If you are like me and you make the mistake of watching television then you are subject to the barrage of ads for gold. “Buy gold and buy it now.” Or, how about “I used to be famous and I think you should buy some gold.”
Here is my question, if the total collapse of civilization is right around the corner and the only saving grace is gold then why are these companies on television commercials willing to sell it…at any price? “Society is about to come crashing down and your only means of avoiding the collapse is to own physical gold?”
“After the collapse you won’t be able to get gold at any price?”
Excuse me? I ‘ll tell you what you won’t be able to get at any price… Twinkies. That’s right. Delicious banana cream flavored sponge cake treats will be more valuable than gold. And you are going to want to make sure you have physical possession of your Twinkies and not just some shares in a Twinkies ETF.
The point is that gold is not necessarily money any more than a piece of paper is money. What is the inherent value of gold. Gold is just as much a fiat money as …well… fiat money. Ultimately the final answer in the value of anything is what can you do with it to add sustenance, security and comfort to human life.
I hate to be the naysayer but gold does not pass the Twinkie test. You can’t eat it, there are far better, and more plentiful, building materials for shelter and you can’t cover up with it at night to keep you warm. The fact is that gold is only valuable because we all agree to make it so, just the same as paper money. In a world torn apart by total financial collapse a pound of gold wouldn’t buy you a single Twinkie.
Furthermore, we are all traders whether we actively participate in the markets or not. If the trillions of dollars, from all the retirement plans, that is usually in the markets were suddenly put into gold and shoved into the collective mattress of the world, what would happen to the markets we trade? They would collapse in a self fulfilling prophecy.
Better yet what would happen to the price of gold? It would skyrocket in perceived value, because of short term demand, to the point that it could not be traded for anything, for a time. But remember that gold has very little practical value, speaker cables and rap star teeth and that sort of thing, and so it has very little inherent value.
We would go from being unable to trade gold for anything because of its incredibly high perceived value, -I mean seriously how many little pieces of paper with portraits of former presidents on them would it take for you to trade away your gold after the markets have completely collapsed and those little slips of paper have virtually no monetary value-, to being unable to trade gold for anything because of its incredibly low inherent value.
You might not like the answer but the truth of the matter is that at some point every one of us would eventually trade the gold for the little slips of paper, simply because the little slips of paper can be burned to keep us warm. It has more inherent value than gold. Some have made the argument that after the market collapse and just before the gold value collapse there is a sweet spot where the gold could be fashioned into a currency that would save us.
The problem with the theory is that the gold would have to enter the market at such breakneck speeds that the people in possession of the physical gold would not have the time or means to pour it into any other coin size and therefore value. In short, the perceived value stored in those gold coins would have to be essentially given away in the interest of preserving economic cash flow.
No, No, No, you say. The answer is simple. We would simply print representative certificates for the gold and the holders of the gold could lend out the value in the form of these certificates, as long as everyone continues with the collective delusion that gold has any practical value, it might work. How is that different from what we have right now?
In short, I will not be buying any gold to have around the house.