The World Keeps Turning to Gold

The policy responses to the COVID-19 virus continue driving investors and institutions around the world to protect themselves with gold.  Riots and looting will drive more people to gold.

They are watching governmental failure.  They are seeing deficit-funded spending soar.  They are watching digital money printing at speeds unthinkable only last year.

The latest numbers from the World Gold Council show that through the first 5 months of 2020 (through May), gold ETFs have added more gold than in all twelve months of the biggest growth year ever, 2009.

Over the past 12 months, assets in global gold ETFs have nearly doubled.

We repeat here a crucial point about ETFs we made in May (If It’s Paper It’s Not Gold):

“One of real gold’s primary virtues is that it is not somebody else’s liability.  Real gold that you own is not dependent on someone else’s promises, performance or solvency.  

“Not so with paper gold or other vehicles that purport to represent or to be based on the ownership of gold at some indeterminate place, time, and form.  This applies to futures, options, ETF’s, shares, forward contracts, and IOUs of all kinds.

“If you want the protection that gold offers, you want real gold.  Not paper.  Paper is not gold.”

We also recommend you review the events that began in March when the pandemic lockdown created shortages and the inability of other dealers to make timely delivery of gold and silver to their clients.  

ETFs were at the center of the disconnect between world gold prices, index prices and the other prices of gold that you may read about in the newspaper, and the real price for physical gold and silver you can take home and put in your safe.  

The Wall Street Journal coined a new term for gold because of this decoupling:  “unobtanium.” 

Republic Monetary Exchange was unlike many dealers.  Right through the period, we were still able to make immediate delivery to all our clients, just as we continue to do every day!

But we think the episode highlights the pitfalls of trying to replicate the value of real gold with ETFs and other paper representations about gold.  

As we have written before, one of the most important reasons to own gold and silver is to avoid major risks common to stocks, bonds, banks, and other financial assets and transactions:  the risk of insolvency and default.

All these financial markets and institutions carry a risk of insolvency and default.  That goes for ETFs, too.  Institutional risks throughout the world economy appear to be growing daily.    

But gold and silver are monetary commodities in their own right.  They are not claims to something else somewhere else down the road.  The value of an ounce of gold or silver is utterly indifferent to the issuer’s total debt, or the wisdom of its political leaders.   An ounce of gold is an ounce of gold no matter whose image or national motto is engraved on it.  

Its value is not contingent on someone else’s integrity.

The growth of gold ETFs shows a fast-spreading concern with the solvency of governments and the reliability of their money.

But only real gold and real silver will perform in a crisis.

Find out more about the importance of owning gold by speaking with a Republic Monetary Exchange precious metals specialist.  They are here to answer your questions and help you achieve your personal financial objectives.