In the aftermath of the economic collapse a decade ago, when the ashes of stock holdings, home deeds, and subprime loans were still fresh, many contrarians, gold bugs, and Federal Reserve critics prognosticated a monetary reset. It was supposed to be the end of everything we had become accustomed to: fiat money, central planning, and red ink. Well, years later, nothing much has changed, except greater fiat money, more central planning, and oceans of red ink. But you ain’t seen nothin’ yet, and one central bank believes that when the next crisis hits, there will only be one instrument of our liberation: gold.
Shelter from the Economic Collapse
Recently, the De Nederlandsche Bank, or the Dutch central bank, published a piece titled “DNB’s Gold Stock.” It turned many heads for its primary thesis: Should the system, as we know it, implode, then gold can allow us to begin anew.
The central bank wrote:
“If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.
A bar of gold retains its value, even in times of crisis. This makes it the opposite of shares, bonds and other securities all of which have inherent risk and prices can go down.
Gold is … the trust anchor for the financial system. If the whole system collapses, the gold stock provides a collateral to start over. Gold gives confidence in the power of the central bank’s balance sheet.”
Metal fetishists have been presenting this argument for years, but the establishment just dismissed the sage warnings as crazy talk. So, are the Dutch insane, too? Nope, just sensible. Gold is money and has been for centuries. It is the government that has intervened and declared that yellow metal is not money. Instead, only some arbitrary piece of paper from the printing press backed up by nothing is genuine legal tender.
In recent years, Holland has joined a chorus of other nations in repatriating its gold and acquiring more of the precious metal. To date, Amsterdam has taken back about 122 tons of gold it had entrusted to the US for safekeeping, a move that was initially designed to protect its wealth from the Nazi invasion. Many countries implemented this safeguard prior to the outbreak of the Second World War. In total, Netherlands’ gold reserves top 600 tons, one of the largest in the world.
But Amsterdam is not the only party that has become interested in gold again. Over the last decade, countries all across the globe have added to their gold reserves, particularly China and Russia. Is this a sign that trouble is brewing? Are they preparing for a monumental, earth-shattering financial event? Are they just being cautious? Whatever the case, considering how gold has skyrocketed nearly 20% so far this year, central banks have enjoyed a remarkable return on investment.
The gold-loving nations understand that the next downturn will be severe.
A Little Gold Will Do Ya
Ever since the yield curve inversion and the US-China trade war that has impacted the manufacturing sector, there has been non-stop gabbing about a recession. Is there one on the horizon? Not yet. However, when the recession does knock on your door, it will be like a bull in a china shop: It is going to destroy everything in its path.
The astronomical levels of debt taken on by the public and private sectors, the gradual easing by central banks during the boom phase of the business cycle, the rise of subprime, and many more indicators suggest that there is no way of escaping the next financial crisis, and it is going to hit everybody hard. Doom and gloom are how we do this, baby.
But owning gold is a way to weather the economic storm clouds. Despite the young generation of investors infatuated with cryptocurrencies, they are not safe-haven assets that can provide tangible wealth. The highly volatile bitcoin, for example, is not backed by anything, can be traced by the authorities, and cannot buy you jugs of water when the visions of Mad Max become a reality. Gold is the only true safe-haven asset that offers security for its universal acceptance as real money.
Gold has been used as a store of wealth and a medium of exchange for centuries. It makes sense. Gold has inherent value, the metal has a diverse array of uses, and it is the choice of investors and consumers alike in downtimes. It is also fascinating that the government does not need to mandate gold as official legal tender either, mainly because the market would instantly or eventually default to the material.
In a free-market monetary system, where many currencies would arise, gold would inevitably claim victory. Salt, stone, and tobacco all were forms of currency back in the day, but only the yellow metal stood the test of time. You could say it has been a “gold standard.”
The Goldbug Variations
Investors are making gold glitter again in attempts to absquatulate from trade uncertainty, monetary accommodation, debt, and volatility. It is trading at its best level in six years, and the consensus is that it has room to grow. The thing with gold is that it should not be viewed as a profit-making asset but rather a wealth-securing tool. While profit is a nice addition to your gold investment, you want to preserve and protect your estate. Gold can achieve that objective. Don’t believe it? Ask yourself this question: In 100 years, would you rather come across a treasure chest of gold bars or Federal Reserve notes?