Gold is not the end game!


We have always been crystal clear in our opinion that gold is NOT an investment product. But inarguably it has had its utility as the store of value for its limited supply and physical traits that make it indestructible.

We strongly believe that when economics fails in providing a solution to the problem of livelihood and sustainability, philosophy provides the answer. It is a natural instinct of human beings to look up to the skies for guidance when all our efforts fail. Religion has therefore been an inextricable part of human life since the beginning of civilization and has grown with the growth and expansion of global trade and commerce. We therefore feel that a view on gold is NOT relevant without a view on the socio-religious trends.

In our view, the factors like popularity and spread of technology in common man's life; rising fascist and communist tendencies due to worsening socio-economic disparities; rise in electronic transactions (personal, social and commercial) thus lower risk (less travel, less physical transactions & deliveries); emergence of new articles of luxury to serve the vanity needs of the affluent; stronger and deeper social security programs; demise of monarchy; spread of spiritualism; dissipation of church & temples, etc., all indicates towards potential decline in traditional demand and pre-eminence of gold.

Gold has served as reserve currency whenever the paper currencies have lost faith in people due to a variety of reasons, particularly high inflation and fiscal profligacy. It has also been used as such during transition periods in global strategic power equilibrium. Given the negative rates in large economies like EU & Japan; persistent deflationary pressures despite unprecedented and obscene amount of money printed by Central Bankers; poor economic growth outlook; and war like situation in global currency markets - the gold is reemerging as a favorite asset to store value.

At present the interest in gold appears to be more intuitive rather than analytical. It is being presumed that the end game of the non-conventional monetary policies currently in practice will be prolonged stagflation, complete disintegration (or euphemistically restructuring) of the present monetary systems where USD may longer be the sole reserve currency, massive debt write off resulting in near complete erosion of savers' financial wealth.

The popular commentary and trends in places like the UK and US suggest that it is generally believed that gold held in paper form may face huge value erosion just like bonds and currencies, at the same time when physical gold value soars. We  intuitively find that most of the current analysis suffers from some degree of cognitive dissonance. It is trying to dress a trading opportunity into a secular trend. We do not see any reason why gold should ever touch its 1980 high in real terms and why not go below its 1971 lows (in real terms).

In the modern context, technologically challenging things like Bitcoins along with other Cryptocurrencies, have more potential to attract peoples' fancy as compared to gold. Last year in August, we decided to move away from Gold to Bitcoin. In next week's article, we will discuss our views on why we made the change.

Do check out our quotes for investing in Bitcoin here (published last week)

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