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9 Reasons Why Gold Will Soon Replace Treasuries As The Ultimate Store-Of-Value Asset
In the age of fiat currency, the distinct concepts of saving and investing have become conflated and confused.
Saving is producing more than you consume and then setting it the difference aside. Investing is allocating capital to a productive business to create more wealth. Investing has more risk — and potential reward — than saving.
Today, however, what most people think of as saving is actually investing. That’s because most people take the excess of their production over consumption and put it into the stock or bond market.
Most people understand that it’s not optimal to simply hold fiat currency, which the central banks continuously debase. So they put their money into other assets, primarily bonds and stocks.
In other words, fiat currency and inflation have ruined saving for most people. It has forced them further down the risk curve into stocks, bonds, and other investments in a struggle to maintain their purchasing power.
However, there is no guarantee those investments will even keep up with inflation. But suppose they do. They will then be subject to a capital gains tax, even if it’s only a nominal gain, not a real one.
That means savers face the daunting task of not only keeping up with inflation but also outpacing the capital gains tax on the nominal gain just to maintain their purchasing power. This reeks of a central banking ponzi scheme that will only benefit central planners in government, and central bankers, long term.
Before the era of easy-to-produce fiat currency, people could simply save in money, which was either gold or a derivation of it. There was no need for a dentist, construction worker, or taxi driver also to become a hedge fund manager to try to keep their head above water.
50 years ago, the market cap of all the gold in the world was roughly equal to the market cap of all the stocks in the world. Today, the market cap of gold is about 10% of the world’s equities. It’s an indication of how capital that used to be allocated to saving in gold became allocated to the stock market instead.
Bonds in general and Treasuries in particular, became the “go-to” savings vehicles to store wealth in the fiat era. However, I think that will change soon as bonds will be incapable of storing value in the face of financial repression.
Gold has been mankind’s most enduring store-of-value asset because of its unique characteristics. Gold is durable, divisible, consistent, convenient, scarce, and most importantly, the “hardest” of all physical commodities. Gold is the one physical commodity that is the “hardest to produce” (relative to existing stockpiles) and, therefore, the most resistant to debasement.
Gold is indestructible, and its stockpiles have built up over thousands of years. That’s a big reason why the new annual gold supply growth — typically 1% to 2% per year — is insignificant. In other words, nobody can arbitrarily inflate the supply. That makes gold an excellent store of value and gives the yellow metal its superior monetary properties.
From a historical point of view, using government bonds as a savings vehicle is a relatively new concept. As it fades, I expect people will rediscover the world’s premier store-of-value asset: gold.
It’s no coincidence that the worst year ever for US Treasuries also saw the highest central bank gold buying spree in over 55 years.
https://www.zerohedge.com/personal-finance/9-reasons-why-gold-will-soon-replace-treasuries-ultimate-store-value-asset