Many times, in these pages, we have talked about the differences between Physical Gold and Cryptocurrencies. Today, however, we face the topic from a diametrically opposite point of view, namely: what are the similarities (if any)?
• $3,623,00,000,000 – this is the increase in the M2 money supply in 2020
• $28 trillion in debt and $8 trillion in the Fed’s balance sheet
• Aluminum has exceeded $3,000 per ton
Although in these pages we almost always talk about Precious Metals, we also like to keep an eye on the biggest macroeconomic factors, which are part of our economic-financial life.
We’ve often said that during times of rapid inflation, gold has historically been the primary vehicle for preserving value for institutional investors, and with good reason.
The physical properties of the precious metal make it virtually indestructible. Unlike the dollar, gold also has a high stock-to-flow ratio (liquidity to availability) due to constant mining.
Considering all of this, it’s hard to understand how gold has remained relatively flat over the past year. Over the past 15 months, the dollar has fallen by almost 5%. Meanwhile, gold has barely moved a percentage from its June 2020 price and previous all-time highs in 2012.
Whether we talk about it or not, Bitcoin has filled people’s minds during the pandemic. And one way or another Bitcoin, or Cryptocurrencies, has seen a huge surge in interest.
And the Crypto community in particular often uses the expression “digital gold” due to the striking similarities of its properties to Physical Gold. But what is it that makes them similar in principle?
When you look at the history of civilizations, money has been used in many forms: beads, salt, livestock, etc.
The main reason all of these vehicles have failed as money channels is largely due to the ease of production. And the ease of production is akin to the devaluation of the dollar on every new dollar printed by the Federal Reserve.
As metals began to be used as a form of money, gold soon became the global monetary standard due to its fundamental properties.
• Gold takes drastically more energy and resources to mine, making new production more difficult than other materials.
• The longevity of gold’s stainlessness also assures that it won’t corrode or deteriorate over time.
• Solid money’s principles of scarcity and longevity are the foundation that made gold attractive as a store of value. It is also why many states have used it as a monetary standard for centuries.
However, in 1971, the United States officially got rid of the gold standard. Thus began the era of unsecured fiat currency. And over the past 10 years, we have seen the dematerialization of everyday things with the advent of the digital realm.
