In short, we are on the verge of a paradigm shift in international finance as gold replaces Treasuries as the world’s premier store-of-value asset.
Then, gold skyrocketed from $35 per ounce to $850 in 1980—a gain of over 2,300% or more than 24x.
I expect the percentage rise in the price of gold to be at least as significant as it was during the last paradigm shift.
by Tyler Durden
Authored by Nick Giambruno via InternationalMan.com,
In the age of fiat currency, the distinct concepts of saving and investing have become conflated and confused.
Saving is producing more than you consume and then setting it the difference aside.
Investing is allocating capital to a productive business to create more wealth. Investing has more risk—and potential reward—than saving.
Today, however, what most people think of as saving is actually investing.
That’s because most people take the excess of their production over consumption and put it into the stock or bond market.
Most people understand that it’s not optimal to simply hold fiat currency, which the central banks continuously debase. So they put their money into other assets, primarily bonds and stocks.
In other words, fiat currency and inflation have ruined saving for most people. It has forced them further down the risk curve into stocks, bonds, and other investments in a struggle to maintain their purchasing power.
However, there is no guarantee those investments will even keep up with inflation. But suppose they do. They will then be subject to a capital gains tax, even if it’s only a nominal gain, not a real one.
That means savers face the daunting task of not only keeping up with inflation but also outpacing the capital gains tax on the nominal gain just to maintain their purchasing power.
That’s made saving an impossible task for most.
Before the era of easy-to-produce fiat currency, people could simply save in money, which was either gold or a derivation of it.
There was no need for a dentist, construction worker, or taxi driver also to become a hedge fund manager to try to keep their head above water.
That’s how the fiat era monetized stocks, bonds, real estate, and other assets that wouldn’t have otherwise been.
For example, 50 years ago, the market cap of all the gold in the world was roughly equal to the market cap of all the stocks in the world. Today, the market cap of gold is about 10% of the world’s equities.
It’s an indication of how capital that used to be allocated to saving in gold became allocated to the stock market instead.
That doesn’t mean there isn’t a legitimate place for stocks, bonds, and real estate—there certainly is. It’s just that people would use them for investing—or, in the case of real estate, its utility value—and not as savings vehicles.
Bonds in general and Treasuries in particular, became the “go-to” savings vehicles to store wealth in the fiat era.
However, I think that will change soon as bonds will be incapable of storing value in the face of financial repression.
With 2022 being the worst year for Treasuries in American history, the shift away from bonds has probably already begun.
That means a lot of the capital parked in bonds will be looking for a new home that functions as a better store of value.
Gold: Make Saving Great Again
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