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‘In gold we trust’: 2019 Report

Should it be restored as the core of money?

Very few South Africans have not been affected in some way or another by mining, specifically gold mining.

Many of my generation were intimately tied to gold mining: families migrating from one site to another in the heady gold boom days of the 50s and 60s when new shafts were being sunk; new towns being formed; moving from school to school; snapshots and anecdotes being added to the scrapbook of the mind; gold mining flowing through the veins of young and old and a mining sub-culture taking shape in a large part of the population: a camaraderie forged from a nomadic lifestyle and dangerous work.

Sadly few of us really understood the metal itself. Its role as a store of value and a means of exchange – money – was a given in a controlled international monetary system. For the rest, the connection between the lustre of the metal in personal adornments and the deep shafts and tons of rock from whence they came was seldom made.

It’s a moot point whether gold mining will ever return as the dominant contributor to South Africa’s economic welfare, but the current discussions and developments in the gold market are highly significant for the country.

While the US had cut ties between the dollar and gold way back in 1933, a new era dawned in 1971 when it also ended convertibility and refused to exchange dollars for gold at the ruling official price of about $40 per ounce.

From ‘barbarous relic’ to the fiat system 

Supported by the late British economist John Maynard Keynes’s belief that the “gold standard was a barbarous relic”, money switched to a fiat system based solely on debt expansion, and gold was mostly tradeable only on the open market.

But it never truly lost its status as a store of value or a monetary asset. Gold has remained a reserve asset on the most important central bank balance sheets, and more recently we have witnessed the highest gold purchases by central banks since 1971 and an ongoing trend to repatriate gold reserves.

In the last 10 years countries such as Russia, China, India, Kazakhstan and Turkey have increased their reserves by a whopping 3 641 tons – more than a combined trebling.

Good journalism is not so much about knowing everything, but in simply asking the right questions. My last Moneyweb column,  Losing our marbles, attracted some very informed and insightful comments from readers. It made me wonder whether the media generally and even most of our orthodox economists are simply not interrogating what is happening to our world money system enough.

For example, denying market manipulation in all markets, especially commodities, is contradicted by the US charging three JP Morgan metals traders for manipulating markets over an eight-year period. Cracks continue to appear in global finance virtually weekly. The latest being the crunch in the American repo market, where bonds are traded for cash usually overnight, and which the US Federal Reserve had to top up by more than $100 billion in recent weeks.

This takes me back to June 2016 and one of my earlier articles for Moneyweb called Crypto coins and pieces of eight, in which I wrote:

“We have three potential forms of money, each with their own element of fiction.

“If you strip gold of its ancient allure, its historic backing of paper currencies and its investment and adornment image, you could certainly posit the Keynes view that it is a ‘barbarous relic’.

“If you interrogate cryptocurrencies’ mysterious and anonymous founding, creation structure and block chain security, you could equally have some qualms.

“But [neither] come near the degree of fiction that permeates fiat currencies. Debt is a fiction. It is nothing more than a promise to pay sometime in an ever-delayed future – a very empty promise considering the increasing extent to which the gap between debt creation and the means to pay is beyond redemption.”

Yet on the surface, faith in the US dollar as the leading ‘safe haven’ asset appears intact.

Trust

Much of this column, including the title itself, has been gleaned from a widely researched publication by the Lichtenstein-based asset management group Incrementum. This year’s 334-page In Gold We Trust report, while obviously strongly pro-gold, extensively covers the current monetary malaise and much more.

“In our opinion,” it says, “the currently high trust granted into the skills of central bankers and the supposed strength of the US economy are the main reasons for the somewhat weak development of the yellow metal. If the omnipotence of the central banks or the credit-driven record upswing are called into question by the markets, this will herald a fundamental change in global patterns of thinking and help gold to old honours and new heights.”

“Why Gold?” one of my readers asked. To which another replied: “It can be anything that is trusted.”

Therein lies the ultimate answer.

As the Incrementum report puts it: “Popular trust in the idea that monetary policies can sustain growth and employment and that central banks have inflation under control will be seriously tested in the next recession.

“The spread of the loss of trust to other pillars of the Western world, such as the media, the financial system and the judiciary, could have devastating consequences.”

It then reflects on this quote by Oliver Wendell Holmes:

Put not your trust in money, but put your money in trust.”

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I love the heading, “In gold we trust.” Give that man a Bells!

The enduring trust in gold is because most people are easily impressed by bright shiny things.

@Howard wrote “The enduring trust in gold is because most people are easily impressed by bright shiny things”

Really ?

Perhaps the smell permeating like poo from old stinky fiat is more attractive to you then LoL !

