I REMEMBER DISCUSSING THE DEFINITION OF MONEY in my college Econ 101 class. We learned that money by definition must have at least five properties. It must be divisible—you can use it to make change. It must be portable—you can put it in your pocket. It must be acceptable—people everywhere accept is as a unit of exchange. It must be scarce—scarcity gives it value. It must be stable—it retains its value.
Our currency is fiat money. Fiat means it is paper. It is not backed by gold or silver. Paper is divisible and portable. Today people accept it. But it is not scarce or stable in value. That means, should it significantly lose value, i.e., hyperinflation, people may reject it as a medium of exchange. Post-WWI Germany is an example. The German mark fell from 4.2 per dollar to 4.2 million per dollar in a matter of months. The mark became utterly worthless. People acted rationally. They ignored the mark and bartered for food with scarce items that had real value. Cigarettes or ammunition were examples. One thing that didn’t lose value was precious metals. As is always the case, they skyrocketed in value. At the worst point, one ounce of gold would buy twenty trillion marks for the lucky few who owned one.
Gold and silver have always been scarce and valuable. For millennia they have been the most used unit of exchange. So valuable is gold that everything in the Tabernacle close to God’s presence was made of, or covered with it. Precious metals are divisible, portable, acceptable, scarce, durable, and stable. Most importantly, the government cannot print or manufacture them. That is why Inflation and gold rarely go together, and if they do, it is usually temporary. For example, the 19th century California gold rush significantly raised the supply of gold in the U.S. causing a brief period of gold inflation.
Not only does it retain its value during times of inflation, it actually gains value over time. In 1940 the average worker made $100 per month. Gold was $35 per ounce, so the average worker received dollars with three ounces of gold. Because of inflation that $100 monthly pay now equals $1350. In other words, had the value of gold only increased at the rate of inflation, it would be worth $450 per ounce (1350/3).
But the average worker now makes $6,000 per month. That is how much wealth has grown in the last seventy-five years. Amazingly, gold is not worth $450 per ounce. It is worth about $2,000 per ounce. The additional $1,550 is the capital appreciation of gold above and beyond the rate of inflation. Interestingly, the average worker still gets dollars worth three ounces of gold.
This begs the question. Should you own precious metals? Yes! Every prudent Christian investor should have precious metals in their portfolio, and preferably, should times get rough, in a location where they can easily lay their hands on it. The cause of inflation is too much money in circulation, and Washington is adding trillions to our money supply, via the federal deficit, every year. Of greatest concern, congress seems to have no interest in financial restraint. Their profligacy is the greatest threat to our economic future.
Silver is the second metal behind gold. “Junk silver” is the best way to own silver. Junk silver is a U.S. dime, quarter, half dollar, or dollar issued before 1965 when they were still 90% silver. For example, a dollar coin contains about 3/4 ounce of silver. Silver is selling at $24 per ounce today. That means the silver content in a pre-1965 silver dollar is worth about $18. Hyperinflation would cause that value to skyrocket. The best way to own gold is by purchasing it from a reputable dealer.
May the U.S. never become like Weimar German, but it would be foolish to think it could never happen. Should hard times come you will be glad you own precious metals. Precious metals alone, not paper, meet the definition of real money!