Acquiring physical gold has stood the test of time as a reliable means of preserving intergenerational wealth and a safeguarding measure commonly adopted during periods of economic volatility. Investing in gold has traditionally been regarded as a hedge against inflation and a repository of value against fluctuating currencies. As historical records indicate, as coins and currency became devalued, individuals who possessed precious metals at their disposal had greater opportunities to acquire essential goods and invest in ventures.
As proposed by renowned economist F.A. Hayek, investing in a gold currency can serve as a competitive alternative to paper currency and hinder any endeavors to enforce a currency monopoly. The imposition of strict controls on currencies can strengthen the authority of governments. Hayek elucidated that “the monopoly of currency has become a primary tool for enforcing governmental policies and has greatly contributed to the expansion of governmental power.”
Currency debasement refers to the deliberate devaluation of currency through a range of monetary and fiscal policies. Historically, debasement involved the substitution of valuable metals with less valuable ones, such as replacing gold or silver with copper or nickel, while maintaining the face value of the coin. Presently, debasement typically takes the form of monetary inflation, whereby fiat currency is created through the process of printing more money.
Governments often resort to currency debasement to expand their spending capacity and enhance their purchasing power. This, however, results in the reduction of wealth, increased expenses, and diminished purchasing power for the citizens. The process of currency debasement, including monetary inflation, tends to lead to price inflation. In other words, currency debasement in the guise of monetary inflation is akin to legalizing counterfeit practices.
Since the US began to phase out the gold standard in 1933, eventually eliminating the gold backing entirely in 1971, the value of the US dollar has significantly declined relative to the value of an ounce of gold. In 2023, the value of the US dollar is being increasingly challenged as it continues to undergo debasement. For instance, the purchasing power of a dollar in 1913 would be equivalent to approximately $30.22 today; a dollar in 1933 would be worth around $23; a dollar in 1970 would be worth $7.71; and a dollar in 2003 would be worth $1.63.
Gold is a highly valued and internationally traded commodity due to its various qualities, including aesthetic appeal, limited supply, durability, imperishability, popularity, and industrial uses. As a result of these qualities and more, gold has retained its overall value throughout history. In times when a country’s currency faces depreciation, gold is often regarded as the preferred commodity to transfer wealth between other currencies while maintaining a high level of appeal for investment. This is particularly relevant when certain countries’ currencies are not accepted in certain regions due to political conflicts or differences. InflationTool has demonstrated that from 1971 to 2023, the average inflation rate for the US dollar was 3.93%, and the cumulative inflation rate was a staggering 641.44%. This means that $100 in 1971 is now worth $741.44, which represents a significant decline in purchasing power.
Certain economists, particularly those who lean towards socialist and centralized planning ideologies, may argue that gold prices are subject to volatility. However, their views tend to mischaracterize gold by implying that its volatility makes it less stable in terms of price sustainability compared to the US dollar. In reality, the perceived volatility of gold only arises when viewed in relation to a specific currency, such as the US dollar, over a relatively short period. A broader examination of the historical and global values of gold reveals that it has consistently maintained significant value and has often served as a means for individuals to recover wealth during times of currency failure. When the global value of gold is compared to that of the dollar, it becomes clear that gold has retained its value over time.
Gold prices in the US have shown a steady upward trend over the past century, with a value of $20.67 in 1913, $32.32 in 1933, $38.90 in 1970, $417.25 in 2003, and approximately $1800 today. According to data from Statista, gold has had an annual return of 7.78 percent in USD terms from 1971 to 2022. Despite the US government’s efforts to manipulate gold prices, the overall value of gold has remained superior to the dollar, suggesting that gold remains a reliable hedge against inflation. In the long term, gold has consistently outperformed inflation in the US, indicating that it is less volatile than the dollar in the long run.
The fiat currency system in the US enables politicians to collaborate with the Treasury and Federal Reserve to generate additional dollars at will, thereby providing funding for protracted military conflicts, inflated welfare initiatives, and unrestricted foreign aid. The printing of more currency generally leads to a decline in the value of existing dollars in circulation, which, in turn, can trigger price inflation. Fiat currency also functions as a form of indirect servitude and derivative theft, similar to counterfeiting, as the impact of those dollars’ circulation can result in the erosion of the public’s purchasing power. Unless the dollar returns to a gold standard that establishes a natural, market-based valuation of the currency with a more limited supply, the dollar will likely continue to lose its value, as the enticements for government programs and subsidies exceed the apparent costs in the short term.
An increasing number of individuals are investing in gold as a sound alternative to treasury bonds, money market accounts, CDs, and stocks, even if the dollar does not return to a gold standard. As more people invest in gold, the market sees its long-term stability and gains, creating a shift in incentives and encouraging others to follow suit. While gold is not a panacea for inflation and deflation, it is a more dependable long-term option than fiat currency. Investing in gold and currencies that maintain their value challenges the government’s currency monopoly and its ability to exploit that monopoly. As Hayek noted, the government’s power over money has enabled it to disregard the need to balance its expenditure with its revenue, and the absence of competition has prevented the monopolist supplier of money from being subject to necessary discipline.