…….. Just imagine how broke ass u would be if u had invested yr total pension in gold 20 years ago.
-Some people need to be protected from themselves.

@Ally cat….ha !…really ???

Ok, tell that to the multitude of unfortunate Transnet pensioners…..Old Mutual…..Saambou…..Alexander Forbes….Peter Ghavalas, a former Nedcor senior executive who ran a huge pension scheme, and which spread to Sanlam as well….the Clothing Workers Pensioners…Fidentia etc…and the list goes on

All wiped out !

And for the big daddy coming around the corner – ‘prescribed assets’

Are you kidding – pension funds right now is like asking Dracula to look after a blood bank

Give us gold any day – at least it can’t evaporate like all those schemes above !

The exponential growth of the financial industry and the fact that people are forced to invest in the share market in order to save for retirement, proves that they do not trust the currency. People do not trust that the purchasing power of the currency will stay constant over time. This lack of trust in the value of money drives hardworking individuals to become speculators and “investors”. The depreciation of money benefits the government that “prints tax revenue” and the financial industry that charges fees for offering “protection against inflation”. In the meantime, it is the expansion of the money supply, through credit extension by the fractional-reserve banking system, that is the main driver of the long-term rise in the market indexes.

Some investors want to return to the gold standard because they believe this act will prevent a false expansion in the money supply. In order to prevent the normal boom-bust cycle, where we now find ourselves at the bottom of the bust cycle, it will be insufficient to only implement a return to the gold standard. In order to have control over inflation, devaluation, credit expansion and the boom-bust cycle, we will also have to abandon the fractional-reserve banking system. This combination of the gold standard and the abandoning of the fractional-reserve banking system will bring about sound money, of which the purchasing power can be trusted over time. It will also lead to stable growth and stable employment opportunities.

Those of us who depend on the monetary system for the growth of our investments and savings, have to take note of the following statements by prominent, knowledgable individuals.

“Give me control of a nation’s money supply, and I care not who makes the laws.” – Mayer Amschel Rothschild

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but at confidence in the equity of the existing distribution of wealth.” J M Keynes

“Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too.

If one wants to avoid the recurrence of periods of economic depression, one must start by preventing the emergence of artificial booms. One must prevent the governments from embarking upon a policy of cheap interest rates, deficit spending, and borrowing from the commercial banks.

This is, of course, a very difficult task. Governments are in this regard very obstinate. They long for the popularity that booming business conditions seldom fail to win for the party in power. The unavoidable crash, they think, will appear only later; then the other party will be in power and will have to account to the voters for the evils which their predecessors have sown.” Ludwig von Mises

Sensei …. You have probably been around a while and can remember the days of reasonable national debt. This is current global debt: “Global debt has reached an all-time high of $184 trillion in nominal terms, the equivalent of 225 percent of GDP in 2017. On average, the world’s debt now exceeds $86,000 in per capita terms, which is more than 2½ times the average income per capita.” Will this debt ever be settled or be contained in a reasonable framework?

The genie has long been let out of the bottle. How many funds are there just in SA today compared to 40 years ago when I began investing? Over a thousand? Too many people slicing and dicing, too many commissions, fees, “future projections”, quantum easing … etc etc

Sadly there is no other game in town and if you don’t join you really do go bust.

I agree with your statement. We read Moneyweb to gain an edge in the investment world. If we only stick to reading the normal, run-of-the-mill stuff, then we are wasting our time and money. We should realise that we can use this skewed system to our advantage, and those advantages are enormous. Those financial advantages are so great that it justifies the study of alternative economic theories like the Austrian Theory.

The aim is to understand the game that is being played, and not to try and change it. This is why these articles by Jerry Schuitema are pure gold and precious gifts.

Beachcomber: where did you get that figure for total sovereign debt? The last I saw it was around $55 trillion which is still a lot, but is only about ⅔ of global GDP.

Besides, that debt is mainly owned by pensioners and savers – what else would they be invested in? Equities are sitting at 15 times earnings. Hopefully not more malls and hotels.

@ Sensei…..thank you !

My sentiments once again [ you saved me typing out a whole long post here ! ]

But what is really really shocking, is how few people here, even supposed ‘financial experts’, can’t see whats coming

SMH

A big detraction for gold was that the ordinary man could not afford to participate and the space was open to manipulation by Big Corp & the Banksters.

But, with the advent of new technologies & online players in the market, one can now acquire gold in small increments as low as 0.1g.

Suddenly, gold is now within reach of every citizen of the world who has a mobile phone!

