Gold on the Move To Regaining Position as Primary Store of Value

Source: John Newell 09/16/2024

John Newell of John Newell and Associates shares his thoughts on gold’s possible return as the primary store of value, over the U.S. dollar and Bitcoin.

Gold has been a universally accepted store of value for thousands of years, serving as a reliable form of money across different civilizations.

Its intrinsic value is due to its physical properties, which are durability, divisibility, and scarcity, combined with the trust and history of gold as a medium of exchange.

Limited Supply

The supply of gold increases by approximately 2% per year, a slow and predictable rate.

This characteristic makes it a stable gauge of inflation because it limits the expansion of the $ supply.

Gold vs. Bitcoin as $

Bitcoin’s limited supply of 21 million coins is often cited as a reason for its value. However, unlike gold, Bitcoin is a relatively new asset (13 years old) and has not yet proven itself as a stable store of value over long periods.

Also, it’s a thinly traded asset, which introduces volatility and makes it difficult to consider a reliable medium of exchange.

Volatility

The chart below shows that it takes ~22.5 ounces of gold to buy one Bitcoin, illustrating how Bitcoin has been losing ground relative to gold over the past year.

This suggests Bitcoin’s speculative nature, while gold, through central bank purchases and increased demand, is showing signs of a resurgence as real $.

Bank Support

Central banks around the world have been increasing their gold reserves as a hedge against economic uncertainty and devaluation.

This trend is a strong indicator of the faith that institutions have in gold’s ability to act as a store of value, especially during times of inflation.

Why Gold Is Sound Money

Gold’s properties (scarcity, durability, fungibility, and divisibility) make it an ideal form of money.

Its annual production growth of ~ 2% makes it a fair gauge of inflation, as this limited supply restricts the creation of new money, preventing the kind of runaway inflation that fiat currencies experience

Inflation

The abandonment of the gold standard has allowed governments to print money at will, leading to the inflationary pressures we see today.

Without the discipline of a gold-backed currency, central banks can increase the money supply unchecked, diluting the value of existing currency and leading to the kind of global inflation we’re currently experiencing.

Stability

A return to the gold standard would limit the ability of governments to inflate the money supply beyond the ~2% growth rate of gold production, curbing inflation and restoring stability to the global economy.

By adhering to the rules of a gold standard, the excessive creation of money and the resulting loss of purchasing power could be avoided.

Gold’s Qualities

The chart suggests that gold is beginning to outperform Bitcoin. This could be a sign that investors and institutions are recognizing the limitations of Bitcoin and returning to gold as a form of money.

With its history, intrinsic value, and growing demand from central banks, gold may be on the path to regaining its place as the primary store of value.

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John Newell Disclaimer

As always it is important to note that investing in precious metals like silver carries risks, and market conditions can change violently with shock and awe tactics, that we have seen over the past 20 years. Before making any investment decisions, it’s advisable consult with a financial advisor if needed. Also the practice of conducting thorough research and to consider your investment goals and risk tolerance.

Source: https://www.streetwisereports.com/article/2024/09/16/gold-on-the-move-to-regaining-position-as-primary-store-of-value.html