Gold Is Dead (And Honest Investors Know It)
The $11+ trillion bubble won’t end well
The $11+ trillion bubble won’t end well
“Gold is the ultimate bubble.” — George Soros
If you want to infuriate investors over the age of sixty, just tell them that gold is a bad long-term investment in the twenty-first century.
Don’t bother to fight them on it.
I’m subscribed to about sixty different newsletters and every single day of the week — 365.25 days per year — I receive at least one email from a gold bug, always over the age of sixty, trying to convince me to buy some gold.
Their reasons are a tale as old as time:
They say it’s performed well against the U.S. dollar (a truly low bar.)
They say it’s better than stocks and bonds (it’s not.)
They say it’s a hedge against inflation (it’s not.)
And they see gold as the solution to every problem under the sun.
Fed printing trillions and ruining your purchasing power? Buy gold.
Getting ready for the real estate collapse? Buy gold.
Buying some gold today? Buy some more gold.
Boy, do they want me to buy gold. And gold certificates. And bullion ETFs. And mining companies stock. And collectible coins. And even gold-backed cryptocurrencies.
It’s almost as if they’re all paid salesmen for Shiny Metals Inc. It’s almost as if — just like their bitboy crypto ponzi buddies — they need me to buy in so the price will continue to creep ever higher.
There’s only one problem with their thesis:
My generation doesn’t buy it.
The gold standard was once useful, but as we enter the digital-first age, gold will play a smaller and smaller role in international finance until it’s as arcane an investment as seashells and beaver pelts.
A few decades from now, gold will be a collector item, not the currency of the global economy. Here are ten reasons why:
1. It’s horrible for the planet.
Like, totally disastrous. It takes 20 tons of dislodged rock and disturbed soil to get enough gold to make a single ring. We’re talking soil erosion, wrecked rivers, cyanide poisoning, airborne mercury, marine ecosystem destruction, and mass deforestation.
At the same time, investors are awakening to the need for ethical investments. Environmental, social, and governance (ESG) investing is skyrocketing, expected to hit $35 trillion in the US alone by 2025.
As the next generation gets serious about helping others and begins to radically reform the investment world, expect gold to get dumped from portfolios en masse.
2. It’s horrible for people.
The human cost is even worse than the environmental degradation. Land expropriations, forced relocations, loss of livelihoods, taxpayer cleanup costs, drinking water contaminated, Indigenous cultures destroyed, increased risks for women, and long-term worker disabilities including silicosis, tuberculosis, bronchitis, and lung cancer.
As the developing world rises from the ashes of colonialism, expect workers to go on strike and demand fair wages, safe working conditions, and more. Also expect nations to start clawing back their much-deserved portion in the form of taxation, especially if we get a long-overdue global minimum corporate tax rate. All these equality-improving reforms will drive the cost of gold production through the roof, slashing corporate profits for miners. (And that’s a very good thing.)
Between the planetary and people costs, I honestly don’t know how anyone with a working conscience can still “invest” in something so wildly unethical in the twenty-first century.
3. It costs money to store and protect it.
Gold storage is one of modernity’s truly legendary absurdities. From 90-ton steel safes to overpriced insurance policies to armored vehicles and complexes guarded by hundreds of soldiers, gold costs the world billions each year in unproductive protection instead of productive investment.
For what? To babysit 197,576 metric tonnes of shiny rock.
Call them crazy — and they definitely are — but the next generation doesn’t like physical assets. They’re digital natives who’d rather trade meme coins and NFTs and stocks on Robinhood than take possession of a physical asset and pay for its maintenance. They also want to be able to unload micro-bits of their assets quickly so they can, say, buy a latte at Starbucks, which leads us to another big problem with gold:
4. Gold isn’t easily tradeable.
I can’t remember the last time I bought a kombucha with 0.07 grams of gold dust or lugged a 19.4 pound suitcase full of bullion to pay for a house.
Sure, there are gold-backed debit cards out there, but the whole point of going off the gold standard was to cut out the inefficient middle man. (To be clear, I think it’s horrible that we now live with unbacked currency, but gold was never a truly valuable thing to back currency in the first place.)
Gold’s days as a means of trade are over — expect its role as a store of value to follow suit.
5. It has extremely limited real-world usefulness.
Sure, gold has limited utility in electronics, medical devices, and dental work, and obviously it makes pretty jewelry, but you can’t eat it, heat your shop with it, power your car with it, build your house with it.
