THE GOLD STANDARD IS THE OLD STANDARD IN AN ECONOMIC COLLAPSE
The end of 2016 saw the price of gold trending toward $1,100 an ounce. That was rather pricey for the shiny metal, yet it was still way down from its record high of nearly $1,900 an ounce in August 2011. In fact, while gold rebounded throughout much of 2016, it was headed in a downward slide as the year ended. By the fourth quarter of 2019, it had risen to around $1,500 per ounce. That could mean that gold would be a wise investment—good news for so-called “gold bugs,” those individuals who hoard gold in fears of economic downturns and even economic collapse.
No doubt such individuals watched the news as Russia and Germany—among other nations—began to hoard the shiny stuff. China and India still remain the largest markets for gold, while the United Kingdom has rather modest gold reserves. In the latter case, it is because, like the United States, the British currency is not on a gold standard.
UNCERTAINTY CAUSES PEOPLE TO SEEK STABLE VALUE, AND GOLD PROVIDES THAT CONFIDENCE.
PREPARE FOR BAD TIMES
In countries such as Germany, where there was massive currency devaluation and hyperinflation after World War I, bullion can still be purchased over the counter. Here, gold could be a good buffer against such economic downturns.
This is why in India it is estimated that three-quarters of Indian household savings are in gold—and interestingly, it is in jewelry, not in bullion or coins. The reason many Indians and Chinese buy gold is that they have less access to financial institutions, and gold always has value.
Andrew Gause, author of The Secret World of Money, explained that gold has been a useful store of value for 6,500 years.
“Combine that longevity of gold with fears for the end of the world, and it is almost easy to see why prices go up,” Gause pointed out. “Uncertainty causes people to seek stable value, and gold provides that confidence.”
In other words, gold could be the best thing you could buy … until you consider that it is heavy, difficult to transport and only has value where economies continue to function.
It is true that throughout history, gold was used as a form of currency, suggested Dr. Lawrence H. White, professor of economics at George Mason University. He explained that anything that could reduce people’s faith in other currencies could result in the price of gold going up.
However, in the event of a disaster, financial meltdown or major crisis, people can be cut off from their supply of gold. White added that while people can, indeed, barter with gold coins, as they did for centuries, there is still the need to make change when you buy something. For that reason, gold has problems being used in normal transactions.
ONE ADVANTAGE THAT GOLD COULD HAVE IS NOT IF THE ECONOMY COLLAPSES TOMORROW, BUT AS A WAY TO PREPARE FOR BAD TIMES TO COME.
COMBINE THAT LONGEVITY OF GOLD WITH FEARS FOR THE END OF THE WORLD, AND IT IS ALMOST EASY TO SEE WHY PRICES GO UP …
FROM THE MINE TO THE BANK
Gold has been mined for millennia, but as recently as a century and a half ago, raw gold straight from the mine was actually used as currency.
“Gold bullion had problems going back to the days of the ’49ers,” said Gause. “Miners would head up to the bar and try to buy a drink with just a pinch of gold. But no one knew exactly what that was worth. Gold in its raw form isn’t easy to transact with.”
That isn’t to say that the U.S. federal government hasn’t made it a little easier in the past. Over time, the U.S. Treasury minted millions of gold coins, but that ended in 1933, when the United States went off the gold standard. There are still some gold coins and pre-1965 silver dimes and quarters, now mostly out of circulation, that were minted.
“If you are trying to barter with gold, you end up paying by the ounce, and there is no easy way to get change,” added Gause. “However, there have been ways to have coins, and that does make it a little easier.”
Using gold, even as an investment to hedge against inflation, one needs to be careful who is offering the advice to buy precious metals, warned Gause. “You see those stories that China is hoarding gold, that economic collapse is around the corner,” he explained. “Well, if you dig down deep enough, you find that it is the gold and silver dealers who push out those rumors, because they want people to buy their metals!”
One advantage that gold could have is not if the economy collapses tomorrow, but as a way to prepare for bad times to come. Gold, silver and even precious stones have an advantage in size that could allow someone to “compress their wealth.”
