The Unique Property
The Trouble With Gold
Watch on Youtube: https://youtu.be/9RosIBSVkfM
Here we continue our look at how to cope
with the current messy state of the world. The main question I
suppose is: what's the ultimate hedge against catastrophe?
We've already dealt with real estate, so obviously the next
answer is Gold.
Gold is currently priced a little under $20,000. We are
constantly being told it will leap up to $30,000, maybe even
$50,000. Sounds great.
Even if it hits $50,000 that will be a triple, which cant be
Bitcoin is currently hovering around $60,000. Supposing that
too triples. That would take it to $180,000. I think we'll
reach that figure in a year, and a lot more after that. I'm on
record as saying we may well hit half a million dollars by
2025. That's more than a ten-fold increase from here.
Not convinced? Best to stick with the good old tried and
tested yellow stuff?
Okay, let me tell you a story.
The time is autumn 1987. I am heavily invested in the UK stock
market. On the friday before the melt-down my friend Gerry and
I sold everything and put our money into gold. We knew bad
times we're coming.
On the following monday and all that week we felt rather smug.
Stocks were skating their way to the bottom. Gold was holding
up rather nicely.
A couple of weeks later Julie and I headed south for the
winter. I had no worries. Things were safe. I was heavily into
gold. What could go wrong?
By now you must be expecting me to divulge the bad news.
The Canary Isles were a delight. We had a great winter.
Worries were left far behind. We enjoyed the food, the lazy
days, the fine weather, the dips in the pool.
I didn't bother to check my holdings till I returned to the UK
only to find that my gold stocks were down. They hadn't
retreated by much, but they were down. Excuse me, but that's
unconstitutional. Excuse me, but in times of trouble gold goes
up. Excuse me. What went wrong?
I'll tell you what went wrong. Those who were heavily into
stocks got caught, and were margin-called. In order to get out
of trouble they had to sell the good things to cope with the
losses in ordinary stocks, and that pushed the price of gold
shares down, and that impacted on the price of the metal
Clever people are wont to tell us that the good thing about
holding gold is that there is no counter-party risk. That, of
course, is perfectly true. But what that statement fails to
take into account is that when the shit hits the fan you need
to rush for protection. In order to get that protection you
have to sell something. You raid the piggy-bank. And what is
in the ultimate piggy-bank? The yellow stuff. So you sell
some. But the whole point of holding gold was that you weren't
going to sell it. You were hanging onto it as a hedge. It
turns out there was a counter-party risk after all,
and that counter-party was the person holding the gold. --
Of course, the same could happen to bitcoin. But I think my
little story is worth remembering. When the chaos is all
around, it is hard to find anything that hangs onto its
previous value. And to use whatever that solid stuff is, you
have to start selling it to survive.
Ah, but real estate is different.
Oh no it isn't. Of course, you can live a relatively pleasant
existence in your lovely home, but try and raise some money by
mortgaging it at the end of a financial massacre. The banks
and mortgage companies will have closed ranks.
Remember my stories about trying to buy houses in the autumn
of 1991 when prices were at giveaway levels? Neither I nor
Gerry could get finance. Both of us on at least one occasion
got man-handled to the door, because bank staff were at
heart-attack level upon hearing the word 'mortgage'.
If you must hold gold, the best way to do so is to buy gold
coins. The Royal mint still produces sovereigns. Krugerands
are available. Both the USA and Canada mint gold coins. They
can be your cash stash-of-last-resort. Get enough to last you
for two years of emergency funding.
There is another problem with gold. It's value rests on its
scarcity. However, I'm sure you've heard of Psyche-16, which
is an asteroid in the asteroid belt beyond Mars.
Already missions go to Mars, almost as a matter of course. The
asteroid belt is not that much further. The real problem is
that mining an asteroid way out there and getting the goodies
back to earth is rather a tall order. But who needs to get the
metals back to earth?
Let me set out a perfectly feasible scenario. But first, let
me admit this scenario is not likely to come to pass within
the next ten years, so its effect on gold will not be felt
this time around. But let me just assume that we could achieve
what follows in a little more than ten years. Here's the
These days anyone who is in the space game can land a rocket
on an asteroid. Mining it is relatively simple once one can
set up a work station. Complicated and costly, but doable even
now. The thing is that the real cost of using rockets is the
problem of countering the escape velocity needed to exit
Earth. Lifting off from the Moon or an asteroid would be
simple by comparison. This means setting up a work station and
a launch site on the Moon would be a first step to mining
Shunting an asteroid the size of Psyche-16 towards Earth orbit
is not technically possible. It is however possible to bag up
metals and tow them to the Moon. How about setting up safe
storage facilities on the moon? But we'd have to extract the
metal from the rock. Possible, but one would need to set up a
facility to do that, preferably on the asteroid.
However we look at this, the real problem doesn't seem to be
finding and mining the metals, but before we do that we'd need
to set up an industrial complex on the Moon. There are, of
course, plans afoot to do just that. Will such a project come
to fruition within ten years? I'm not taking bets, but it does
So is gold's reign as the ultimate store of value about to get
knocked for six? If within the next ten to twenty years it
does indeed become feasible to mine gold on Psyche-16 and tow
it back to the Moon, and process it there, then the gold can
also be stored there. It will then be possible for the amount
of gold in store to sky-rocket. That will play havoc with the
value of money, if money is still tied to gold at the time.
Maybe not just yet, but great changes are on the horizon.