- One of the (many) reasons why sophisticated gold-holders choose to hold their gold personally is because of the ever-present possibility of “confiscation”
- Cryptocurrency holders have no protection of any kind from the heavy hand of government
As inflation rages and investor wealth insecurity reaches levels not previously seen in our lifetime, there is an ongoing debate over the best way to insulate one’s self from the confiscation of wealth that inflation represents.
You go to sleep, and the wealth held in your currency has a certain amount of purchasing power. You wake up and “prices have risen”.
Translation: overnight, your currency has lost value
. And some of the wealth contained in that currency the previous day has been confiscated
In the absence of the gold standard, there is no way to protect savings [wealth] from confiscation through inflation.
- Alan Greenspan, 1966
Protection from inflation
In fact, Greenspan was not entirely correct. Even without a gold standard, simply holding our wealth in gold (instead of ever-depreciating paper currencies) insulates our wealth from inflation confiscation – perfectly.
For readers who either aren’t aware of this wealth preservation property or who don’t understand it, a full history and economics lesson is available here.
Why Gold Is The Ultimate Shield Against Inflation
Because gold is scarce and
valuable, it is “precious”. Hence the label: precious metal.
The fact that gold is precious makes it a Store of Value. You put your wealth into gold, but – unlike a U.S. dollar – gold doesn’t leak
. Whatever wealth you store in gold is preserved, forever.
The U.S. dollar has lost over 99% of its value since the Federal Reserve was given the statutory responsibility to “protect the dollar” over 100 years ago. Put another way, since 1913, over 99% of the wealth contained in the U.S. dollar has been confiscated
– by the bankers in control of the U.S. printing press.
But people/families who stored their wealth in gold over this period of time have been protected from all this U.S. “inflation” (wealth confiscation).
Are cryptocurrencies an “inflation hedge”?
Many cryptocurrency enthusiasts, intoxicated by their gambling profits, have begun to assert that cryptocurrencies also function as a hedge against inflation.
This argument can be (and has been
) rejected on both economic and practical considerations.
- Cryptocurrencies have no intrinsic value
- As inflation has recently spiked, several cryptocurrencies were simultaneously crashing
Gold has eternal aesthetic value. And if it wasn’t prized so much aesthetically, it would be used in industry – since it has many potent metallurgical properties. Real value.
Conversely, Bitcoin (and other cryptocurrencies) are digital gambling tokens. The token itself has no value, all “value” (or loss) obtained is simply derived from winning (or losing) the bet.
To illustrate this, we see new cryptocurrencies conjured into existence on a weekly basis, all with absolutely no intrinsic value.
Bitcoin claims “value” simply on the basis of an algorithm that limits the supply of Bit
coins. However, if an infinite number of competing cryptocurrencies can be conjured into existence, this “scarcity” is entirely illusory
. Thus, it was no surprise to see Bitcoin, Dogecoin, and (to a lesser extent) other cryptocurrencies suddenly crash – just as inflation was heating up to new highs.
By definition, any (real) hedge rises in value as the need for hedging increases
. Specifically, if cryptocurrencies were any form of inflation hedge, they would have gone up – not down – as inflation data worsened.
Gold rose. Gold is a real inflation hedge.
In fact, there is an even more fundamental reason why cryptocurrencies could never be a Safe Haven asset class.
U.S. government gold (and silver) confiscation
In 1933, claiming a “national emergency”, the U.S. government confiscated most of the gold from its citizens. It was actually a cynical wealth-grab – the American people were robbed.
Immediately after confiscating the gold, the U.S. government “re-priced” gold nearly twice as high. With the U.S. officially on a gold standard at the time, gold-holders who surrendered their gold effectively had their half their wealth stolen via this confiscation.
The U.S. government also claimed that the gold confiscation was only “temporary”. It lied about that too.
A year later, the U.S. government confiscated silver
. No “national emergency”. The U.S. government did this merely to please the powerful business interests which it always serves.
A lesson learned.
Today, knowledgeable precious metals analysts give one simple piece of advice to all precious metals holders.
Hold precious metals personally. Real bullion, real metal. Not the “paper gold” of a bullion-ETF. Not some bullion “fund” or “account”.
There are various reasons for this advice. One reason is the serial frauds regarding precious metals, for which the Big Banks are regularly convicted
. Don’t put your most valuable asset in the custody of the world’s most-notorious thieves.
Another reason for this advice is the fear of a repeat of gold and/or silver confiscation
Today, if the U.S. government (or some other Western government) announces it is “confiscating its citizens gold”, we won’t get fooled again. Precious metals holders will simply refuse to (voluntarily) surrender their metal – and get robbed once more. The exception?
Any gold held in any bullion-ETF, bullion account, or (perhaps) safety deposit box would be gone, instantly. Confiscated by the government with nothing more than a mouse-click.
That gold is (was) an inflation hedge. But it’s not a Safe Haven, because real “safety” can’t be erased with a mouse-click.
Hold gold as a hedge against inflation. Hold gold personally
as a Safe Haven against all forms of political/economic uncertainty
Cryptocurrencies offer no real protection
Gold and silver were physically confiscated by the U.S. government in the 1930s. Today, such “confiscation” would be done electronically.
Unless a government wanted to send its shock-troops around busting down doors and punching holes in peoples’ walls looking for bullion, they will only have access to the low-hanging fruit: gold (or silver) not held personally in our own custody.
What about cryptocurrencies? What if our governments pursue some nefarious agenda against cryptocurrency holders?
They could simply outlaw cryptocurrencies. Then these gambling tokens immediately become worthless. Conversely, if they greatly covet these digital coins, they can simply take them – with a mouse-click.
With gold, we’ve already addressed the confiscation scenario. Many (most?) holders would engage in civil disobedience. At the very least, they have a choice whether to comply with any future act of confiscation.
What if the government attempted to outlaw gold? Would your sweetheart no longer value a gold engagement ring?
Extremely unlikely. She would probably covet it even more
(because of its artificial scarcity). She simply wouldn’t be allowed to wear it in public.
Gold: the only true inflation hedge and Safe Haven
Once upon a time, people living in Western democracies didn’t have to fear that their own governments would plunder their wealth.
That era ended in the 1930s, nearly 100 years ago. Today, our ever more-authoritarian governments have stripped us of most of our human rights.
The serial wealth-confiscation of central bank inflation gradually "confiscates" (steals) our wealth – at an increasing rate. In such an environment, other acts of asset-confiscation (i.e. naked theft) cannot be ruled out. For any who are skeptical of this, educate yourself on “the bail-in”
Our governments may rob us (again).
Cryptocurrency-holders are living in a proverbial Fool’s Paradise as they crow about their gambling profits.
Cryptocurrencies may crash to near-zero because (as noted) they have no intrinsic value. They could be abolished/outlawed – and rendered instantly worthless. Quantum computing
may render cryptocurrency encryption useless
. Or, they could simply be taken, with one mouse-click.
Gold, on the other hand, has proven itself over (literally) thousands of years.
Wealth insecurity has never been such a great concern to people during our lifetime. Hold gold to protect your wealth. Hold gold for economic security.
Hold gold to sleep better.