Currently, 78% of all gold purchased is used to make jewelry. As the elites choke out the middle class and wring every cent of their earning power on basic necessities like shelter, everyday people will drop luxuries like gold. As billions of people are forced back to a more subsistence-based approach to living, can the ultra-elite really make up for gold’s decreased demand?
6. It’s not productive.
Warren Buffett said it best:
“I will say this about gold — if you took all the gold in the world, it would roughly make a cube 67 feet on a side. [Note: It’s now 71.2 feet.] Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars. For $7 trillion dollars, you could have all the farmland in the United States, you could have about seven ExxonMobils, and you could have a trillion dollars of walking-around money. And if you offered me the choice of looking at some 67-foot cube of gold all day, call me crazy, but I’ll take the farmland and the ExxonMobils.”
And he’s 100% right. We need people to invest in productive assets — ideally eco-assets from here on out — that improve the world, not park their wealth in something unproductive and hope for a price bubble.
“When we took over Berkshire, it was selling at $15 a share and gold was selling at $20 an ounce. Gold is now $1,600 and Berkshire is $120,000. Or you can take a broader example. If you buy an ounce of gold today and you hold it at hundred years, you can go to it every day and you could coo to it and fondle it and a hundred years from now, you’ll have one ounce of gold and it won’t have done anything for you in between. You buy 100 acres of farm land and it will produce for you every year. You can buy more farmland, and all kinds of things, and you still have 100 acres of farmland at the end of 100 years. A decent productive asset will kill an unproductive asset.”
7. It’s not a real investment.
Just like crypto, it’s just a speculation, a gamble.
It doesn’t use your capital to create and sell a product or service and use the profits to repeat the cycle.
It doesn’t produce real returns.
It just sits there being shiny.
The good news is that investing in real investments pays far better returns. In fact, stocks absolutely crush gold in the long run.
8. The government can confiscate it at any time.
And they do, with shocking regularity. And I’m not just talking about Germany looting $27 billion from Jews and other Europeans with the help of the Swiss.
Research the United States’ Gold Confiscation of 1933.
Or during the War of 1812.
Or during the Great Depression.
Or Japan’s Rape of Nanking in China in 1937.
Or the Australian Gold Confiscation of 1959.
Or the 1960s British Gold Ban.
Governments will take your gold the second they need it.
And they’ll have a good excuse, too:
9. Gold is a giant Ponzi scheme
A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. — Wikipedia
Gold speculators only make money when they sell their gold for more than they paid for it. This, in effect, makes gold the world’s largest and longest-running Ponzi scheme.
The price of gold only goes up when someone buys it for more than yesterday’s price. So it behooves current gold holders to continually convince new people how great an “investment” gold is.
(Bitcoiners are no better, but at least their Ponzi scheme doesn’t destroy the ecosystems in the process.)
The great challenge for gold bugs today is that they’re having a hard time convincing the next generation to go along with their sales pitch and buy all their gold at elevated prices.
It’s an especially hard case to make when you realize that gold’s inflation-adjusted high was ~$2250/oz back in… wait for it… January 1980. We clearly can’t trust the salesperson’s selling story.
10. Gold is no longer a hedge.
Gold is all about psychology and storytelling.
The long-held assumption is that when the stock market crashes, people will rush into gold. Why? Because some people have done so in the past.
But that’s no longer a sound assumption. What older gold investors seem to be missing is that our collective psychological outlook toward gold is changing.
As The Balance put it: “Unlike real estate, oil, or shares of corporations, gold has very little fundamental value upon which to base a realistic price. People believe that gold is a good hedge against inflation, but there is no fundamental reason that its value should increase when the dollar falls.”
Indeed, reality suggests gold doesn’t even keep up with inflation.
My generation just doesn’t buy the narrative that shiny = valuable. Younger people simply no longer put their trust in shiny things. Except for screens.
Goodbye, gold bugs
I’m not saying my generation is wise — we might be the dumbest generation in history — but at least we’ll go down as the first cohort to turn our backs on the great gold delusion.
Hopefully, our generation will add gold to the pile of hilarious things that people in history have used as currency, including salt, bronze knives, sea snails, and dried cod.
Because when the next crash comes — and it’s coming — gold won’t save us.
It’ll be people of goodwill, helping each other build real communities and sound economies, that will get us through. It’s that love and trust for each other that has always been far more valuable than gold.
We can only hope that the next generation of speculators will forget about gold and allocate elsewhere — ideally to real-world eco-investments that blitzscale us to 100% renewable energy, lift billions from poverty, increase real democracy, and usher in a circular economy that works for everyone and everything. That’s something gold can never do.
In the meantime, stay safe out there.