Here in SA you have always been able to buy gold in the form of Kruger Rands from even a tenth if I remember correctly and of course recently as New Gold ETF’s.

Hello Myracles, I’ve now found some critical reviews of KBC Karatgold Coin. Very entertaining reading (incl. the comments section)

https://behindmlm.com/companies/karatbars-international/karatbars-holds-july-4th-hype-event-karatgold-coin-dumps-62/

https://steemit.com/ico/@decayboy/karatgold-coin-kbc-do-we-need-a-multi-level-marketing-scam-on-blockchain-english

Conclusion: you can now proceed to safely invest your life-savings into KBC. You will at least end up with a stack of gold-infused plastic cards, which are over-priced.

One have to distinguish between real crypto & scams making use of crypto.

@Myricals……sorry, but in case you didnt know:

The PM market is MASSIVELY manipulated

So the gold/silver etc you buying is not the true price

I’m not going to go into a lengthy discussion why – just do your own research

But, seeing as we MW readers are a helpful bunch, you can start by googling:

“JPMorgan Traders Indicted for Manipulating Gold and Silver ”

PS…that’s just the tiny tiny tip of the proverbial iceberg

Now, put 2 + 2 together my friend

Nice insights.

Do any older commentators here still have those Kruger Rands that you bought in 1970 for $35/R35 when the Rand was one par with the Dollar? Have you checked your safe lately?

Nudge, nudge, wink, wink 😉

No…tragically all lost in a boating accident. Sorry!

Really? Eeeuuuww …

Love Gold and Silver coins, but love Bitcoin more. Interesting analysis someone should do but I think the Bitcoin market in SA is significantly larger than retail gold market. Luno exchange says on site they have 3 mil users plus $ 8 billion dollars processed. Valr the little upstart has already hit Billion rand trade volume since launch month or two ago. Then there is all the other exchanges and services like DCX10 ( Micheal Jordaan), Local Bitcoins, Easy Equities and other crypto, AND then everything peer to peer. I dont think The Scoinshop comes close. What you think?

@Officejonny….good point !

In fact, crypto market is becoming the new ‘stock market’

I have traded both, and I can assure you the crypto market will become the ‘new stock market’

Like our traditional stock markets, you have your favourite’s [blue chips as we called them ], like BTC/Litecoin/Ethereum etc ….and sure, there are your ‘sh*tcoins’, just like your Steinhoffs/EOH etc

…and then there’s everything in between

However, and here is the deal breaker – it is SO MUCH EASIER for the man in the street and the ‘unbanked’ to get into crypto trading compared to the elitist ‘Wall Str’ old boys club of past

Consider this, approx less than 0.1% of the world presently posses cryptocurrency

So, you dont have to be a rocket scientist to realise once this crypto mass adoption takes off, it will become a dominant player, and eventually eclipse most of the traditional industries as we know them

The US will never bring back the Gold Standard which is, in my opinion, a pity.
The choice between banks, bitcoin, insurance policies and the stock market as safe havens for retirement are untrustworthy, and unpredictable.
Goldman Sachs seem to be taking an inordinate interest in gold currently, so maybe they know something we don’t?
A resurgence of gold as a benchmark will definitely help South Africa, and Zimbabwe – but perhaps the Russians and Chinese have already figured this out and have a finger in this pie already….

@ Mactheknife wrote:

“The US will never bring back the Gold Standard…”

Agreed !

Why ?….well, the banksters wouldnt want to give up this money making orgy that they are enjoying up till now, do they !??

“The choice between banks, bitcoin, insurance policies and the stock market as safe havens for retirement are untrustworthy, and unpredictable.”

True

But you cant sit in the corner lamenting this either !

So, looking at the options, I would rather be holding Gold and BTC then the rest, because:

1] Gold [ physical ] is a lot harder for those banksters to fck with
2] And, BTC is EVEN harder for them to get their grubby hands on

So, I know which I’ll be holding, thanks

“Goldman Sachs seem to be taking an inordinate interest in gold currently, so maybe they know something we don’t?”

Hell yeah !…..of course they know…..we the masses DONT know…why ?…because we ignorant, thats why ! [ well, the vast majority]

By the way, did you know GS is also one of the largest holders of Silver too

Mmm….I wonder why ?????

“A resurgence of gold as a benchmark will definitely help South Africa, and Zimbabwe – but perhaps the Russians and Chinese have already figured this out and have a finger in this pie already….”

