As we enter 2020, not only a new year but also a new decade, we see can see that the mainstream perception of gold probably hasn’t changed all that much.
But despite the ongoing back-and-forth debate between sound money vs the dollar, let’s get real for a moment and look at the scorecard. How has gold performed from December 2009 to December 2019? What does gold’s performance have to tell us?
Gold Outpaces Inflation’s Decade-Long Growth
Let’s take a look at some facts, as reported in a CFRA Sector Watch report on December 23, 2019.
Over the last decade...
- The US economy grew 25%: This is good news, except for one fundamental factor that may be hitting Americans’ pocketbooks…
- Inflation rose 20%: So as the economy grew, prices increased, making goods and services more expensive, but…
- Gold rose 35%, outpacing inflation.
So despite whatever reservations many in the investing public may hold against gold, the results speak for themselves. And if anything, it comes to show that, as we’ve always said, gold is both an effective safe haven against purchasing power decline and a solid additional return source.
But let’s take a moment to address common misconceptions about gold. Why are so many “economists” hesitant to support sound money initiatives?
Most Economists Are Opposed to Gold
Despite what several of the mainstream financial media sources report, this is simply not true. These articles talk about how economists say that a return to the gold standard would have disastrous effects on the global economy. But are they talking about the economy, or the capacity to alter the economy (or its perception)?
Sure, it might be disastrous to those who hold power over their local (and collectively, global) economy through money supply manipulation (i.e. most central banks and the governments who can manipulate them) but it’s just simply not true that all economists are saying that a return to the gold standard would be a horrible thing.
There are plenty of economists (and, surprisingly, politicians) who believe the exact opposite--that precious metals as currency would ultimately stabilize and safeguard the world economy. This isn’t just a crackpot theory of far-out politicians and businesspeople. It is a view that a number of economists hold as well. It’s also a view that America’s founding leaders held when they wrote Article 1, Section 10 of the US Constitution.
Gold Made the Great Depression Possible
When talking about the gold standard, many detractors will bring up the claim that “gold caused the Great Depression.” Yes, the gold standard was in place then, and it was a factor in the economic crash, but it was by no means the primary cause.
For instance, take the 1929 stock market crash. The crash didn’t cause people to lose fortunes--investors’ exuberance over a market that did nothing but climb and the leveraged stock purchases that resulted from that exuberance caused the downfall of many. To use a metaphor, the market didn’t cause the “illness.” Rather, the investors who overbought had to be somewhat weak, to begin with, to invite such an illness to spread. It’s simply the reversal of cause and effect.
Now, the gold standard had been around for a very long time at that point and, while there have been peaks and valleys prior, nothing like the financial crash in 1929 has ever happened before. The gold standard didn’t allow governments to print money to stimulate the economy. Of course, this is the market punishing those who overspend or malinvest. If you are broke and deep in debt, borrowing more money might not help. Counterfeiting money would land you in jail. Sadly, without the gold standard, governments resort to both of those measures.
Once President Roosevelt abandoned the gold standard in 1933, the depression continued for another decade or so, yet another sign that it was not the root problem. Gold isn’t the problem. The problem is how people use and abuse money. The market is supposed to purge itself, but that’s hard to do when the financial system has been “artificialized.” Nevertheless, the cure for debt can never be more debt.
Gold Reduces Free Market Choice
Another argument you hear against gold is from the libertarian camp. In other words, who has the right to tell us what money is and what kind of money should be used? With the recent movement toward cryptocurrency adoption, we can see this argument playing out in the space of real-world transactions, however nascent or volatile such a solution may be.
The gold standard does not reduce free choice. It does not hamper free markets. In an ideal world, banks would be completely decentralized, free to issue their own gold-backed tender without regulation or special treatment from the government, the economy would be better off. The key phrase here is “gold-backed” tender. Without it, there’s nothing to link the bank’s issuance to a ”real” (and natural) economy.
Because such a scenario isn’t realistic, at least for now, having governments support a gold standard may be the best option. Even though governments and central banks may still be involved, it would be to stop centralized national banks like the Federal Reserve from interfering with a market-driven economy by means of “monetary policy.” Monetary policy tends to line the pockets of bankers as it also allows governments to run up massive amounts of debt, such as what we see in the US today.
Government Would Set the Price of Gold
Yes, the government would set the initial price for gold and create dollars to match, but that is not the same as the government coercively dictating price controls such as those for minimum wage. Once set, the market would dictate gold prices and the government will have to react accordingly (not the other way around). They would not threaten fines or jail time if people do not follow the price of gold. The market would take care of it. Also, as opposed to the current system where the Fed “sets” interest rates and adjusts reserves to match, the gold standard would be very similar except for the fact that a tangible asset is backing it up (not faulty economic theories developed by a bunch of out-of-touch Ph.D.’s passing themselves off as economists).
The Bottom Line
Despite the myths that gold critics are trying to sell you, many Americans are coming around to the fact that the gold standard would be a good thing. The fact that critics are doubling down on pushing these myths only shows that sound money advocates are on the right track.