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Why should we own gold? What is gold good for? What does it mean to say
"gold is wealth"? And what exactly is wealth? We have
contemplated the pure concept of money. [1][2][3] How about the pure concept
of wealth?
We all have needs. In fact, we all have the same needs in sustaining our
lives. In some things, some of the most essential needs, we are all equally
and extremely wealthy. We could even build a pyramid of these needs and their
supply relative to our demand for them. In many cases, the most needed things
are in such complete supply as to overwhelm demand. No need to hedge against
a future shortage of these things through derivatives or swaps. You see,
wealth in fact is anything that helps us in meeting our future needs. To have
more than you demand for immediate survival is to be wealthy!
Take, for example, the Higgs Boson. Assuming this particle actually exists,
it is the foundation of all things, of all life. It is something we
all need in order to survive! We would simply disappear (or not exist)
without it. It is what makes matter matter, so to speak. And again, assuming
these things really exists, then there must be plenty of them around. More
supply than we demand. Or at least, theoretically, the perfect supply
to meet demand at all points in time.
Another essential need we all have is gravity! What would you do if you ran
out of gravity? Float away? Thankfully we have a plentiful supply of gravity
that "outweighs" demand. ;)
How about sunlight? Are you wealthy in sunlight? Well, we may not all be
equally wealthy when it comes to sunlight, but there is no doubt that we all
need it to survive. And amazingly enough, supply seems to always meet demand
without the need for hedging or storing sunlight for future use.
Moving on up the pyramid we come to oxygen. Yes, there are some situations in
which it pays to store oxygen for future use. If you are planning a trip to
outer space or, perhaps, to the bottom of the ocean then it would make sense
to hedge your bets and load up on more oxygen than you think you might need.
The risk:reward ratio highly favors a surplus of oxygen in situations where
it is possible for demand to outrun supply!
Topping off the pyramid we have the needs we humans all strive to secure,
food, clothing and shelter. And in our modern world of electronics and
internal combustion we could also add energy to this list. Under the most
extreme conditions, we could probably find wood to burn in the forest for
cooking and heating. But who wants to live like Ted Kaczynski (pre-arrest)? Even Mad Max had fuel for his car!
But luckily for us, 5,000 years of trade have taught us that we don't need to
plan as meticulously for survival as an astronaut or a deep sea diver. As
Aristotle [4] explains:
We can generally blunder our way through day to
day and year to year in the comfortable fact of life that, through the open
market--through the ability to trade with others--we can generally obtain
what we materially need in one facet in exchange for some of our own wealth
in another facet. Food for clothing seems like a pretty reasonable medieval
exchange, doesn't it?
We all know the inefficiencies of barter, don't we? As civilization and trade
evolved from the dawn of man to the 20th century, Gold revealed itself to be
the single most reliable, universal agent that could be traded in various
quantities for anything anywhere on Earth. Maybe most remarkable in this is
that Gold is not itself something that is needed or consumed in satisfaction
of our basic material needs for survival. But due to it being perfectly and
uniquely suited for this universal role in trade for any other person's
available wealth as necessary to meet our own specific needs, Gold has become
such a near proxy for the real wealth we require for life that many of us
have permitted ourselves the casual inclusion of Gold into our otherwise
strict definition of wealth.
Those in the financial industry have come to call
this universal wealth asset (Gold) by the name "money," but that
unnecessarily confuses the issue. In their efforts to facilitate various
objectives in modern life, those in the financial industry endeavored to
master the alchemist's craft--to methodically create "money" from
such substances as worthless base metals or from paper. Even the village
idiot can clearly see that "the bankers and others" didn't succeed
in creating Gold. But the village idiots were never so sure that these nickel
coins and paper notes weren't in fact successfully turned into this other thing
that the experts called "money." As for me, I'm comfortable
calling these lesser creations by the name "currency," and further,
I recognize that they can and do serve a useful purpose in modern society.
With this distinction I am not so easily baffled as the village idiots into
thinking that these currencies created in the image of "real money"
can actually attain the superior wealth function of the asset they sought to
imitate--that being Gold. And you shouldn't be fooled either.