While it is hard to carry more than $10,000 in paper currency through airport security, a rare gold coin could pass scrutiny and prying eyes and quite easily make its way to Switzerland or some other nation. However, hitting the road could be more of a challenge, because Gause noted that $100,000 worth of silver would still take up a bit of room in most current SUVs.
“It is still a better solution than what some in isolated republics, such as Zimbabwe, have had to endure due to hyperinflation,” added Gause. “They recently printed a $100 trillion note—and there was literally not enough room to put the zeros on it. This is similar to what Germany went through during the Weimar Republic.”
Other nations, such as Venezuela, have also seen such devaluation, thanks to hyperinflation and the fact that it is now cut off from the International Monetary Fund (IMF).
“That is the danger that any non-IMF member faces,” warned Gause, who added, “However, I doubt any modern industrialized nation would go through what the Weimar Republic went through. IMF nations today can’t inflate their way out of problems.
OTHER PRACTICAL ITEMS THAT MAKE MORE SENSE THAN GOLD INCLUDE FREEZE-DRIED FOOD, WATER—ALWAYS WATER—MEDICAL SUPPLIES AND EVEN SIMPLE THINGS SUCH AS SEEDS FOR VEGETABLE PLANTS.
Hoarding gold coins might not be a silly idea, should you need to bug out following a pandemic, environmental disaster or other turmoil. Gold will always have value, especially in chaotic times, when a credit card is only good as an ice scraper and paper money is only good as emergency toilet paper. Gold coins might be the last true hard currency.
Yet, gold bars don’t make sense. First, the weight is always going to be an issue, and second, a couple of bars could literally be worth an entire life’s savings. So, unless you plan on going on the run and need to buy a mansion or airplane, a gold bar literally can’t be spent! To put this in perspective, a standard gold bar held and traded internationally by central banks and bullion dealers is called a “good delivery bar.” It is 400 troy-ounces of gold and is usually 99.5 percent pure gold.
There are actually two different types of bars: cast and minted. Cast bars are made by pouring molten gold into an ingot mold; minted bars are made from gold blanks that have been hand cut. In both cases, a good delivery bar is 12.4 kilograms, or roughly 27.33 pounds. As of the end of 2016, the price for a bar of gold was just under half a million dollars (U.S.). So, anyone hoarding bars of gold is literally tying up a fortune that could be used for more-practical goods.
There are many other items you can barter that are the approximate size of a couple of bars of gold and actually weigh less. A 420-round tin of .223 (5.56x45mm) ammunition has roughly the same weight. Now, that is an example of “hard currency” that could be a lot more useful than a bar of gold.
Other practical items that make more sense than gold include freeze-dried food, water — always water—medical supplies and even simple things such as seeds for vegetable plants. Imagine how many seeds for a post-societal breakdown garden could fit in the space of a bar of gold and how much potential food it would yield.
In addition, “barter items,” none of which are exactly expensive, would make a good alternative to a bar of gold. Nails, screws, zip ties and duct tape could literally be worth their weight in gold once the local Home Depot is looted and you have to hit the road. Gold can’t secure boards over broken windows; nor can it be used to seal a sheet of plastic to keep the draft out.
“Gold is only useful in some very specific types of emergencies, ones in which there is still enough societal structure left to warrant a means of exchange but not enough structure so that the dollar has lost all value,” said Trent Hamm, who authors the personal finance website TheSimpleDollar.com.
“In a true global pandemic, things like fresh water and edible food items will have value,” Hamm added. “Gold will only have value if the market that develops in that world accepts it as a medium of exchange, which is far from a certainty. You need food and water; you don’t need gold.”
When considering what will get you through the bad times, “you should focus on necessities and protecting those necessities, as well as useful skills, not on a precious metal that may or may not have value in that environment,” Hamm suggested.
In addition, while gold can be a great investment, just as with stocks and other commodities, it fluctuates in value. That means you want to buy low and sell high, but the reverse can occur: You buy when it is high and are forced to sell when it is low.
This is why gold should be viewed with some skepticism as a hedge against economic collapse. Material goods could have a whole lot more value in the times to come.
Editor’s note: A version of this article first appeared in the April 2017 print issue of American Survival Guide.