Gold – It’s Not Magical After All

It often seems that gold only gathers national attention when it’s either setting a new record price, or going through a freefall. In recent weeks we’ve witnessed the freefall, and the media frenzy that accompanied it.

It often seems that their are two very distinct camps when it comes to gold. The first are the “gold bugs;” they’re the people who believe that gold is the best remedy for financial troubles of all kinds. The second group are the anti-gold crowd. They’re the type who feed on (and feed into) the slightest decline in the price of gold, and they seem to be especially prevalent in the financial media.

We’ve been treated to open warfare between the two camps in the last few weeks.

The Recent Gold Price Collapse

The gold bugs had their day in the sun – actually many of them – while the price of gold was steadily rising and setting new records for nearly a decade. But in mid-April 2013 the price of gold went into a sudden and spectacular fall. For the financial media and their attack dogs, this was their moment to shine!

What’s interesting is that if you follow the various explanations of the price collapse, you come away little more than confused. Cyprus was selling its gold. The economy is suddenly picking up, and investors are getting out of gold and into stocks. Interest rates might rise putting a damper on gold prices. A shadowy central bank or other financial institution is dumping gold on the market. The derivative trade is artificially suppressing the price.

Any of those explanations might have something to do with the collapse of gold, but there’s just as likely a chance that none of them had anything to do with it.

I don’t propose to explain why the price of gold fell so convincingly. But I do think that the event serves as a lesson for us all in regard to gold.

To say – as the anti-gold crowd does – that gold is “just another commodity” is a gross overstatement. Gold has been a monetary commodity all the way back to biblical times. Clearly there is something about gold that is special. But at the same time, to believe that everything is going to go to hell in a hand basket and only those who own gold will remain standing overstates the case in the other direction.

Gold is a Religion All by Itself

Once an investment becomes entrenched and successful (at least some of the time) it develops a following. Among the true “believers,” an investment can develop a group of followers who are so fanatical in their attachment to it that it borders on religion. This has certainly happened with gold, but the same can also be said of real estate and the stock market. As human beings, we are prone to fashion false idols.

But the collapse of the price of gold – in addition to the collapse of real estate prices and two stock market crashes since the turn-of-the-century – should rightfully leave us curious of any religious type infatuation that we will have with any investment.

Gold as Part of a Balanced Strategy

I don’t mean to bash the gold crowd – as mentioned in the last section, real estate and the stock market have their own cast of religious zealots. But the recent collapse should provide a solid reason to avoid putting too much faith in gold, or any other investment for that matter.

There’s no doubt that the economy of the U.S., and the rest of the world for that matter, looks more vulnerable than it has at any time at least since the 1930s. But the one thing none of us can afford to do is to load up on a single investment, and think that that will get us through the crisis that may be before us.

Personally, I’m sympathetic with the gold crowd. Gold has the advantage of being portable, barter-able, and ultimately less subject to government manipulation than paper assets. And its 5000+ year track record simply cannot be matched by any other investment. Fair enough.

But the world and its problems are far too complicated to be solved by holding enough of a certain investment. To load up on gold carries the unspoken assumption that you know how the future will play out. That’s either fortune-telling or a form of insanity! None of us know what will happen in the future, let alone the details along the way.

The only way to have a reasonable chance of being properly prepared is through balance. You can hold some gold – but you should also have some cash, silver, certain types of stocks and U.S. Treasury securities.

And while we’re at it, it’s equally important to consider your occupation going into the future, where you live, how much money you need to survive, and the amount of debt that you have. To be truly prepared, you have to look at all sides of your economic and financial survival.

Why We’re Unlikely to Go Back to a Gold Standard

There is one area where I completely part company with the gold crowd, and that’s the belief that we’re going to be going back to some sort of gold standard in the future.

While anything is possible, when you consider the size of the world’s population, and the obligations that major governments have taken on (and that the public demands), there simply isn’t enough gold in the world to accommodate that level of public spending and worldwide economic activity.

If a gold standard is ever resumed, my guess is that it will be for only a short time. But that’s just my opinion, and I certainly have no crystal ball.

The Only Real Security We Have

Ultimately, the reliance on gold and on other investments is about creating security. But while investments can help us to weather some of the storms of life, they cannot insulate us from the world’s troubles. The only way we can achieve true security is through faith in our Savior, Jesus Christ.

Some trust in chariots and some in horses, but we trust in the name of the Lord our God. – Psalm 20:7 NIV

Prepare for a rainy day, certainly, but if the world’s financial system and economy get so bad that we’ll need lots of gold (and guns, ammunition, and canned food, or whatever), we’ll need our Savior more than any single commodity or collection of them.

What are your thoughts on gold and global instability? Leave a comment!