Every currency made in imitation of Gold goes hand in hand with the financial
architecture that supports it right into the trashbin of failed efforts, and
are logged into the collective wisdom of those who vow not to be fooled
again. Based on the "conception, care, and feeding" of the various
currencies and their supporting architectures, the life span--or timeline--of
predictable rise and fall milestones may vary in length from one currency to
another. They may serve a purpose while they last, but they all suffer the
same eventual demise at the hands of inflation. Remember, these currencies
are man's artificial attempt, time and time again, to imitate Gold for use in
modern commerce. They are built for speed--built to be borrowed specifically,
and spent rapidly! They are not suitable for saving. For that you must turn
to the master--the near-wealth proxy upon which all currencies must bow down
in inferior imitation.
So you see, learning how the world works is all about each man coming to the
understanding about the real wealth we all require to best ensure our survival.
Knowing that Gold is the master proxy for our life's day-to-day and
year-to-year shifting requirements for food, clothing, shelter, and energy,
it simply makes more sense to gather in Gold for later use than to gather in
clothes (that we may outgrow,) food (that may spoil,) houses which are more
than our needs, or energy (that we can't store.) You see, time bears witness
to this undeniable fact: Gold can be called wealth because it is an enduring
wealth proxy in exchange for our life's needs. Currency, on the other hand,
serves a specific modern economic purpose--to be borrowed and inflated in
placation of man's immediate desires. It is not wealth, it fails as a proxy
for the Gold it tries to imitate. Do not confuse the two.
I think we can chop off the bottom four "foundational" layers of
our pyramid now, since they are in full supply. Let's think of them as the
solid ground upon which this wealth pyramid stands.
Now that we have established a solid pyramid of life's necessities and the
need for a pure wealth concept in order to secure a future supply, let us take
another look at John Exter's inverse pyramid of paper products based on
wealth derivatives. I first introduced this concept on my blog in the post
called All Paper is STILL a short
position on gold. And by the way,
George Washington himself [5] helpfully pointed out that the image I used,
from Wikipedia, may not be the correct Exter pyramid. Perhaps Trace
Mayer's pyramid [6] is better. In any case, let's make a fresh one for our
conceptual purposes:
Next, let us place this paper derivative inverse pyramid atop the real wealth
pyramid. Let's see how it looks!
Does it look a little like an hourglass?
Now picture this. The inverse pyramid on top is actually ten (10) times
larger than the pyramid on the bottom. And it is 100 to 200 times larger than
the golden capstone!
In ancient times gold was the very best item for trading and as such, it
became the very best wealth reserve. Later, gold became currency and came to
be known as money. Today, gold is commonly believed to be only a commodity
and is traded as such.
I propose to you that we can estimate that as a mere commodity today, gold is
relegated to a trading range of between $700 and $5,000. As a currency, which
it has not been since at least 1933, it would be range-bound between $4,000
and $11,000 according to Jim Rickards. [7] And set free to fill its ancient
role as a wealth reserve, gold will rise to somewhere between $10,000 and
$100,000 in today's dollars.
Be wary of the "men's suit comparison". Just a couple hundred years
ago a wealthy man amidst 1 billion others on this planet might have had a
handful of fine men's suits, a nice house and a large plantation. Today a
wealthy man would have dozens of fine suits, a couple mansions, a large
yacht, 29 flat screen TV's, an iPhone, and a sizable paper-wealth trading
account. And that is among 6.75 billion souls on the planet. Compare wealth
with wealth, not suits with suits.
Can you imagine a gold price of AT LEAST $100,000 per ounce? How about a real
purchasing power increase, measured in today's dollar purchasing power, to
somewhere between $10,000 and $100,000? In the bell curve below we can see
that the most probable PP landing zone is between $25,000 per troy ounce and
$85,000 per troy ounce. Can you think of a better reason to invest in
physical gold coins right now? How about protection from hyperinflation?
$100,000 is the bare minimum in this case. The top is infinite! Imagine $12
trillion per troy ounce... the size of today's US national debt reduced to one
single gold coin you could buy tomorrow! Can you imagine it? It doesn't
really matter if you can't see it like I do, as long as you buy the coin. As
JFK liked to say, "a rising tide lifts all boats", not just the
ones that believe in rising tides.
You don't have to buy my story as long as you buy gold!
Sincerely,
FOFOA
FOFOA is A
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