Updated: Aug 25, 2020
Long since passed were the days where we as a species have traded gold amongst ourselves as its main currency. Most people would think that the little yellow rock, as something of the past, when we look at the world we live in. Where the transfer of value is as simple as a tap of a card or the transfer of little paper notes with value etched into them. Gold over time has become something that people view as more of an investment, but not understanding its real value… a store of value. This becomes quite an interesting perspective when you look at the difference between money and currency.
What if I told you that money and currency were completely different things? Most people would ponder that statement and never follow through with the answer, which is why I am here to clarify the difference with this article. The line is thin as to how we differentiate them, but once the line is established it becomes a very noticeable divide.
Money. Many songs have been written about it, what it can do for you and even the process of making it, but ask yourself what constitutes money? Well a good form of money will usually have these characteristics.
-It can retain its value/purchasing power (store of value)
-Has intrinsic value
-Can be traded globally as a standard of value
-Is immutable (unchangeable).
Now generally because of these characteristics it will have lower velocity (movements of value), a globally set value (ex. Gold and Silver prices) and the ability to create a valuation of any currency or standard based off its set values (ex. Gold standard and Satoshi standard). All this to say that money ultimately is backed by something or is the backing of said thing. Examples of hard money (money backed by something) would be
-Gold/Silver and other precious metals
-Gems (though not generally used)
-Gold standards (money backed by gold)
-Oil standard/Reserve currency status (United states)
-Bitcoin/Satoshi standard (Bitcoin backed Venezuelan Bolivar)
These are all forms of actual money as the definitions stand. When the dollar softens (more money is printed) these values increase hence, as to why gold and silver prices shoot up during a crisis and the value of your dollar is safe. All this to say that the whole premise of money is that it sets value and establishes wealth on a personal or international level.
Currency is more of a concept. It is distributed by a central authority of banks and/or governments, with an agreed upon numerical value that pays into a system based on debt and time. We are payed through time and the general valuation of that time from our centralized authorities’ perspective. The whole concept is backed by the government/banks and the system its established beneath it. It’s used as a means of exchange amongst us in our domestic marketplaces but cannot be used as a measure of absolute value (because of inflation). Hence as to why we have established a reserve currency (the US dollar). Some examples of what constitute a currency would be
-A means of exchange
-Circulated for daily payments in day to day life (high velocity)
-Does NOT store value
-Backed by central authority (banks/governments)
-Inflationary (not scarce)
-Based in valuation of debt and time
-can go to zero (as it’s backed by trust instead of intrinsic value)
There have been many times where currency has been manipulated into collapse. It’s actually quite common when nothing backs the dollar. Some more famous and recent examples of this are Germany post WW1, Venezuela and the bolivar collapse (due to oil prices) and Lebanese banks causing hyperinflation. The reason this happens is that people who control the circulating supply of currency get greedy and decide to increase supply ultimately defacing the value.
Now where this gets interesting is the position of currency on a global scale in the current economy when factoring in COVID-19 and political situations globally. In 1971 Nixon took USA off the gold standard and began the descent into a dollar backed by war and oil (more on this in a later article to be released). What happens when oil prices have become destabilized, and USD becomes increasingly weaker due to QE (quantitative easing) and stock buy back programs. Now you may be asking what does all this currency and money talk have to do with gold? The answer is everything. It would be impossible to determine a gold forecast without understanding all that are at play in the current situation.
Short Term Forecast Gold- Now that many countries have started printing large sums of fiat currency this propels gold further in value as most currency bases its value on it. Within 6 months of pandemic outbreak prices have soared into the 2000$ price/oz mark. This was a pretty easy prediction to make when you look at money vs currency supply and where we were heading.
Medium Term Forecast Gold- Now this is where things get a little more clarification as to where the price can fall within 1-2 years from my opinion. From a conservative standpoint between 2500$-3500$. The reason I set my mark there is because of the increasing currency supply and manipulations don’t look to be coming to a halt, and the fact that the US Mint has cut supply of silver and gold to purchasers and producers. This means that production is slowing, supply is dwindling, and big whales are hoarding anticipating a major increase in price as both are currently undervalued.
Long Term Gold Forecast- In the 3-5 year mark, it wouldn’t shock me to see gold hit prices as high at 5000$! Reason being I personally think the within this time convertible gold bonds (paper gold) is a historical bubble waiting to pop. Scotia macotta a historical gold legacy has not been able to deliver the gold its bond holders have been promised, leading it to close its doors after centuries of service…Now ask yourself how many other companies have done this or are doing it? If you don’t physically hold it, do your really own it? Apparently, there are so many orders for paper gold that up to 9 people can own the same bar of gold. It’s only a matter of time that everyone will attempt to convert them at the same time, and only the people holding gold will have it while reserves tighten grip on supply. With this tightening supply I believe that long term a potential digital standard pegged to gold and precious metals will likely become a new standard of money.
In conclusion, gold is an excellent addition to any portfolio as its usually pretty recession proof. Supply is tight and getting increasingly tighter, so acquisition in the future may become more difficult or expensive. I would personally stay away from paper gold because you don’t own anything other than a promise of security, its only benefit would be for trade purpose for accumulating real gold from the profits. Incrementally buying coins, jewellery and bullion bars over time will likely see returns of 30% or more over the years to come from a conservative view. If we do return to a type of gold standard holders of the metal may see even higher returns as well.
*This is not investment advice this is simply our opinion of the news provided to us. We are not financial advisors, we are researchers. We DO NOT accept liability for losses you incur*
https://www.youtube.com/watch?v=ZLyCB3ZiZzA long term. (8:00 min)