Jack Jones wrote: ↑
Sun Jun 19, 2022 5:48 am
I've been feeling worse about my paper gold lately. I really question the value of it at all. I fear that I'm largely deceiving myself by thinking my gold allocation is where it is.
If we want the risk/returns of paper assets, then stocks fit the bill. If we want SHTF insurance, an off-the-books-asset, hard money, an asset that is no one else's liability, then that's physical gold. A combination of the two is an abomination and is not needed in modern times. Paper gold is like stocks w/out the upside.
Conspiracy theory: does the existence of paper gold suppress the price of gold? It seems plausible to me. I'm sure there is some degree of fractional reserve going on somewhere in the world, and that reduces the demand for the real thing.
Back to Bitcoin: since it is a digital-native asset, you are never in a position where you have to trust that someone has the Bitcoin they say they do. Reserves can be cryptographically audited:
This would be like mathematically proving that all the gold bars are there in the vault, and they are all 100% gold. This is prohibitively expensive in the gold case.
I'm some random dude on the internet, so you know, you get the value you pay for :-) But here are some thoughts.
I have two intellectual interests history/geopolitics and investing. Accordingly, I bring my knowledge of both to the other when I look at something.
Gold: It's a metal in the commodities class of assets that has historically been used as money but no longer is. It has a history and you can derive its properties from that history but you should only do so from the time going forward when it wasn't used as money (obviously we are talking at scale here). I've never bought the SHTF rationale for physical gold. By and large in true SHTF those with power do what they want. You may be lucky and be able to exchange physical gold for a ticket out of wherever or buy something, but you just as easily could have your gold stolen from you at gunpoint/sword point whatever or worse. (Lots of gold has been gathered at concentration camps.) If this is your concern, buy farmland and guns. I way more get being a guns and ammo collector if that is your concern. On paper gold...if you think through what you wrote I think you will realize it's not accurate. First, gold ETFs are audited. Maybe that's not a compelling argument to you, but this one should be. Name me any
investment you have that isn't paper backed. ETFs, stocks, bonds, futures, options even real estate you "own"...paper, paper, paper, paper and paper. On real estate...the only reason you "own" it is because there is a paper record at the state and/or county level that states you own it. (And in today's world digital records.) USDs and every other currency on the planet all paper and/or digits. Given all of the above...there's really zero difference between paper gold and any other form of investment that involves record keeping...and they all require record keeping.
So now we come to crux of the issue...what really matters is that the paper or digits that say you "own" something accurately reflect the thing and your ownership of it...and both are in fact most dependent on lawmakers, lawyers, accountants and law enforcement officers. If this structure is good, then your ownership is good. If this structure is bad it is just as capable of taking your physical stuff from you as it is of defrauding you.
If one is actually going to be a doomer, then be a doomer and turn paper into solid physical things that are useful for you when you actually need to survive; Air, water, food, shelter, clothing...and you get bonus points for any of these that you can make with your own hands.
Crytpo: I think my views are pretty well known. Other than the associated accounting technology, it is worth nothing. Bill Gates has it exactly right...it is completely dependent on the greater fool theory.
Crypto vs. gold: Not even hard...at least gold is physical. My personal take is that because gold (and crypto) essentially provide zero return they trend strongly...and...non to minimally correlated is useful in a portfolio.
Final comment...gold has met my minimal standard for it in my portfolio. It has held its own (nominally) while stocks have tubed. Would nicely up be nice/preferred or a positive real return...you bet. I would also point out when the Ukraine/Russian war kicked off it went up just shy of 14% from the Jan start.