Before the year 1971, every country in the world believed that gold was the best form of currency. Every single paper banknote that was released into the market had a backbone with a bit of precious metals. That was the choice of the free market, and every economy believed that there was nothing that could ensure a better stock-to-flow ratio.
Even after thousands of years of mining by humans, all of the bars, coins, jewelry, and coatings would fit into a big Olympic pool. That doesn’t seem like a lot when you put it into perspective. Now it makes sense that a single ounce is worth so much. You can go to https://economictimes.indiatimes.com/markets/commodities/news/gold-gains-by-rs-82-silver-tumbles-to-rs-61907/articleshow/86165597.cms to read more.
That Olympic pool filled with yellow metal will be worth more than eight trillion dollars. This proves that it really is the rarest metal, and the time and energy needed to extract it is immense. Another crucial thing to know is that it can’t be created in a laboratory, even though the alchemists have tried to do it for centuries.
The only way that more of this precious metal can enter the economy is to mine it. And since that is the risk and initial investment required to obtain it, the reward is always higher. That’s what most economists call having skin in the game.
It’s an asymmetrical idea that balances everything out when it comes to dealing with hard money such as precious metals. Here’s a simple explanation. Going into mines and working there is dangerous. There are loads of hazards such as gasses, and the ground can crumble upon you.
However, if you succeed in getting a few pounds out at the end of the day, the reward will be immense. It’s the juxtaposition of risk and reward that creates the price. The market always values hard work compared to anything else.
Even though there have been plenty of advancements in the niche of mining, gold is still the greatest representation of the ideal of money that humanity can achieve. It’s scarce, and the upcoming supplies are limited, and they can be predicted with ease. It can’t be destroyed, and the characteristics make it a perfect monetary metal, which the world already agreed upon. So then, what happened in 1971?
Getting rid of the standard
The most destabilizing thing that can happen to a nation is war. That sucks up a lot of resources very fast. It’s a blow to the economy that no country can handle. You can click to page to find out more. Well, in the year 1914, the First World War started. It didn’t involve one nation.
It involved an entire continent. For that reason, plenty of the countries that were in distress started printing more money than their reserves. That’s never the solution, and the repercussions can either come immediately or after a few years. At that time, there were a few removals of the gold standard, which instantly destabilized currencies.
Governments couldn’t get a grip of the exchanges, and prices started to fluctuate out of control. Everyone was confused, and prices were all through the roof. At that time, planning for the future was impossible, and that was a major setback for all of society.
Even though almost the entire world was on the same page and globalization was booming, World War I reminded everyone that it wasn’t the case. Soon after 1918, people had to use two types of currencies to get through the day. Think of it as using both the dollar and the euro to buy different groceries.
After tasting the power that comes with issuing out more money than the government has, central banks started to slowly increase the number of banknotes issued every year. Their power increased year by year, all until 1971 when Nixon completely devalued the dollar.
Ever since then, we have been living in a world of fiat money, where the dollars you have can’t be redeemed for anything. The word fiat itself means decree. Trust in the government is the only thing that gives it value.
Even though all nations started using paper as a tradeable good because they believed in the yellow metal, that same belief led us to use fiat. For that reason, holding gold is the best option when it comes to safeguarding your assets from the future.
Of course, nowadays, you’re going to find tons of articles that claim that precious metals are not useful when it comes to operating as mediums of exchange. That’s not the case. Look at what the central banks are doing at the moment.
Even though they’re claiming that gold has no value, they’re trying to stockpile more than 20 percent of the world’s precious metals in their safe. They’re doing that because when the dollar gets destabilized, they can choose to sell their reserves to maintain it by using legal tenders. Having that privilege is not fair.
What can you do?
Based on the reasons stated above, it makes sense to start investing in precious metals. Institutions will always want things to go their way, and the only way to safeguard your future is to copy their behavior.
Since they’re stockpiling on gold, it makes sense to direct your IRA in that niche too. Since there are no limits when it comes to printing banknotes, it makes sense to keep a set amount of hard money on the side, just in case hyperinflation happens. That’s what gives you skin in the game.