My grandfather is very good with money. He was a blue-collar worker and he didn’t have enough money to buy a yacht or something, but my dad couldn’t remember a time when there was ever a financial need in the house that gramps didn’t have a ready solution waiting. One of the unforgettable lesson gramps taught me about finances is that every dollar in my hand is a seed. I could choose to eat my seed now or plant the seed so that I can have thousands of seeds more to do with as I please later in the future.
Gramps mentioned that saving money is the first step of planting your seeding while smart investments is the last step of planting the seed. Many people stop at the first stage because saving money is “safe” while investing money puts your money at “risk”. If you want to save your money, the general idea is to put money in a savings account but I contend that putting money in a savings account is not always the smartest way to save money.
Saving money with gold provides you with the safety of a “savings” account and the potential for investment gains without the attendant “risks” of investments. Below are 3 reasons why saving money with gold makes more sense than putting money in a savings account.
1. Gold has always been money and it will always be money
When you put money in a savings account, you are simply putting your wealth in fiat currency. Fiat currency is based on your confidence in the ability of the government to keep the economy alive so that you can retrieve your wealth at any time in the future. The problem with fiat currencies is that they are no longer backed by gold (or even silver) and they are only backed by your faith in the ability of the government.
If you decide to withdraw your money (dollars for instance) and travel down to France, you might discover that your $100 dollar bill is not worth as much as it was worth when you were in the U.S. If you happen to be the citizen of a far-flung country such as Nepal, you might be dismayed that nobody will want to collect the Nepalese Rupee from you as payment outside the borders of Nepal.
Gold on the other hand has a long history of being a globally accepted form of currency. Hence, you can be sure that you have a valuable asset that you can use in transactions or convert to money irrespective of your location in the world. The best part is that gold tends to keep and maintain its value globally irrespective of where it was mined or how old it is.
2. The value of gold can NEVER drop to zero
Putting money in a savings account is risky – yes! You read that correctly. The drop in the purchasing power of the dollar has been a consistent theme in our economic discourse and nobody seems to be doing anything to halt it. Purchasing power refers to the amount of goods and services that a unit of currency can buy. Between 1916 and 2016, the U.S. dollar has suffered more than 316.4% cumulative rate of inflation. A $1 item in 1976 will cost about $4.16 today. Data from U.S. Bureau of Labor Statistics as shown in the chart below also shows that $1 in 1913 was only worth $0.05 in 2013.
The fall in the purchasing power of a currency is not limited to the dollar alone – globalization has unwittingly ensured that all fiat currencies suffer from a drop in their purchasing power. However, the value of gold has increased at an exponentially higher rate than the value of the dollar has been falling. The value of gold has increased by a cumulative 465.3% in the last 40 years as shown below.
However, the price of gold might rise and fall in line with market dynamics in the forces of demand and supply but the inherent value of gold can never drop to zero. To start with, the production process to get just 1 ounce of gold requires hundreds of man-hours. Add the cost of exploration, production, refinement, delivery, and security and you can make a reasonable guess as to why gold will always have inherent value. The price of gold might rise and fall, but its value will remain intact inasmuch as you can’t pickup gold the same way you can pick pebbles on the roadside.
3. Gold is portable
Another reason it is smarter to save money with gold instead of putting money in a bank account is that gold is portable. It is no longer news that we are at the brink of a global apocalypse – equity markets are weak globally, oil is crashing, terrorists are bolder, Britain in threatening to leave the EU, the Middle East is volatile, and Trump might win the presidency. In these uncertain times, the ability to easily carry and move your wealth from one region to another might be important for wealth preservation.
Technically, gold investments are “off the books” in financial accounting and nobody can know much gold you have. Bank accounts however are a public matter and the government can easily track or freeze your accounts.
Putting your wealth in gold makes it easily to collect and move it from one place to another, $200,000 in gold is as portable as VHS tape whereas you’ll need a briefcase to carry $200,000 in cash. More so, I’m not sure you’ll easily carry $200,000 in cash across borders without raising flags about money laundering, counterfeiting, or drugs. Did I mention that some banks require a 72-hour notice if you want to withdraw $5,000 or more.