value was based on the government (Ghizoni). Since then, the Federal Reserve, America’s central bank, has used quantitative easing, another term for massive currency printing, to fund government bailouts and programs, resulting in a vast devaluation of the dollar (Amadeo and Boyle). This process, the result of excessive spending, has served as the final blow to every single fiat currency, from the Roman denarius to the French livre and the post-war German Mark (Lewis). Comparatively, countries must mine metal to increase the quantity of it, which is a slow and costly process, preventing a central bank from quickly increasing the amount of gold. To devalue precious metals, mining companies must find nearly illimitable resources to increase the supply of gold, a virtually unfeasible event and one that has never happened before.
Fungibility, the ability of exact exchange, lists itself among gold’s benefits. Investors, banks, and countries buy and trade gold in set amounts, such as ounce coins and kilo bars. Spot price, the exact rate of exchange for precious metals, is measured in troy ounces, a universal unit of weight slightly heavier than an ounce. This system ensures a fair exchange, at a fair price, without the risk of the item losing some or all its value overnight, a risk that common fiat currency bears. Despite its safety, many investors, some renowned and extremely successful, disapprove of gold. Warren Buffett, the eminent and wealthy protégé of Benjamin Graham, has protested the use of gold as an investment throughout his career. Noting that gold does not pay dividends or produce interest, he ridicules it in favors of stocks and bonds, riskier investments that pay more (Pisani). However, Buffett fails to realize that the majority of the market views gold as a long-term alternative to cash, a so-called inflation-proof bank account, rather than a speculative investment (Lioudis).
When the recent economic downturn hit, the price of gold skyrocketed, with the populace’s faith in it greater than ever before (Hobson). During the madness that pandemics naturally bring, many odd and peculiar things have happened on the market, most paramount of which is Warren Buffett’s betrayal of his own philosophy. Seeing that gold, in the current market, stood a chance for a two-hundred percept gain, Buffett’s company Berkshire Hathaway purchased an estimated five-hundred-and-sixty-four million dollars of stock from a gold mining company, Barrick Gold, showing that even the staunchest adversary to precious metals can give in (Williams). Now, more than ever, as fiat currencies, such as the U.S. dollar, continue to lose value, personal investors should begin to store their capital in gold. With its trio of virtues, it come as no surprise that more professional investors and countries continue to stock up on gold, choosing a valuable good over a faith-based currency system (Arends). Private investors should look to their own portfolios before the opportunity to invest in the most historically valuable commodity passes.
Amadeo, Kimberly, and Michael J Boyle. “Quantitative Easing Explained.” The Balance, 24 Aug. 2020, https://www.thebalance.com/what-is-quantitative-easing-definition-and-explanation-3305881. Accessed 13 Oct. 2020.
Arends, Brett. “Watch out, America: China and Russia are stockpiling gold.” MarketWatch, 29 Jul. 2019, https://www.marketwatch.com/story/watch-out-america-china-and-russia-are-stockpiling-gold-2019-07-29. Accessed 23 Oct. 2020.
Cartwright, Mark. “Gold in Antiquity.” Ancient History Encyclopedia, 4 Apr. 2014, https://www.ancient.eu/gold/. Accessed 14 Oct. 2020.
Emspak, Jesse. “What Moves Gold Prices?” Investopedia, 7 Sep. 2020, https://www.investopedia.com/articles/active-trading/031915/what-moves-gold-prices.asp. Accessed 10 Oct. 2020.
Ghizoni, Sandra Kollen. “Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls.” Federal Reserve History, 22 Nov. 2013, https://www.federalreservehistory.org/essays/gold_convertibility_ends. Accessed 9 Oct. 2020.
Hobson, Peter. “Stunned by gold’s record rise? There’s more to come, analysts say.” Reuters, 5 Aug. 2020, https://www.reuters.com/article/us-gold-price-graphic/stunned-by-golds-record-rise-theres-more-to-come-analysts-say-idUSKCN2512MB. Accessed 16 Oct. 2020.
Lewis, Tom. “The Failure of Fiat Currencies.” The Gold Telegraph, 28 Feb. 2018, http://www.goldtelegraph.com/failure-fiat-currencies/. Accessed 9 Oct. 2020.
Liousdis, Nick. “Does it Still Pay to Invest in Gold?” Investopedia, 3 Sep. 2020, https://www.investopedia.com/articles/basics/08/invest-in-gold.asp. Accessed 10 Oct. 2020.
Pisani, Bob. “Gold hits an all-time high, but Warren Buffet doesn’t buy it. Should you?” CNBC, NBCUniversal, 29 Jul. 2020, https://www.cnbc.com/2020/07/29/gold-hits-all-time-high-but-warren-buffett-wont-buy-it-should-you.html. Accessed 9 Oct. 2020.
Tardi, Carla. “Why has Gold Always Been Valuable.” Investopedia, 14 Sep. 2020, https://www.investopedia.com/articles/investing/071114/why-gold-has-always-had-value.asp. Accessed 9 Oct. 2020.
Williams, Sean. “Warren Buffett Just Bought a Gold Stock – or Did He?” The Motley Fool, 20 Aug. 2020, https://www.fool.com/investing/2020/08/20/warren-buffett-just-bought-a-gold-stock-or-did-he/. Accessed 16 Oct. 2020.
Meet the Author
How old are you?
Where do you live?
I live in Southern California, the 7th largest economy in the world, but the best place to live because of fires, politics, taxes, Hollywood, etc.
What classes are you taking with TPS?
I’m taking English 4/5 Advanced Comp #5, the best section by the way, with Mrs. Yagel, the nicest teacher.
What is your favorite thing about writing?
The ability to convey my ideas, clearly, without interruption. It is a better medium than debating or yelling, and both parties find it hard to start a rabbit trail. In our age of hostility and plain lack of common sense, writing your opinions instead of shouting them over your opponent’s voice usually works better. Writing also helps me store my knowledge on economics and politics.