Yup…the Chinese and Russians have worked this party out ! [ and they arent the only smart money loading up on PM’s…and BTC soon too ! ]

I’m not going to even discuss Zim/SA [ we gave away our oil reserves…..based on that, our real gold reserves are probably pityful ]

Investing in gold is as pointless as investing in money. Neither generates an income in its hard form (ounces and notes). Shares and bonds and property GENERATE something. Well, nowadays thanks to QE aka bailouttheeconomy, some bonds consume interest, but a call on future (positive) cashflow generated is the only definition of defining an investment that matters. Argue all you like. Anything else is speculating. May as well take a punt on art or horses.

Imagine for a moment a pension fund that invests solely in physical gold. Sells some physical gold each year to pay the pensioners. Gold Bulls would love this as a sound strategy, right? How will it meet growing pension fund outflows? Selling the always appreciating gold? The price of gold has fluctuated by half in the last ten years!!, A billion dollar fund in 2009 with a 3% draw would be worth what today? A billion dollar pension fund in 2009 would have beaten its outflow in dividends and its capital would in an admittedly hot market, be worth $2.5b

@Johan-Buys wrote

“Investing in gold is as pointless as investing in money”…

Tks, but once again, its the same old tired bar conversation, so we need to bring the conversation home:

Firstly, please recall that the thrust of Jerry’s article is gold as a reference value point to all currencies [ and as a store of value ]

That economic fundamental should have stayed that way, and never been changed

Period

Secondly, gold is not bought for its ‘returns’….

Its a safe haven…..yes, ITS NOT PERFECT…..but in cases like Zim/Venz etc, where RAMPANT inflation makes firstly the USD [ for now ], then Gold [ and funnily enough, that much aligned but soon to be hero, BTC,]an accepted PREFERENTIAL means of exchange

Iow, lets just say if you could predict the future [ which we can based on the data around us, but my views on the impending collapse dont seem to go down very well ], and your crystal ball said that by end of 2020 the whole financial system would crash, then lets post this hypothetical question:

Which would you rather be holding –
1] Fiat,….. or….
2] Gold

??

Dont know about you, but I know which one I would prefer [ not saying Gold is a sure fire guarantee, but of the 2 here, we all know which one would be better ]

And, extending that hypothesis, because of Golds limitations, for me BTC/crypto is even better as its way more tradeable and easier to transact ! [ but not posting that here seeing as this is about Gold vs Fiat for the sake of this thread ]

“May as well take a punt on art or horses.”

Nope.

These are highly subjective [ your modern art may mean a lot to you, but nothing to your neighbour ]

Gold is not – as I see the future of money being tied to the Gold standard again, to avoid the very mess we find ourselves in today

Even possibly a BTC/Gold pairing as a wildcard ?

And lastly, your pension fund argument ??….well, might as well throw it out the window

Pension schemes as we know it are all gonna be dead in the water – prescribed assets anyone ?…

In Europe they are also under threat as govt’s run out of money and look for new coffers to loot…and in USA, its know basically as a 401k…and just like their health care, its also collapsing I’m afraid

Its a vastly new world emerging, and one that people better get ready for

Reality Bites:

I am with you on impending disaster. I am presently back to 2007 : 85% cash. I was 100% equities from 2009 till 10/10/2019. Yes I know Apple is up $9 since. I will have several small upticks to beat myself up about.

The starting point of my view is that is that gold is not a reference point to any VALUE anymore than artworks or perfectly round pebbles on a beach. Scarcity is not a an investment IMO, only future positive cashflow matters. Future capital value when you sell your darling gold is like art. If we can’t agree on that, there is not much point to a debate?

Answer simply the issue of a pension fund invested purely in gold vs one invested purely in equities. Would you rather be in a gold pension that sells some gold every year to fund withdrawals, or an equity fund that pays withdrawals from dividends while qt same time th underlying gros at 16% CAGR over ten years. That 16% is the actual stats not counting reinvested dividends btw. What was gold ounce CAGR over last ten years? And no income, ignoring cost of storage and insurance.

If I were in Venezuela and had a choice between global equities and gold, global equities would murder gold. It is a false argument to compare Venezuela currency to gold without comparing a starting point of bolivar to alternate choices such as S&P, even just an ETF. Over what period in last 25 years would you like to compare bolivar invested in gold to bolivar invested in S&P?

The last crash and the two major middle eastern wars definitively uncoupled gold as a safe haven. All three passed by without a gold boom.

For sake of interest, plot gold price in barrels of Brent oil per ounce. Energy is a global commodity and universal value. A kWh is a kWh everywhere on the planet. You have gold, I need energy. It does not get more basic than that.

@Johan_Buys ……

“I am with you on impending disaster”

Right.

