Gold vs. Stocks

When Americans were again allowed to own gold – HOLD THAT THOUGHT – isn’t it astonishing to know that you would be a felon if you owned monetary gold? When Americans were again allowed to own gold in 1974 after 41 years, most of the big stock brokerage firms were overtly hostile to gold and silver.

It wasn’t economics that made them hostile. The economic justification for owning gold was making itself clear in the stagflationary 1970s, while stocks spent the decade in sad shape indeed.

No, the institutional hostility was born of naked self-interest. Budding stock brokers learn from their first day that their job is “gathering assets.” Bring money in the door. Grow their book. What their clients invested in was of lesser interest that growing the assets in house. Investments could be moved around from stocks to bonds within the brokerage account, but once the customer’s money was in an account it tended to stay there.

But when Americans could again own gold without being deemed felons, they took possession of their gold (and silver) as they should. And that meant that assets left the firm.

There was more to it than that. Being a gold and silver dealer is a highly specialized business. It requires careful security, storage, insurance, and transportation measures that the big wire houses didn’t have.

Now, with entire nations and central banks building their gold and silver holdings, with government debt through the roof, with stocks in nosebleed territory, and interest rate rising in a way that can trigger a bond market collapse, it is hard to argue that owning gold is not an imperative for wealth preservation and profit.

We think the stock market is way overextended. There is, after all, a reason that stock market legend Warren Buffett can’t find any companies to buy. The valuations like price/earnings rations are in his view at outrageous levels. Instead, he is sitting on $400 billion of cash. He and his Berkshire Hathaway successors believe that stocks are dangerously inflated. They are waiting. Waiting for genuine long-term distress in the stock market.

But if stocks are overdue for a big correction that will destroy the average investor’s wealth, and inflation imperils the bond market, what can the stock brokerages do to keep your assets “in house”?

Many have learned that they have to offer gold-like investments, stock and stock funds, presumptive title to gold, and “paper” gold products like ETFs. We understand their dilemma, even if we don’t sympathize.

But as the world has been taught over and over again, there is no substitute for real gold that you can take, hold, and own yourself. It appears that that lesson needs to be retaught.

All the other investment vehicles depend on others, their management skill and honesty, on environmental vulnerabilities. Remember that the ownership structure of stocks is confusing. Client/investors do not hold identifiable shares in their own names. They hold claims to stocks and bonds through a chain of intermediaries.

The biggest risk of all in troubled itme is the risk of government intervention. By that we mean taxations, nationalization, forced diversification and a variety of other interventions that can dilute or diminish your wealth. These wealth-destroying prospects have played out destructively many times in the past.

Gold has no counterparty risk.That means its value does not depend on another person, company, or government keeping a promise. Gold cannot declare bankruptcy like a corporation or default like a government. It cannot be frozen like a bank account.

It is not just a digital entry in a database that can be frozen like a bank account. It cannot be mismanaged like a currency. Or, as we like to say, they cannot print more gold.

Unlike paper money or digital stocks, gold is a physical asset that is valuable all by itself. At Republic Monetary Exchange, we are major dealers in real, tangible gold and silver.

That makes all the difference.