James Howard Kunstler: All of a sudden, after many years as a sideshow on the investment scene, gold and silver are in the center ring. What sort of structural changes in politics and economy account for this?

David McAlvany: The structural aspects are global in nature. The post-Bretton Woods dollar-centric monetary system has fallen out of favor. A gradual shift by reserve managers in the central bank community, and with our trade partners, settling invoices in currencies other than US dollars has begun. We now have domestic economic policies that further reduce the imperial stature of the dollar with the aim of building back our manufacturing base and onshoring jobs. These policies require a measured devaluation which will naturally accelerate the de-dollarization drive desired by our trade partners. As both the dollar and treasury bond markets come under pressure (treasury supply growth is already running into a demand problem), gold and silver are natural beneficiaries of capital reallocation. Reserve managers across the globe have shifted emphasis to gold as a unique asset within the financial markets which can be held off-grid and controlled locally, which is a fresh response and priority given aggressive US State and Treasury Department policies in recent years.

JHK: What is it in the nature of gold and silver that makes them distinct from other things we regard as money, say, currencies, securities, Certificates of Deposit, ETFs, et cetera?

DM: Precious metals are hard to find and costly to produce. In a sense they have intrinsic value due to their scarcity and high cost of production. As a currency, the oldest reliable form throughout history, they have been an economic stabilizer (forcing an equalization in trade balances) and due to finite above-ground supplies limit the expansion of debt. They are without peer as a reliable liquid repository of savings and wealth. Compared to securities, ETFs or CDs, precious metals alone have no counterparty risk. They are not dependent on human or systemic reliability.

JHK: We hear warnings about investing in the paper gold and silver markets. Are there any safe ways of investing in gold and silver besides holding actual coins and bars in your own possession?

DM: Yes, there are ways, but many of them introduce counterparty risk into the equation. ETFs are an example of that. They are great trading vehicles for the metals but ultimately lack many of the basic qualities physical gold and silver have, which are important distinctives in the context of economic or financial crisis. With ETFs you give up control for convenience. Our Vaulted program is a way to gain the convenience of a digital platform which facilitates the ownership of physical metals, both allocated and deliverable, better balancing aspects of control with a digital interface for convenience. Metals are stored with HSBC in London and with the Royal Canadian Mint until you request delivery.

JHK: Many are aware of the gold confiscation of 1933 when Franklin Roosevelt issued Executive Order 6102 and Americans were commanded to hand in their gold for dollars. The memory of that makes people nervous about owning the metals. In your opinion, is that likely to happen again?

DM: Desperate governments do desperate things. Confiscation can never be ruled out. However, when you look at the 1933 “Trading with the Enemy Act,” the ultimate purpose was to gain control of the money supply and allow for inflating away of debts from the 1920s. The ability to inflate away debt already exists today, with fiat currency. So, I would suggest the greater risk of confiscation is increased taxation, which some would argue is another form of confiscation. It’s worth noting that most Americans did not turn in their gold in 1933, which speaks to an admirable insubordination to authoritative overreach.

JHK: A lot of moves are being made lately at the heights of the global banking system that suggest gold and silver will be playing a larger role in the world of money going forward. Can you describe some of these moves and what they possibly mean for us?

DM: As de-dollarization accelerates globally, demand for gold as a reserve asset and as a trusted tool in trade settlement will increase. With greater concerns around fiscal viability in developed economies, asset allocators will continue seeking new diversification tools and precious metals are increasingly attractive.

Already we see many BRIC countries embracing net trade settlement in gold. When coupled with central bank reserve purchases, this is essentially a non-official re-monetization of the metal.

From the private sector we see more investors creating their own reserve framework with precious metals. When a currency or currency management team begins to lose the confidence of regular folk, the metals become an attractive “bankable” asset… Bottom line, the metals bull is well into the fourth or fifth inning, with a good bit of game left to play.

JHK: How do the qualities of gold and silver compare to Bitcoin and other digital novelties that are now out there in the arena?

DM: Although most digital currencies are limited in quantity and are therefore said to compete with gold in terms of scarcity, there is the unbound side of the crypto universe creating the next version—out of nothing. There are between 10,000 and 11,000 active crypto currencies today with multiples of that already come and gone. The most conservative estimates are that 50% of cryptos have already gone extinct. So how limited are cryptos truly?

In truth, Gold will never have the novelty factor of a “fart coin,” a “dogecoin,” or “Coinye” as in Kanye West. . . . Gold is old and depending on where you store it, may even be musty. . . . but it is the basic elemental qualities of gold and silver that make it so vital and not merely novel. Gold doesn’t need sizzle to sell it or justify its presence in a portfolio.

This blog is sponsored by McAlvany Precious Metals, helping investors learn about and own physical gold & silver as part of a proven, long-term wealth preservation strategy. To explore their market insights, educational resources, visit: mcalvany.com

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David McAlvany is the host of the McAlvany Weekly Commentary, a podcast widely recognized for its enduring success in the realms of geopolitics and finance. I am a long-time listener and have been a guest on the podcast. 

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