Gold vs Fiat vs Crypto
Many believe John Maynard Keynes considered gold to be “a barbarous relic”. In actual fact he was referring to the fixed exchange rate between the British pound and gold.
During WWI the combatants abandoned the gold standard to allow inflation to pay for the war. Once the war was over countries returned to the gold standard, generally at an inflated rate. However, Britain returned to a pre-inflationary rate that made their goods uncompetitive. This was a sign of the end of empire.
Now today we have cryptocurrencies, that many consider will assign gold to the currency trash bin of history. Perhaps proving that gold is a barbarous relic after all. Not so fast…
The US under Nixon went off the gold standard in the early 1970’s to allow inflation to pay for the Vietnam War. Now for over 100 years an ounce of gold has been sufficient to buy a good quality suit. The US dollar of course buys only a small part of that suit today, compared with under the gold standard.
Cryptocurrencies look a lot similar to fiat currencies like the USD. They are not backed by anything and supply is only artificially limited. The “printing press” will no doubt apply equally to crypto as to fiat currencies.
Another issue is that there are well over 1,000 crypto’s. Most will fail and there will be nothing to fall back on. Just like the USD – but not like gold.
In my opinion gold will always retain its value as a store of value and a trading medium. Most countries believe that too. The chart below shows the top 10 gold holdings.
Data from The World Gold Council
Russia and China are actively adding to their holdings, at the same time as they move away from the USD. And some consider that the US gold holding is, perhaps, a little over stated.
Many believe that when excessive debt eventually overwhelms fiat currency, gold will skyrocket. Here’s a quote from Doug Casey of Casey Research:
“But look at the number of dollars in existence ($3.635 trillion in the M-1 money). Divide that by the 260 million ounces of gold the U.S. Government is supposed to own, and you get a gold price of $13,982/ounce.”
So, hold onto your gold, perhaps buy more. People will one day lose faith in fiat, they always have, and crypto looks an awful lot like a speculative bubble.