So, this statement alone is the clincher

Johan, you need to understand that yes, the rest of your comments hold water

BUT..it doesnt matter !!…because…..the big problem is:

THOSE DAYS ARE OVER !!

So, precisely as I pointed out before, there is now a PARADIGM shift, and one needs to totally adjust your plan going forward [ as you yourself admit, for the IMPENDING DISASTER ]

This is what most people struggle with [ its called ‘cognitive dissonance ]

The harsh reality is, sure, we might still have a few years of inflated stock market runs etc,and the USD staying king [albeit, on its last legs, thanks to that thug cartel known as the Fed Res, and the ‘petrodollar’ too ] but it doesn’t take a rocket scientist to know that a MAJOR correction is due

And, the problem is, this impending one will make the 1929 crash look like a picnic

I cant go into detail here – all that evidence is out there if you willing to get out of your comfort zone and do some deep research [ start with just Andreas Antonopolous…Jeff Berwick……pure genius ! ]

No problem if you want to invest as you have mentioned below, but just remember, “when the tide suddenly goes out, those that are naked are soon exposed ” [ tks Warren ]

Iow, be prepared for this [ ie, not fiat….not shares…not ETF’s….etc…. ] and make sure you have your ‘Plan B’

@Jerry…what a GREAT article !! [ again ]

Well said, and your thrust here delivered with kid gloves

Taking into how ‘vrot’ the current financial system is, I would have been way more upfront

But, we understand you don’t want to ruffle the feathers too much

Thanks for Sensei & Realitybites, and some others’ insightful comments.

While we all may not (respectfully) agree with one another, as we all come from different technical or academic backgrounds, and ages / wisdom. I found the “comments” sections from many MB articles even more thought provoking than the article itself 😉 (…and NOT that the article was lacking either!)

It simply stimulates everyone’s thought processes, and in reality there the factor of “doing the greater good” from many commentators….some comments may come across as critique, but in reality it serves to help one another (to a degree, I believe).

There’s definitely a need for future articles around the crypto sphere vs the future of FIAT money (while most of it is already in “digital” form in the banking & asset management sphere.)

Some would argue “crypto is the future of banking”.
Others would ask “OK, WHICH crypto” can we accept? Can one argue that no single crypto will likley be universally accepted….and the idea is dead in the water(?)
BTC or ETH can be bumped off the stage by the latest & greatest tech development.
Others would argue the Fiat-money system serves the populace the best, even better than gold. There’s also reasons why the US and many countries went away from the gold-standard, we seem to forget…which is to boost economic growth after 30’s Depression. Not everyone’s understanding of the global monetary system is the same. Many allude to global conspiracy theories (which has its own psychology factors why certain people allude to that).

Do not confuse Equity markets (an asset class) to Fiat-currencies, etc. Crypto exchanges could be more pricey than traditional banks between countries….crypto commission vs bank fees. Who wins?

It’s even possible one does not even need to discuss the above, as simply following global military developments / study of geopolitics could be sufficient to predict the next best asset class of its time.

I realise I’m perhaps not a critical thinker, but a rational thinker…

@MichaelfromKlerksdorp…..thanks for the feedback here !

” I found the “comments” sections from many MB articles even more thought provoking than the article itself”

Totally agree !….I have learnt sometimes more from the MW comments section then the article itself ….

Reason being, its sometimes good to get average punters ‘word from the street’, as often they NOT in an ivory tower or being paid to push a certain agenda

“There’s definitely a need for future articles around the crypto sphere vs the future of FIAT money”

Oh yeah ! [ I know Sensei and myself could easily pen an article there ourselves he he ]

“It’s even possible one does not even need to discuss the above, as simply following global military developments / study of geopolitics could be sufficient to predict the next best asset class of its time.”

Oh yes…thats for sure….with the current data that I have been researching the last decade or so, everything to date that is unfolding has by and large been ticking all my boxes that I drew up

Initially, it was rather stressful when one realises how this whole system is built…but over time I moved away from feeling cornered to eventually a sense of empowerment as one starts preparing properly, with the knowledge built up over time

“I realise I’m perhaps not a critical thinker, but a rational thinker”

No worries there…at least you thinking mate !

But critical thinking requires 100% LOGIC, and to do so requires NO emotions at all…….sometimes this requires an extreme change in outlook too

Most people can’t handle this, and then suffer whats called ‘cognitive dissonance’

I should know, as I have had to endure that process myself, over many years

Not for the faint hearted, as virtually everything I was taught turned out to be a lie, or at best, false

Good luck on your journey Michael – if you stay open minded, and QUESTION EVERYTHING, you will be the better for it [ and I’m not only talking financially ]

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